Startup Lessons: Human Capital Efficiency

As a fast-rising young twenty-something in the then-new era of personal computing, I occasionally bemoaned the old codgers who just didn’t get it.

Payback is a bitch.

Now, gaining velocity on the back slope of middle age, I felt an awkward twinge when I read Jack Ma’s reasoning for stepping aside from the CEO role at China’s Alibaba Group.  At 48, he says, he is “no longer young enough to run such a fast-growing business,” according to a report reprinted in the San Jose Mercury News.

“We believe that they understand the future better than us, and then have a better chance of seizing the future,” Ma says of his younger colleagues.

He may be right.  Today’s Internet Natives have an entirely different box to think outside of.  They aren’t constrained by how things used to be back in the days of 5 1/4 inch floppies. They cannot impersonate the multi-tone squeal of a dial up modem.  They don’t know that “pen computing” was all the rage in the early 90, or that there was, in fact, life before a Web browser.

In short, they may, in fact, be exactly the right entrepreneurs for our current times.

Still, Ma’s comments mix with the echo’s of Brian Wong’s post of a couple weeks ago in which he lamented, at age 21, the passing of his prime and schooled his readers on the importance of thinking young.  And then there’s Peter  Thiel, who has encouraged a group of kids to drop out of college and start businesses instead.  Why get a college degree when youthful enthusiasm can be your guide?

It’s not entirely a specious argument. Experience tends to identify obstacles and limitations that to a younger person, absent prior encounters with the impossible, seem more like minor inconveniences to be conquered.  You’ve heard the refrain, “I didn’t know it wasn’t possible, so I did it.”

That ambition is a wonderful asset.  But ambition alone doesn’t build a company.  Experience does matter when it brings relationships and know-how to the table.  Experience matters when it brings speed and efficiency to the business.   And that is where Silicon Valley’s wholesale love affair with youth can be bad for startups.

In a business environment that praises capital efficiency, it is ironic that we don’t have the same appreciation for human capital efficiency.  Just as capital efficiency is not about spending less, so much as spending in a very highly leveraged way, human capital efficiency is about using the most capable human resource to get the job done quickly and effectively.

No doubt a smart college kids can learn that which is already in the head of a 30- or 40-something entrepreneur.  Yet that on-the-job training takes precious time and comes with sometimes significant mistakes that fast-building businesses can’t afford.  There is a reason that medical students practice on cadavers first and intern under the tutelage of experienced doctors.  There’s a reason doctors, not med students, run the hospitals.

While the rigorous training of future physicians may not be the best metaphor, the startup is, in many ways, a living organism that needs experienced care. Forget for a moment that gray-at-the-temple investors, with their attention spread among a dozen portfolio companies, might be the wise mentor to guide the young entrepreneur.  Dismiss the notion that a young entrepreneur  eager to prove himself and free from the obligations of a well-developed life, might indenture himself to a startup for the financial gain of its investors.

Ageism hurts the startup business for two reasons: it sidelines experienced talent and relationships that can dramatically accelerate a business and, perhaps more importantly, it narrows to tunnel vision the diversity of perspectives that make for better decision making in an organization.

Young engineers and marketers tend to hire other young engineers and marketers. One of the sharpest and most experienced digital media executives I know calls this tendency the “hillbilly hire.”  “They bring in more people who are just like them until they all start looking alike.”

That uniformity of perspective is rarely good for business.  An exhaustive look by Illuminate Ventures at gender in startups showed that balanced teams outperformed those tilted toward either male or female leadership:

Organizations that are the most inclusive of women in top management achieve 35% higher ROE and 34% better total return to shareholders versus their peers – and research shows gender diversity to be particularly valuable where innovation is key.  (The full report is available here.)

If gender diversity is good for business, why would it not also follow that age and experience diversity is beneficial to startups?

There is no doubt that youthful zeal can propel an idea into a business, and perhaps even into businesses that would never occur to an old grump like me.  Still, the habit at some of the Valley’s “hottest” companies to favor youth over experience may, in the end, be their undoing.  Remember, in the early days of Google, a couple of Stanford grad students floundered around a search bar until they hired Eric Schmidt to provide, as they called it then, “adult supervision.”

Perhaps, if your business is stumbling along, you might consider some gray head hunting to bring efficiency to your otherwise brilliant startup.

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One thought on “Startup Lessons: Human Capital Efficiency

  1. […] about ageism in Silicon Valley is heating up, evidenced by the feedback I received on my post last week about Human Capital Efficiency.  The argument pits youth against experience, and at the […]

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