According to recent reports, nearly 32,000 tech industry workers were laid off last year, mostly from big companies like Tesla, Coinbase, TikTok, Twitter and others.
Is this bad news for the US tech sector? Probably not. It’s likely to be good news for both new hires and the real drivers of innovation in America – small and medium-sized businesses (SMBs).
As the outbreak begins to slow, so do layoffs and hiring. Some analysts have described this event as a new “dot-com bust” and a sign of declining innovation in the United States.
But most big tech companies, even the most successful ones, stop making major innovations long before they reach full scale. As their initial discoveries turn into a profitable business, they focus more resources on the mechanics of growing the business, managing employees, and improving their existing products. They often won’t admit it, but they need more managers and fewer creators.
Similarly, the skills gap in the United States seems to affect almost every business sector, especially in tech-savvy workers. While big tech companies don’t need many young innovators, America’s small and medium-sized businesses are in desperate need of these skills.
See: The Covid-19 Gender Gap: Why Women Quit and How to Get Back to Work (Free PDF) (TechRepublic)
A great opportunity
As a result, layoffs at large tech companies create great opportunities for smaller companies to add technology talent that is typically hard to find. But to take advantage of this opportunity, they need to act quickly and take the right approach.
First, SMBs should actively seek out employees who have been laid off from large technology companies. Although some recruiters see laid-off workers as high-risk candidates, the risk-reward ratio for workers poached from large tech companies is more positive. A large percentage of people in this group have world-class training and skills that SMBs need.
Second, organizations need to find the right candidates within this group. They need to look for employees who are intelligent, risk-tolerant, willing to work for equity in addition to cash, and think creatively even when it challenges conventional wisdom. These are workers who were attracted to big tech companies in the first place, but who were not suited to the long journey of a big company into an institutional business.
Third, smaller companies can and should hire these candidates for the right roles. The employee should be able to make an impact on the company and be offered positions where they can grow as the company grows. These employees should be allowed to share in the company’s success—at least a small amount of stock options or other equity should be part of each employee’s compensation package. They should reward good performance and provide a clear path to more responsibility as long as good performance continues.
Benefits for employees
Paradoxically, in most cases a major technological breakthrough is also good news for workers. Many young workers join large tech companies to be part of a startup culture where they can make an impact on new work. It wasn’t their goal to be a cog in a machine at a big company, and finding a meaningful role at a smaller company, even if it’s not a new company, is often a much better match for their career aspirations. Often, the world-class skills learned in large technology companies allow them to make a valuable contribution to their new company from the start.
The technology professionals who are part of these layoffs stand on one of two paths: back to another large technology company in a similar role, or to a smaller company with a career focused on long-term success. A creative small business with the right approach can often convince them to take the latter route.
See: Hiring Kit: Data Scientist (TechRepublic Premium)
Financial incentives
Of course, he needs money to hire people, even when there is a great opportunity that makes long-term sense for the company. However, this is the key when a company hires former employees of large tech firms. In most cases, the government helps the company hire them.
The government provides incentives to encourage innovation, and innovation is almost always part of the job description when companies hire former employees of tech companies. As a result, many companies qualify for these government incentives for compensation and expenses related to these employees. For example, the federal tax code’s research and development tax credit (the R&D credit) can often provide substantial capital to companies as they open new positions, expand operations, and create new locations.
The R&D credit is often overlooked by small companies, but it was created by Congress in the early 1980s to encourage innovation in both large and small companies. It rewards companies by providing reimbursement credits for innovation-related expenses, including compensation for employees who strive to find new ways to improve products or processes.
Even non-innovation-related incentives like the Employee Retention Credit and other recent Covid-related incentives can be used by SMBs to hire workers in roles that involve innovation.
A win-win situation
Why should the government or any of us care enough about giving incentives to companies? The answer is that innovation is key to America’s prosperity, and true innovation always comes from SMBs.
We hear a lot about the Googles and Facebooks of the world, there are many innovations happening at these companies every day, but the big companies are famous because they came up with one real innovation many years ago when they were SMBs. And a disruptive big idea and built it into a successful business.
The next big idea comes from an SMB that wants to disrupt them. That’s why Congress created incentives and why SMBs should benefit.
We don’t often see a win-win situation when employees are laid off. But cuts by big tech companies can be a boon to us all if small businesses know how to take advantage of them.
Rick White is a strategic advisory board member at Alliant Group, a consulting and management engineering firm in Houston. He previously served as a Seattle-area U.S. Congressman and CEO of TechNet, and currently advises startup companies on financing and other strategic issues.
