Corporate America, Swing Your Ax Wisely

Big companies could lose valuable employees to rival startups if they abandon their traditional lure: job security

By Sarah Lacy

In December, IAC Interactive (IACI) CEO Barry Diller said the unthinkable—at least for a corporate executive amid a recession. "The idea of a company that's earning money…to have cutbacks just so they can earn another $12 million or $20 million or $40 million in a year when no one's counting is really a horrible act when you think about it on every level," Diller told the crowd at the Reuters Media Summit. In other words, if you're making money, you shouldn't be laying off huge numbers of employees to please an investor base that's unlikely to be appeased in any case.

From a CEO, it's a pretty striking comment in a world where even Google-style growth can disappoint. Business is business. The markets are tanking. And if jobs need to go in the name of shareholder value, so be it.

As unpopular as his view may be, Diller has a point. Wielding a more discerning scalpel might be a business advantage long-term. For talented employees, the prospect of job security is one of the best reasons to join a big, publicly traded company. Take that incentive away, and you give smart, energetic people one more reason to join a startup or branch out on their own.

Going Solo

Already in Silicon Valley much of the risk associated with working for a startup compared with a listed behemoth has dissipated. For one thing, there's so much VC money sloshing around that most companies can afford to pay engineers every bit as much as Google (GOOG) or Yahoo! (YHOO). Then, of course, there are the thousands of jobs being eliminated from the publicly traded companies, including Hewlett-Packard (HPQ), Yahoo, and even Google. So if I can get the same money, comparable security, and the prospect of stock options from a startup, where do I sign up?

And it's not just in Northern California that employees are leaving "secure" jobs to branch out on their own. In the course of promoting my book I visited 15 cities around the country and was struck by how many people are quitting jobs and going to work for themselves. No, most of these people aren't looking to start the next great Web company. They're starting their own one-person Web design, graphic design, consulting, or market research firms. They're not backed by venture capital; they're backed by revenue from steady contract jobs.

Sure, as the economy worsens, even contract work is getting harder to come by. But these lean, mean entrepreneurial contractors have a better-than-fighting chance at what's left.