Ask any founder about their top three challenges, and talent will likely be one of them.
Record low unemployment, closed international borders, massive layoffs, remote workers, rising salaries and a global skills shortage have created the most complex talent crisis in the modern era.
Business leaders are advocating for government and education to solve the problem. But it could be years before all the help they provide yields tangible benefits.
Many business leaders I speak to feel helpless right now. But can things change?
I am a recruiting veteran. I recruited through the dotcom crash and the GFC. I should have recruited during my third crash in 2020. Now all indicators are pointing towards a global recession in 2022.
What makes me so confident? While we’re not technically in a recession, every major economic downturn I’ve seen has been preceded by a red-hot talent market.
1999-00 My phone and fax never stopped! Then the technical wreck happened. Ice cold job market.
2007-08 Everyone wanted to work at an investment bank for triple salary and got it. The GFC hit. Ice cold job market.
2020-22 Has been the hottest talent market ever! I never thought I’d live to see a day when people would refuse to work in the office two days a week. Or entry-level developers would get $150,000. Yet here we are.
Talent markets are just like any other market. The price is determined by supply and demand.
If the market is over-inflated, it creates a bubble. Then the bubble bursts.
Is there a tech talent bubble?
Let me take you to March 2020. The markets plunged 30%, the world closed its borders and went into lockdown as a global pandemic put us all on edge. Australia rose to 9% unemployment in a month! Businesses closed and we faced the worst economic crisis of our lives.
The only way for most companies to operate and survive during the lockdown was to go completely digital. Some were prepared for it, but most were not. The demand for tech talent rose enormously and at the same time the borders closed. For a while it seemed that the demand for tech talent could be met locally.
Most tech startups had 3 to 12 months of cash runway — at one point, it looked like we could lose up to 75% of the startup ecosystem.
The government has stepped up to support and encourage Jobkeeper. And in July 2020, the economy was back on track. Tech valuations skyrocketed, Afterpay hit $150 and made the ASX 20. VC poured billions into tech startups. Serie A rounds quadrupled. The tech ecosystem was full of money.
But the demand for technical talent was increasing.
The cashed-in tech companies smelled blood and aggressively looted talent from tech startups, offering 30-50% pay increases in some cases.
The big corporations, banks and telcos also targeted talent from startups and offered high salaries to offset no equity.
The only way for startups to fight back was to offer more money. Or lose experienced staff for less experienced people. The only problem is that salaries have increased across the board. Entry-level developers now earn more than startup founders and leaders.
The shortage of technical talent has created the biggest talent bubble in my career.
The fastest way to solve a talent shortage
Don’t want to pay $8 for lettuce? Stop eating lettuce.
Pretty soon you will find that you can do without and soon the cost of lettuce is back to $2
The same dynamic works in the talent market.
If 2021 was the year of “Growth at all costs”, thenhen 2022 is the year of “Cost at all costs”
Since the beginning of 2022, we have seen Tesla, Paypal, Coinbase, Robinhood, Klarna and Netflix all cut jobs from 10-20%
We’ve also seen high-profile startups like Fast run out of funding and shut their doors, leaving 300 people out of work.
And as these jobs fall, we’re now hearing about employee freezes at Meta, Uber, Lyft, and Twitter, with more to come.
In the US, talk of the great resignation is being replaced by talk of a major recession.
Australia often lags behind the US, usually by six months. In the past two months, I started hearing about layoffs at Envato, Brighte, Banxa, HealthMatch, Una, Booktopia, Bizpay, and other tech startups.
Last week, Volt Bank announced it was out of capital and would close its doors, with 140 employees losing their jobs.
Technical valuations have fallen and some leading Australian tech companies are down 90% from 12 months ago.
This puts extraordinary pressure on any company to cut costs and cut jobs. With severe valuation falls across the tech sector, this also means capital is drying up.
The sector is not as attractive to investors as it was 12 months ago.
Sure, there are investors looking for bargains, but with rising interest rates, interest in risky assets is waning.
And with a global recession looming, investors are in no rush to bail out companies that could go bankrupt in a few months.
Not only startups are affected by recessions. Australian companies will take cost-cutting measures to ensure they deliver shareholder returns.
Historically, gains have been made in downturns through restructuring (ie reducing workforces) and shutting down expensive technology projects.
What a recession means for the local talent market
NAB recently announced that 100 technical positions would be moved to India. The unrealistic salaries demanded by inexperienced developers and engineers may have prompted NAB and many other Australian companies to hire offshore workers.
Commonwealth Bank employs 4400 software developers. That’s a lot of software developers. Imagine what a 10% workforce reduction does for the local talent market?
According to the Tech Council, there are currently 860,000 Australians working in the tech sector.
A 10% cut in the industry over the next 3 months means 86,000 people are looking for a job.
It’s now a global talent market
Even if Australia avoids a recession, it’s likely the US and Europe won’t.
Now that the borders have opened, we have the opportunity to hire international talent again. Australia is a very attractive proposition for tech talent. The tech scene has matured considerably and the lifestyle is unbeatable.
Coming back to the lettuce analogy, most founders were unwilling to pay $8 a head. Instead, they sought alternative markets and have built strong ties to Eastern Europe, India and Asia, where highly experienced technical talent can be hired at a 50% discount.
Early stage start-ups have embraced remote working and gained access to some of the world’s best tech and tech talent from the US and UK. It’s only a matter of time before big companies do the same.
Over the past two years we have seen the emergence of platforms that make it much easier from a legal and compliance perspective to hire and pay offshore workers. And while there have been teething problems, the cost benefits and the ability to access broader talent markets are putting increasing pressure on the local talent market as companies become more accustomed to working remotely.
Every time I’ve experienced a downturn, the talent market has gone from red hot to freezing cold in a matter of months.
There’s a good chance that the supply/demand balance that has inflated the talent bubble we’re in could burst very soon.
Does this mean an end to the talent shortage?
Not quite. In 2005, as one of Australia’s first ‘digital’ recruiters, it became very clear that the pace of technological innovation would never allow supply and demand metrics to balance.
The reality is that being at the forefront of innovation means using the latest technology, most educational facilities are lagging behind and people didn’t have access to online learning back then. My solution then is the same as today, in fact today it is essential and much more realistic.
Companies MUST change the way they identify and hire talent.
When hiring tech startups, our emphasis should shift from hiring people based on programming languages to hiring people based on their propensity to learn new programming languages.
With online learning readily available, people with a strong desire to learn new skills can and do. Successful technology companies are the ones that consistently identify these traits when hiring.
One of the biggest benefits of closed borders over the past two years is that Australia has developed a domestic workforce capable of launching and scaling tech startups.
We need to leverage that IP and pass it on to the next wave of talent. Instead of throwing away resumes because someone doesn’t have Kotlin, we should look at what they’ve accomplished and what they’ve built and try to capitalize on that experience.
But if we continue with the hiring practices that got us here, we’ll just see another talent bubble once the next recovery kicks in.
- 1 Is there a tech talent bubble?
- 2 The fastest way to solve a talent shortage
- 3 What a recession means for the local talent market
- 4 It’s now a global talent market
- 5 Does this mean an end to the talent shortage?