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Is Boston spawning too many start-ups, and starving growth companies for talent?

Posted by Scott Kirsner  October 17, 2011 10:02 AM

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Sunday's Globe column asked the question, "Is Boston spawning too many start-ups?"
Thatís the question Iíve been wondering about lately, as I see so many people toiling at two-person companies. Maybe theyíre relying on their own savings, or maybe theyíve raised a few hundred thousand dollars from angel investors. Some of them win admittance to programs that try to help young companies gain momentum, like TechStars Boston or MassChallenge.

But a lot of them were two-person companies last year too, and the year before that. At the same time, many of Bostonís most promising companies with 100 or more employees have a tough time hiring. Could too much of Bostonís talent be stuck in start-ups that are going nowhere?

ďThe inability to recruit enough bright software developers is definitely a governor on growth,íí says Brian Halligan, chief executive of the Internet marketing firm HubSpot, which has 280 employees.

ďItís a constraint in Boston, and itís a huge constraint in Silicon Valley,íí he said. ďRight now, the alternative to working for a company like ours is to go out and start your own.íí

I wanted to share some perspectives from entrepreneurs and VCs whose thoughts didn't make it into the column. Some agree that we're seeing a start-up surplus in Boston, and some disagree vehemently that this is any kind of problem. As Carbonite CEO David Friend puts it, "What are you going to tell the next ambitious inventor or engineer? 'There are already too many startups. Forget that dream. Go back to your job at Raytheon.'"

Antonio Rodriguez, General Partner, Matrix Partners

I agree with you that [the surfeit of startups] seems to be a problem of the current boom...

I think the unfortunate consequence of all of this is going to be a whole swath of potentially really good entrepreneurs that, at best, move on to do something else after their thinly-staffed startup doesn't make it, with a hole in their resumes and at worst, burn out on the whole startup thing and go into investment banking or some equally valueless career track.

One other thought for you: this is a wildly unpopular thing to write about. When I talk to entrepreneurs, I often mention the importance of "execution context" in entrepreneurial success, arguing that it pays to go to an already humming startup for a few years to get some relevant perspective on a customer/market/etc. I think for the most part they look at me like the old guy who doesn't get that everyone can be Zuck these days.

Randy Battat, CEO, Airvana

Too many start-ups? That's a bit of a strange concept. As you know, my beef is that there are not enough anchor tech companies in Boston. But that's another topic...

My view is that it's all about supply and demand. If there is demand for engineers, there will be supply ó in the long run. In the short run, there are the classic economic short-term problems. Bubbles can form, as in 1999-2000 when too many companies got funded in *every* tech space ó routers, optical, search engines, B2B, mobile infrastructure, etc. There was too much money funding too many companies going after the same ideas, and very few were successful. But there were always plenty of engineers available to fill the openings.

The bloom has fallen off the engineering rose in the last few years. It's not obvious that engineering is the direct path to riches that it was a decade ago, so supply is certainly less than it was when demand felt infinite. But I don't think that's a bad thing. Supply and demand always end up in equilibrium, price being the great equalizer.

And price is really about opportunity and excitement. I've never agreed with those who whine that hiring good engineers is hard. If a company is working on interesting stuff and the opportunity is compelling, then good people will kill to join.

Too many start-ups? I doubt it. Too few really good ones? Always.

David Friend, CEO, Carbonite

There is a shortage of engineers, and I have been complaining about that for decades. And in Massachusetts, we're in relatively good shape, with MIT just around the corner. After Sputnik, it was suddenly cool to study science and engineering. Today it's not so cool, and many science and engineering majors go on for MBAs and look for work in the financial world. Too bad, because we need them to be designing products. You'd need to compile some statistics, but I doubt that the allure of startups is making a significant dent in the number of engineers available to work at companies like Carbonite.

I would never discourage anyone from trying a startup. What are you going to tell the next ambitious inventor or engineer? "There are already too many startups. Forget that dream. Go back to your job at Raytheon." I don't think so. And I don't think it's really all that easy to pry a couple hundred grand out of angels or funds. You still have to have a good idea and convince some smart people that you can actually deliver.

As for hiring good engineers at Carbonite, yes, it is hard to find good ones. There just aren't enough people studying science and engineering. With a strong anti-science current in society coupled with fast money in other professions, it shouldn't be a surprise. The best and brightest will often go where the money is (or was). Too many lawyers, too many investment bankers. I'll bet some of them are now wishing they had stayed in engineering.

John Prendergast, CEO, Blueleaf

I don't think that we have too many startups for the overall ecosystem, it's a self-balancing system. Resources go to the strongest and get pulled from the weakest. Those that fail often go on to become part of another startup, better for what they learned, and the ecosystem is stronger as a result.

For me, the larger issue is that real talent is always in short supply in concentrated markets like the Valley, Boston and New York. The best talent always have choices. In times with higher demand...the competition seems to actually change more noticeably for engineers of more average ability.

More broadly though, startups employ a relatively small percentage of the talent even in concentrated markets. The larger issue is that startups compete with large companies for talent, and that trade-off choice changes based on market conditions. In addition, needed skills change relatively quickly compared to people's training and it's particularly acute at startups, which typically work on the newest technology.

On your closing point, "Is it a constraint to growth that talent is spread too thin in Boston?" Attracting the right talent is a constraint for every company trying to innovate in every market. However, if you're a company in Boston or the Valley and you're limiting your talent search only to your local market, you're already behind the competition. The best companies search for talent globally.

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About Scott Kirsner

Scott Kirsner was part of the team that launched in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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