Editor’s Note: This column was first published in July 2022. We are now republishing it amid the widespread job cuts in tech, because Dexter’s advice then is just as relevant now.
Ask any founder about his top three challenges and you’ll probably find talent among them.
Record low unemployment, closed international borders, massive layoffs, remote workers, skyrocketing wages and a global skills shortage have led to the most complex talent crisis in modern times.
Business leaders are begging the government and education to solve the problem. But it can take years for all the help they provide to yield tangible benefits.
Many business leaders I speak to now feel helpless. But could anything change?
I am a recruiting veteran. I recruited through the dotcom crash and the GFC. I should have recruited in 2020 due to my third crash. Now all indicators point to 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 sweltering talent market.
1999-00 My phone and fax never stopped! Then the technical wreck happened. Freezing job market.
2007-08 Everyone wanted to work at an investment bank for triple their salary and got it. The GFC struck. Freezing job market.
2020-22 Has been the most exciting talent fair ever! I never thought I would see a day when people would refuse to work in an 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 inflated too much, a bubble will form. Then the bubble bursts.
Is there a tech talent bubble?
Let me take you back to March 2020. Markets fell 30%, the world closed its borders and went into lockdown as a global pandemic put us all in the red. Australia rose to 9% unemployment in one month! Businesses closed and we faced the biggest economic crisis of our lives.
The only way for most businesses to operate and survive during the lockdown was to go fully digital. Some were prepared for it, but most were not. The demand for technical talent increased enormously and at the same time the borders were closed. For a while it seemed that the demand for technical talent could be met locally.
Most tech startups had a 3 to 12 month cash runway – at one point it looked like we could lose up to 75% of the startup ecosystem.
The government stepped down to support and encourage Jobkeeper. And by July 2020, the economy was back up and running. Tech valuations skyrocketed, Afterpay hit $150 and hit the ASX 20. VC poured billions into tech startups. Series A rounds quadrupled. The tech ecosystem was full of cash.
But the demand for technical talent continued to grow.
The cashed-in tech companies smelled blood and aggressively looted talent from tech startups, offering 30-50% pay raises in some cases.
The big companies, banks and telcos also targeted startup talent and offered high salaries to make up for the lack of equity.
The only way for startups to fight back was to offer more money. Or lose experienced staff to less experienced people. The only problem is that salaries have increased across the board. Early-stage 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’ll find you can do without and soon the cost of lettuce will be back to $2
The same dynamics operate in the talent market.
If 2021 was the year of “Growth at all costs”, then 2022 is the year of “saving costs at all costs”
Since early 2022, we have seen Tesla, Paypal, Coinbase, Robinhood, Klarna and Netflix all cut jobs by 10-20%
We’ve also seen high-profile startups like Fast run out of money and close their doors, leaving 300 people out of work.
And as these jobs are cut, we’re now hearing about headcount 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 great 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 running out of capital and would close its doors, with 140 employees losing their jobs.
Tech valuations are down with some high profile Australian tech companies down 90% from 12 months ago.
This puts extraordinary pressure on any company to cut costs and cut jobs. With serious declines in value across the tech sector, it also means capital is drying up.
The sector is not as attractive to investors as it was 12 months ago.
Sure, some investors are looking for bargains, but with interest rates rising, interest in risky investments is waning.
And with a global recession on the horizon, investors are in no rush to bail out companies that may face bankruptcy within months.
Not only startups are affected by recessions. The Australian companies will take cost-cutting measures to ensure they deliver returns to shareholders.
Historically, gains have been made in times of downturn through restructuring (i.e. staff reductions) and the elimination of costly technology projects.
What a recession means for the local talent market
NAB recently announced that 100 tech positions would be moved to India. The unrealistic salaries demanded by inexperienced developers and technicians may have prompted NAB and many other Australian companies to hire offshore workers.
Commonwealth Bank employs 4,400 software developers. That’s a lot of software developers. Imagine what a 10% headcount reduction does for the local talent market?
According to the Tech Council, there are currently 860,000 Australians employed in the tech sector.
A 10% cut in the sector over the next 3 months means 86,000 people are looking for a job.
It is now a global talent market
Even if Australia avoids a recession, the US and Europe probably won’t.
Now that the borders are opening, we once again have the opportunity to hire international talent. Australia is a very attractive proposition for technical talent. The tech scene has matured considerably and the lifestyle is unbeatable.
Going back to the lettuce analogy, most of the founders weren’t willing to pay $8 per head. Instead, they sought alternative markets and built strong ties with Eastern Europe, India and Asia, where highly experienced tech talent can be hired at a 50% discount.
Early stage startups have embraced remote working and gained access to some of the world’s best tech and engineering talent from the US and UK. It’s only a matter of time before big corporates do the same.
Over the past two years, we’ve seen the emergence of platforms that make it much easier from a legal and compliance standpoint to hire and pay offshore workers. And while there were teething troubles, as companies become more accustomed to remote working, the cost benefits and the ability to access broader talent markets increasingly put pressure on the local talent market.
Every time I’ve had a downturn, the talent market has gone from scorching hot to freezing cold in a matter of months.
There is every possibility that the supply/demand relationship that has inflated the talent bubble we are in could burst very soon.
Does this mean the end of the talent shortage?
Not quite. In 2005, when he was one of Australia’s first ‘digital’ recruiters, it became very clear that the pace of technological innovation would never balance supply/demand metrics.
The reality is that being at the forefront of innovation means using the latest technology. Most educational facilities are lagging behind and back then people didn’t have access to online learning. My solution from then is the same as today, in fact it is essential and much more realistic today.
Companies MUST change the way they go about identifying and hiring talent.
When it comes to 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 to those with a strong desire to learn, do and do new skills. 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 resumes out because someone doesn’t have Kotlin, we should look at what they’ve accomplished and what they’ve built and try to leverage 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.