Why big tech companies often fail

AOL closed an awful week with market cap of $1.26 billion. In December 2005, Google had invested $1 billion for 5% of AOL, giving the company an implied valuation of $20 billion. In less than 6 years, AOL has lost about 94% of its value.

Recently I was talking to a company about their hiring philosophy. They told me that a position had been open for months, but they were in no hurry to fill it. They would hire only when they found a great person to fill the role. And if they found a great person and there wasn’t a position open, they’d make space for them somewhere.

That’s a remarkable contrast to my time at AOL. I spent about 3 1/2 years there. I survived many rounds of layoffs. I finally succumbed to one, just a day before my big social product was to launch. (AOL had a huge early lead in social, which it squandered. I’ll write about that someday.)

The game at AOL was to fill reqs, not hire great people. “Hire before the req gets taken away” was a frequent refrain. Even if the person was barely acceptable, it was better than having the role taken away. Unfortunately, it’s not uncommon in large companies to measure managers by the number of direct reports they have, not by the quality of their output. The more direct reports, the more important you are. That leads to bigger salaries, bigger offices, bigger egos.

But it doesn’t lead to great products. Hiring great, smart people does. Smart people energize other smart people. As a product guy, the most exciting thing for me is designing new product features with great people. It’s incredibly energizing.

Working with mediocre people is demotivating. If I’m the smartest guy in the room, I’m doing something wrong. (The people who worked with me on the social product were all terrific; I’d work with them again any day.)

At the time I left AOL, another person who was leaving was told by management “we need followers, not leaders”. That’s what AOL got and look what happened. That person — a true leader — has gone onto unbelievable success. He helped build one of the most talked about companies in Silicon Valley. And he doesn’t have to work again if he doesn’t want to.


About Rakesh Agrawal

Rakesh Agrawal is CEO of redesign | mobile. Previously, he launched local and mobile products for Microsoft and AOL. His personal blog is at http://blog.agrawals.org and tweets at @rakeshlobster.
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One Response to Why big tech companies often fail

  1. Jake F says:

    Very interesting first-person account, Rocky. This scenario actually feeds on itself as the rate at which the great, smart people leave accelerates, when they see the standards around them dropping, affecting their own ability to be successful. Even if the company suddenly became disciplined about hiring well, they couldn’t keep up with the pace of attrition, so standards go down even more just to keep the lights on. Microsoft is obviously another example of this. Here’s a question: Which big companies are actually good at this, hiring only talented people regardless of the perceived urgency of filling headcount?

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