This surprised us, especially considering the number of hot companies out there that are receiving VC funding. Unfortunately, though, funding doesn’t always equal a big payout. In fact, research says that 75% of venture-backed startups fail.[i] In any case, the recent change in mindset from equity to development is not only beneficial for employees who are more focused on leading a more fulfilling career, but for organizations that benefit from increased productivity, greater retention, and more.
Why the Shift from Equity to Development?
Prior to the DotCom bubble, everyone clamored for talent that was trained at companies like GE, Raytheon, and P&G – industry titans that understood the value of career development long before it was trendy.
As the internet grew in popularity and tech companies realized the value that came from it, job seekers chose early stage companies over the titans, negotiated for equity, and cashed out within a few years. The focus became less about career and more about cash. Emerging companies didn’t have the resources for training, and that was okay when the payout was big. The DotCom crash changed all of that; people began to think more conservatively and longer term about their careers.
Millennials have also had a big impact on the mindset shift from equity to development. Applying to colleges as a millennial became less about grades and SAT scores and more about how well rounded someone was and the impact they had on their local communities. In addition, many millennials were early in their careers during the 2008 economic recession, and we’ve all heard the stories of those who had to wait tables while their shiny new degree gathered dust. As these individuals have entered the workforce and climbed corporate ladders, they are firmly embedding the importance of being a well-rounded individual who has a lasting impact on an organization.
The Business Case for Career Development
The companies we’ve seen that have harnessed this shift to their own benefit have seen incredible results.
- Increased productivity – One Boston-based tech company struggled to find great sales representatives, so instead of trying to find the perfect fit right out of the gate, they decided to create the pipeline themselves. They developed a mold: candidates who were ambitious, savvy, connected to the company’s mission, and coachable. It worked. After one year, the results showed that someone who was trained within their development program was 25% more productive in the first year than those hired from outside the firm into that position. Imagine the impact on your bottom line if every new hire was 25% more productive in their first year. Research reinforces this company’s impressive results: The National Center on the Educational Quality of the Workforce (EQW) found a 10% increase in workforce education led to an 8.6% gain in total productivity.[ii]
- Higher profit margins – According to the Association for Talent Development (ATD), companies that offer comprehensive training programs enjoy a 24% higher profit margin than those who spend less on training.[iii] Career development and maximizing employee performance are intrinsically linked – you really can’t have one without the other. Career development conversations are fundamentally rooted in how well an employee is performing in their current role, which gives them a reason to hit lofty goals and drive up your profit margins.
- Greater retention – As the economy continues to improve and hiring becomes more competitive, we’ve seen a renewed focus on employee retention. A recent Willis Towers Watson study revealed that 70% of high-retention-risk employees (which make up one quarter of most organizations) say they have to leave their organization to advance their careers, many of whom will take critical skills with them.[iv] Another study by the Center for America Progress highlights that losing an employee can cost up to 213% of their salary for a highly trained position.[v] When you consider those numbers, you begin to understand the cost – and the value – of career development.
Betting the next few years of your career on getting rich through the equity you’ve built with a company is a gamble. Some strike it rich, but a far higher number miss out on that big paycheck when the company doesn’t reach the potential it promised.
While our conservative side says that perspective is spot on, it’s hard to ignore the little voice that asks, “What if this company is the next Instagram – you know, the company whose 13 employees and 9 investors benefited from a $1B payout?[vi]” What we’ve heard through the equity grapevine is that the vast majority of those who have been lucky enough to receive the big payout say that it’s not life-changing. Unless you’re on the executive team, you probably won’t see massive amounts of cash.
Whether you’re a company considering offering equity options or a candidate looking for your next big role, it’s better to place your bet on the promise of career development over equity.
Note: The phrase “development is the new equity” was coined by our friend, Russ Campanello, Executive Vice President, Human Resources at iRobot during a recent panel that we hosted in partnership with Marsh & McLennan on How to Build a Culture of Innovation and Accountability in the New Economy.