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Management
Shortage Hinders Startups’ Prospects 3/19/01 Los Angeles County is home to more high-tech companies and workers than Silicon Valley, or any other region in the country. But L.A. remains sorely lacking in its number of experienced managers and executives to lead those tech outfits. That’s the assessment of several local industry observers, and the conclusion of a recent report by the Los Angeles Regional Technology Alliance. The shortage of seasoned executives stems partly from the fact that Southern California’s tech community is relatively new. “It’s an historical problem,” said Victor Hwang, chief operating officer of LARTA. “We haven’t had a lot of startups here, so we don’t have a lot of people who have been through the cycle of starting up a company, succeeding and selling it or, conversely, of failing and learning from their mistakes. We simply haven’t had that churn, which is invaluable for developing managerial expertise and intuition.” The sprawling, fragmented nature of the region also presents obstacles when it comes to building and retaining solid management teams. The South Bay, for example, is strong in aerospace and defense. The Tech Corridor along the Ventura (101) Freeway in the San Fernando Valley and Ventura County has scores of companies building telecommunications equipment. And Orange County is strong in biotechnology, Internet and software firms. Though the region’s size and diversity provides a wide variety of valuable resources for startup companies, including potential funding opportunities, it also impedes the formation of tight management networks, said John Morris, president of Tech Coast Angels, a local angel investor group. “If an executive lives in Orange County, for example, it is very difficult for him to schedule breakfast meetings with executives in the San Fernando Valley. The traffic is bad and the distance is great, which really reduces the number of opportunities local executives have to interact and exchange ideas with one another on a daily basis.” These factors also make recruiting top executives problematic. “A company in the San Fernando Valley might find the perfect CEO, but if he or she lives in Irvine or Mission Viejo, it won’t be easy to attract them to the company. They might as well be recruiting from anywhere else in the country,” Hwang said. One local executive recruiter, who asked to remain anonymous, said the biggest obstacle to L.A. attracting and maintaining management talent is not the region’s size or sprawl, but local tech companies’ tendency to “keep going for the hype instead of the substance.” That drives many top executives away from the region, the recruiter said. “We’ve done this three times now. In the ’90s, a lot of management talent was drawn to CD-ROMs and early multimedia, but that went bust. Then we went to content-oriented online and Internet firms, which, for the most part, went bust. And from there, we went to business-to-consumer e-commerce, which also was mostly a bust – eToys being the shining monument of that,” he said. “So we’re 0-for-3 in terms of building real business and management models with long-term staying power. We keep drinking from the same bottle and waking up with excruciating hangovers, but we keep going back and drinking more.” Building blocks Building a community of savvy executives who are seasoned in the art of starting companies is invariably a slow and arduous process, but Hwang and other industry observers agreed that the requisite building blocks are here. Schools like Caltech, UCLA, USC, UCI and UCSB, for example, provide steady streams of talent to fill the local technical management pool. And many local companies and institutions are offering an increasing number of networking forums and opportunities, like the Caltech/MIT enterprise forum and LARTA University, which, among other things, teaches entrepreneurs how to manage their companies. Morris said local tech firms are also beginning to tap into other professional networks – like those in the entertainment and aerospace industries – in their search for seasoned executives. But Hwang cautioned that this strategy isn’t always appropriate or effective. “Most small tech companies typically require a different set of managerial skills than those needed in other, more-established industries,” he said, “such as learning how to find sources of financing, learning how to implement policies for small companies” and knowing when to take – and back off from – risks. “If you’re an established company, like most large entertainment and aerospace firms are, you tend to be risk averse,” Hwang said. “But if you are a small company, you need to know when to make calculated gambles that most tech startups require. Managers really need that honed intuition, which only experience in particular sectors can provide.” Positive prognosis Despite these challenges, Hwang and other analysts agreed that it is getting easier for local firms to recruit talented managers. That’s due in part to a declining quality of life in the Silicon Valley – soaring housing prices and traffic congestion, for example – which is pushing more experienced executives south. Attracting talent is also getting easier, according to Morris, because the local tech community is more cohesive now than it was in the late ’90s. “When we were in the middle of the frenzy, it was harder to recruit because everyone wanted to do their own thing and everything was very fragmented,” he said. “But now that that has softened, it’s much easier to put together experienced management teams.” Hwang agreed, adding that the greatest immediate challenge for local tech firms is “finding executives with the foresight and experience who realize that, despite the recent downturn in certain sectors, the broader future is still very bright.” “We’re still not what Silicon Valley is, but we’re better now than we ever have been,” he said.
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