Prestige of Engineers

sakky
Mon, 21 Jan 2008 08:51:45 +0000

You are starting to answer some of your own questions here. Engineering firms are treated as commodities because most of them produce commodities. As you point out, it does not take top talent to accomplish most of what engineering firms do. Take some reasonably smart students with a mathematical bent, put them through five or six years of an average engineering school and you will get competent engineers who can quietly go about the task of producing reliable, useful, safe, consistent and repeatable products and services for the masses. Sounds like a commodity to me. It would indeed be mismanagement to pay more than the going rate for that kind of work.



Certainly I do not disagree that what much of what the engineering produces are commodities. But what about all of those engineering products that are not commodities? Numerous engineering products, i.e. Microsoft Windows or the Apple IPod, are extraordinarily profitable. Apple charges about double for the Ipod what a competing Mp3 player of comparable specs costs, and Apple can clearly get away with it, as evidenced by their 75%+ market share. Hence, engineering products do not always have to be commodities. Probably sold and marketed, they can be premium, ‘luxury’ products.

And besides, I would argue that much of management consulting work is basically a commodity. Much management consulting advice is little more than what you could get out of a basic MBA program. In fact, many management consultants at even the best firms like McKinsey are in fact just guys with MBA’s but who have never actually worked in the industry for which they are now consulting. For example, one of my old friends just got his MBA, joined a top management consulting firm, and is now consulting for the auto industry despite never actually having worked in the auto industry ever. Yet he’s now telling auto executives and engineers with decades of experience what they should be doing. I believe it comes down to good marketing: that those auto execs believe that my friend knows what he is talking about (even though he confided in me that he really doesn’t) and is therefore worth the high fees that the consulting firm is charging (even though my friend believes they are being vastly overcharged).

But of course we have seen time and time again how businesses can charge high prices for what are ostensibly commodity goods. Remember the Pet Rock? $3.95 for a rock? {Sure, it was a short-lived fad, but the inventor of the concept, Gary Dahl, became a millionaire from the idea).

I would also harken back to what I said before: that at any engineering firm, some engineers are simply more productive than others. You’ve seen it, I’ve seen it, I think we’ve all seen it. Some engineers produce a lot of work, and others produce very little. Hence, that seems to be an opportunity to rationalize your costs. Just get rid of some of your low performers (or pay them less) and shift some of those savings to the high performers by hiring more of them and/or paying them better. For example, instead of just having 1 high performer and 9 mediocre engineers, why not have 2 high performers and 2 mediocre engineers? You can manipulate the ratios as you wish, but the point is, productivity would be the comparable, overall costs would be the same, and the high performers could be paid better. The low performers would have fewer jobs, but so what? They’re low performers, so they don’t really deserve to have a job anyway. As things stand right now, the system is basically Communist in nature, in that the pay is not linked to performance and you have engineers producing mediocre work yet getting jobs anyway.

Thirdly, I would point out that the ‘going rate’ is a fungible quantity also. Like I asked before, why do firms insist on operating in expensive parts of the country? For example, why do Silicon Valley tech firms stay there? SV is one of the most expensive places in the country. Engineers are expensive, land is expensive, taxes are high, basically everything is pricey. Why doesn’t Cisco, Yahoo, Ebay, Adobe, Oracle, and all these other companies just relocate to, say, rural Mississippi? Things would be far cheaper there. {Similarly why do all the investment banks insist on staying in Manhattan, one of the most expensive slices of real estate in the world, and not just also relocate to Mississippi?} I think that shows that the going rate is something that you choose. It is an endogenous strategy decision. Cisco believes, rightly or wrongly, that there are great benefits to be had in being in the middle of SV despite the costs.



I realize that you are talking about a different part of the industry - the startups that hit the jackpot and the big name consulting operations, but those guys would not be around if it were not for the infrastructure and the commodity type of goods and services that their industries rely upon.



Nobody is denying that somebody has to do the commodity work. But the question is, should that ‘somebody’ be the guys from the top schools? Basic economics dictate that an economy is most productive when people are working at the tasks for which they are the most productive. 99% of Americans don’t grow their own food and have no idea how to do so. It is far more efficient for highly specialized farmers to grow food for everybody so that others can get on with working on the tasks that they know how to do.



Startups, even the ones that are run by very smart people with excellent ideas, fail much more often than they succeed. The ones that pay their employees with stock options and promises can hire as many people as they can convince to share their vision of the future. The ones that raise enough cash to offer decent salaries for a while are generally spending someone else’s money. Either way, they are mostly living on borrowed time and can’t last long without a big score. Every now and then, the stars align and a good concept comes together with its target market, a decent business plan and enough initial funding to get it off the ground. If they happen to get the right management team to handle the transition from small to medium sized business and then from medium to large, and if the partners and investors can agree on a common direction rather than going the easy route of cashing in and selling out to a competitor, then you may just get one of the kind of companies that you have been talking about.



Keep in mind that I’m talking about the issue from the perspective of the engineer. The engineer cares about his own career, nothing more, nothing less. So if he joins a startup that gets acquired, he gets rich. Sure, not as rich as if the startup went IPO. But still, he gets rich. He ends up with millions instead of tens of millions or hundreds of millions. But so what? That’s still rich. That’s a lot better of a deal than what a large engineering firm can offer.

Take my former roommate. His startup just got acquired by Google. His complete payout (after 2-year vesting) will be something around a million. Sure, if he were to instead have made it to IPO, he would be far richer. But I don’t think he’s complaining.

Now there is no doubt that most startups will fail. But so what? Your startup fails, then you just join another one, or create your own. Ford Motor Company was actually the third company that Henry Ford founded, the first two (also called “Ford Motor Company” having failed). Bill Gates & Paul Allen’s first company wasn’t Microsoft, it was a company called Traf-o-Data. Gates has said that the real value of the company was not the money they made (for the company was not highly successful) but rather the experience that he gained from running his own business; experience that would prove to be extraordinarily handy during the early days of Microsoft. Gates would probably argue that his time at Traf-o-Data was more valuable than the career training/development programs at most engineering firms.

And even if your startup does fail and you end up having to join a big company, again so what? To quote Paul Graham:

*Even if your startup does tank, you won’t harm your prospects with employers. To make sure I asked some friends who work for big companies. I asked managers at Yahoo, Google, Amazon, Cisco and Microsoft how they’d feel about two candidates, both 24, with equal ability, one who’d tried to start a startup that tanked, and another who’d spent the two years since college working as a developer at a big company. Every one responded that they’d prefer the guy who’d tried to start his own company. Zod Nazem, who’s in charge of engineering at Yahoo, said:

I actually put more value on the guy with the failed startup. And you can quote me!


So there you have it. Want to get hired by Yahoo? Start your own company.*

[Hiring is Obsolete](Hiring is Obsolete)

Now, I realize that Graham was just talking about starting your own company rather than just joining a startup. But the principle is the same. Startups offer excellent career development opportunities because everybody has to do everything. So you have no choice but to learn the whole business. They offer you chances for great responsibility quickly. They offer you the chance to become very rich very quickly. The chance is admittedly small, but it is there. And the experience is highly regarded by many leading tech firms. I think it is therefore not surprising to find many MIT/Stanford engineers preferring this route.



Even then, the inertia that you correctly identified usually takes over and a company can fade from industry leader to producer of commodities to irrelevance to non-existence in short order. You’ve mentioned the decline of Microsoft and Motorola Semiconductor as examples. It would be easy to add dozens more like Bell Labs, Chrysler, IBM, US Steel, and on and on. So when you tell me how Google is doing everything right today, I wonder how long they can stay at the top of their game. Sooner or later their growth will be slowed by some sort of limit on the income side of the ledger and then they will have to start thinking about working the expense side to keep their investors happy. At that point, you can bet that the company-sponsored five star meals and free dry cleaning will be things of the past, at least for most of their employees.



At which point the best employees are probably well advised to join other firms that are on the growth path. For example, right now, Google’s biggest competitor for talent are not any of the big companies. They rarely lose any potential hirees to Microsoft, Yahoo, Oracle or even to McKinsey. Google’s biggest competitors are startups. Every year, a significant percentage of Google engineers leave Google to join a startup. Recently one of the most vigorous competitors of Google for talent has been Facebook.

Nevertheless, I am not as pessimistic as you seem to be. Inertia does take over, but it can be fought. Microsoft has indeed declined but it is still one of the most desirable employers in the world, in fact, arguably being the most desirable tech employer compared to others of its size. Cisco, Texas Instruments, Qualcomm - these are all rather large tech firms that also score highly in terms of employer desirability. Now, are they are as good as they were back when they were startups? No, of course not. But they’re still pretty good relatively speaking. So instead of getting an A+, they’re now getting A-'s. That’s still pretty good. You could do far far worse than being an engineer at Microsoft. There are plenty of other companies that truly treat their engineers like garbage.



AT&T was dismantled by the government in 1984. Soon thereafter, Bell Labs was a shadow of its former self, offering salary and benefits comparable to most everyone else in the industry. Come back and tell me about Google when they have been at the top of the heap for a couple of decades.



Again, I don’t doubt that Google will be subject to the forces of inertia and will probably lose most of its cushy benefits. But if it just regresses to the level of Microsoft, that’s still pretty good. Like I said, Microsoft isn’t as good as it was in the old days, but relatively speaking, it’s still better than most other engineering firms, despite now being over 30 years old.

But besides, that point isn’t relevant anyway. Google will decline, but something else will come along. The key is to then find that something else and jump to it.

For example, I know many people who work at Google or will be working there shortly. Not one of them has indicated that they actually plan to stay there for the long term. Not one. They’re just looking at their time at Google as a career booster. They’re using Google to develop high quality experience at a unique work environment. They’re also going there to network with other ambitious people and to get the Google brand name on their resume. {In that sense, it is like getting an elite MBA, with the major difference of course being that they are getting paid, as opposed to having to pay.} Some of them are already thinking about creating a post-Google startup.