Enterprise Software’s Youth Drain

By M.R. Rangaswami, publisher of SandHill.com and co-founder of Sand Hill Group

[qi:010] They say that youth is fleeting. In the enterprise software industry, the youth are fleeing.

One need only look at the hairlines of today’s software leaders. The current wunderkinds are not looking to create the next wave of corporate computing applications, but are instead gravitating toward emerging fields, such as web 2.0, biotech, and anything “green.”

Bill Gates was 19 when he founded Microsoft (MSFT). Steve Jobs started Apple (AAPL) at 21. Even Marc Benioff was in his 30s when he founded Salesforce.com (CRM) — and at 42, he remains one of the industry’s youngsters.

Software companies need to do more to attract the next generation of business leaders who will drive the evolution of the industry for decades to come.

Software’s Aging Leaders

Here’s what opened my eyes. I looked around at the attendees of our Enterprise 2007 conference this summer and was pleased to see many of the enterprise software industry’s leaders represented, including CEOs, VCs, professionals and analysts.

But then I did a double take: The average age of this elite group (including yours truly)? 50 years old!

Steve Ballmer, Larry Ellison, Henning Kagerman, Dave Duffield…all of them are solidly in middle age. A tremendous brain trust to be sure, but who is going to take the reins and lead the industry into the next era?

The next eye-opener? In a survey given out at the conference, these highly-successful industry leaders were asked whether they would advise their college-aged kids to start a career in the software business. More than half said they would, but nearly a third said they wouldn’t!

So where are all the Gates and Jobs of today? Many young entrepreneurs continue to receive venture backing for software companies –- in fact, software regained its title as the leading venture investment category during the second quarter. Notably, however, nearly as many are receiving backing to go into biotech or greentech or other emerging fields.

And within the software space, young business leaders are choosing web 2.0, open source, SaaS or consumer applications over traditional business apps. These are all attractive fields, to be sure, but the enterprise software elephant in the corner is a $600 billion industry waiting to be fed.

The new guard of software leaders operates differently than the old guard, usually with far less capital. And they are tuned into the online culture like no 50-year-old can be: they’ve grown up with it, and as such will be able to bring the consumer online experience to the corporation with ease.

Before I get too much hate mail about age discrimination, and in light Google’s recent legal troubles, I want to be clear that I’m not advocating hiring younger people over older people. I’m talking about the need for people with new skills and new ideas who are young enough (in years) to ride out the next 10 or 20 years of industry fluctuations.

The fact is that unless the software industry receives an influx of new talent, it will be difficult for the 50-year-olds to keep their companies’ relevant in the next era.

How to Rejuvenate the Industry

It is time for enterprise software companies and their investors to take steps to make the industry a more welcoming and attractive place for young workers. Here are some of my thoughts on how to attract the next generation of leaders:

Make Room at the Top — It may be time for many longtime software company leaders to simply step aside. The same goes for members of the board. If Bill Gates can do it, anybody can.

By making a gradual transition (such as the one taking place at Microsoft) and tapping the right successors, software companies can receive the benefits of a fresh strategic perspective and a new outlook.

Mentor Young Executives — Much of the brain trust of the enterprise software industry is rapidly approaching retirement. The only way to recapture this collective knowledge is to impart it to the next generation of executives.

While it is nice to think that today’s young execs can learn by watching, the pace of today’s business environment may make it difficult. Companies seeking to preserve this insight should consider a mentoring initiative – either formal or informal – to impart to its younger execs.

Re-establish Entry-Level Positions — As the software industry evolved over the past 10 years, a wide variety of entry-level jobs in both business and engineering disappeared. Some jobs were outsourced, some were offshored, and some simply dried up during the economic downturn, never to be re-established.

There is no way that today’s software vendors will be able to promote from within and tap into next-generation thinking if they do not slot a significant number of entry-level jobs for new workers. These positions should be on both the technical and business side.

Step Up Marketing to Universities — There is a perception among college graduates that all technology jobs are moving overseas. Anyone who has recently tried to find an engineer in the San Francisco Bay Area knows that nothing could be further from the truth.

The job market for software developers is almost as tight as it was during the dot-com boom. Engineering graduates will have their pick of companies, and industries, to choose from.

The software industry associations and the major companies themselves must raise their profiles in graduates’ minds. Efforts such as job fairs and promotions at universities can help achieve this.

Develop Cross-Industry Recruiting Tactics — Recruiters are famous for tapping consumer packaged goods leaders to run tech companies – and for convincing former tech execs to run “green” or biotech companies. It is time for the software industry to expand its recruiting pool.

As other industries work to recruit the up-and-coming leaders that the software industry used to attract, the software industry needs to fight back. TCS is trying to overcome some of the talent crunch in India by recruiting talented non-engineers from other scientific fields for training as developers or other much-needed staff. The ramp-up is longer, but the results so far have been positive.

Make the Industry a More Attractive Place to Work — In many ways, the software industry has always been one of the best fields to work in. Today it’s even better.

The business environment is fast-paced and rapidly evolving. There is the opportunity for international travel, rapid advancement, telecommuting and financial rewards. The faster the industry can get the word out about these benefits, the better.

Set Up Internal, Innovation-Driven “Startups” — For many established vendors, incorporating the energetic and fast-paced climate of a startup is difficult to maintain as a company grows to have hundreds and then thousands of employees.

Many vendors, such as Motorola (MOT), have created internal innovation centers to foster the growth of new ideas, products and businesses. The atmosphere is more likely to attract a new generation of leaders.

I believe the software industry can do more to prevent the “youth” drain that I see happening today. What do you think? Is the software industry “older” than any other fast-growth industry? Is the entire concept of enterprise software fading away? Can vendors do anything more to attract new college grads? I welcome your feedback.