'Growth' vs 'yield' jobs - which should you take?

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conwy
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'Growth' vs 'yield' jobs - which should you take?

Post by conwy » Mon Sep 30, 2019 10:53 pm

On my recent job search efforts, I've been increasingly seeing the opportunities falling into one of two buckets, from the perspective of the employee.

These two buckets are:

1. Growth
2. Yield

I wanted to flesh out what I mean by these terms and see if anyone else agrees and/or has encountered a similar phenomenon.

And then think about how to choose between one or the other, as an extreme saver.

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First, here's what I mean by these buckets:

Growth

These are businesses that pay a smaller amount per employee and have a small number of people working for them.

This is due to some combination of the business being inherently "small-time", i.e., low revenue, low profit, etc and/or the business being set up in such a way that the owner or investors don't see it in their interests to invest more in paying their employees higher salaries.

PRO: There's less competition between talent to secure those roles and then progress within the company. This mean that, in theory, if you join one of these businesses at the 'ground level', it's possible to become a 'big fish in a small pond'. If there is growth potential in the business and you can engineer that growth to benefit yourself in terms of salary, then you might make much more money than your starting wage.

CON: Obviously you're taking a risk. Maybe the business can't grow much further. Or maybe that growth wouldn't be shared with you, no matter how much you contributed to it.

Yield

These are businesses that pay a larger amount per employee, whatever number are working for them.

This is due to some combination of the business having a lot of capital, it being in their interests to pay employees well, the supply of the needed skills being rare and the demand high enough to support high salaries for those skills.

PRO: you get paid a lot. If you're saving most of your income, this is great, because then you can pump that money directly into growth investments.

CON: you'll probably be stuck on the same (or close to the same) salary.

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Second, how does one choose between the two?

Generally I've almost always gone with the 'Yield' companies. My reasoning for this has changed over the years, but it basically boils down to the following:

1. With 'Growth', the risk is unacceptable high that I would stay on the same low wage I came in at. There are too many factors against the wage going up. The business might not grow. Or, even if it does, the owners might not want to share that growth. Or even if they do, I might not be in line to partake. Or even if I am, something might go wrong and I might screw it up by some action or inaction on my part that I failed to predict and act on.

2. 'Yield' companies pay me earlier, therefore I can invest earlier, therefore I stand a better chance of making more money overall. $100 today is worth more than $200 in 20 years from now.

3. 'Yield' companies are in a part of the economy in which it pays to pay employees well. It seems, intuitively, that I am better off also being in that part of the economy. Even if one or another yield company goes bust, at least I'm in the right 'zone' to be generally making a good wage. It may not work this way for everyone in the business - a business owner or CEO might make much more money in a different zone of the economy. But as long as I'm not a business owner or CEO, I shouldn't pretend that I can benefit in the same way that I can.

However, giving it some further thought, I can imagine reasons to go more down the growth curve.

As I get older, and my investing time-horizon narrows, it seems that I may be better served by switching to 'Growth'. My investments will have less time to grow at 40 years old than they did at 20 years old. So as I get into my 40s/50s, perhaps I need to find sources of growth that are faster and risker. Assuming I have a solid foundation of savings and investments by then, I'm not necessarily in desperate need of cash. I could stand to gain more by foregoing some capital in order to take risks that have a higher upside.

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I'm curious to see what extreme savers think of this way of thinking. Any critiques would be most welcome!

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Lemur
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by Lemur » Tue Oct 01, 2019 10:27 am

Perhaps not so much money but stress tolerance. I much prefer being an employee in MegaCorp as an unnoticed small fish. Just collecting my checks and keeping my head low. I prefer it this way after some trial/errors of trying to grow and stand out in the past two small businesses I worked for. I also get paid more in MegaCorp.

ZAFCorrection
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by ZAFCorrection » Tue Oct 01, 2019 10:35 am

Considering needs vs the salary of most available jobs, to me almost every job falls in the yield category. I would put more emphasis on how much the job pays in terms of experience, particularly experience that can be applied outside the particular job. A job high in educational opportunities is what I would describe as a growth job.

Sclass
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by Sclass » Tue Oct 01, 2019 1:20 pm

Really depends.

It can be really tough on an older employee when he gets tossed out after getting too soft at a megacorp. I’ve had mentors who did really well at HP during the golden years. Maturing stock options made them a modest nest egg in the 1980s and they retired out by 2000. Then there were the slightly younger ones who got laid off too early to retire but too old and oddball to maintain their middle management status at a new place.

I knew a guy who got laid off from IBM when they got out of laser printing and landed a similar job at HP. This was about thirty years of career. He rode out the last year’s mixing carcinogenic inks as a tech (with a PhD) for the inkjet group just to hang on to his health insurance and salary which he inevitably needed when he got cancer.

On the startup side, I recall there being a great article about this on ycombinator. It said the good startup will work you 4x as hard but pay out 10x. Hence the blog said you need to pick your startup with the care of a VC. If it fails, you worked 4x for nothing. I have many friends (and me too) who chased Silicon gold and ended up with nothing but a bunch of war stories. I can think of several who did this serially.

Then there are the small number of guys I know with the multimillion dollar options payouts but they are like 1 out of 100 or maybe less. So many things can go wrong in the paper chase. It’s like the big guys always have a way to cheat the little people - dilution of shares, lockout periods and secret VC clauses where the investors get before the employee option holders during a buyout.

Which is best for ERE? I think I would pick slow and steady but I honestly think that only exists in our imaginations.

George the original one
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by George the original one » Tue Oct 01, 2019 2:55 pm

If you're doing ERE instead of ER, then it seems job-hopping the highest salaries you can find is a good path. If ER, then you need to stay just long enough to be vested in the retirement option (if such a thing even exists any longer... which apart from Federal jobs, I don't think it does) before job-hopping.

Scott 2
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by Scott 2 » Tue Oct 01, 2019 3:49 pm

Learning to live on a small amount of money (ie extreme saving) enables you to decide based upon non-financial factors.

Who is the person you want to be?
What is the lifestyle you want to lead?
Which people do you enjoy working with?
How do you want to impact the world?
Where do you want to live?
Do you learn better through trial by fire or structured mentoring?

Those will be much more important than "How do I maximize net worth in X years of working?". Using the two job classes proposed by OP, they will also vary much more substantially than the opportunity to maximize wealth.

From the wealth maximization perspective, one could model both job classes, calculating expected value of salary and options over time. I think opportunities abound on both paths. While there are some tech bros who get lucky at the right startup, the labor market is relatively efficient.

Scott 2
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by Scott 2 » Tue Oct 01, 2019 4:00 pm

Adding - OP, your model makes me think of the equity style box:

Image

Which makes me think you might really be asking about how do we evaluate a company before joining it? I think slicing by style and sector (ie technology, materials, financial) is a good start. You can also look at economic moats:

https://www.morningstar.com/articles/73 ... oat-rating

Putting those three tools together, I think you have a pretty good starting point for what a company is going to be like. Maybe that's where your model is headed?

conwy
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by conwy » Tue Oct 01, 2019 11:27 pm

It's interesting to think of choosing companies using similar methods as an investor.

Morningstar is a good idea. Maybe I'll look more into some of the best performers.

Though I think one weakness of relying on public data is that there's a lot of 'hidden information' in the market place, a lot of secret stuff going on that people aren't really aware of unless they are actually working inside a business. I think this can be where some of the golden opportunities lie, but it's also difficult to gain access to that information unless you're already working inside the business.

Recruiters and head-hunters may know about these opportunities, but they also demand their slice of the pay-check.

Networking isn't necessarily going to help either.. just because you had a few drinks with someone doesn't mean they're going to let loose on all their secrets.

I've found good money as a contractor when there's some kind of competitive whirlwind of activity. Say new technology 'X' is just about to hit a particular market. Then a whole group of companies jump on the bandwagon, because none of them want to get left behind. Then you get a flurry of hiring, with each company trying to hire all all the talent in 'X' so that their competitors can't get the same talent. Then they start poaching off eachother, and that's when salary negotiations get really sweet for employees!

I think companies are having a difficult time retaining talent, with all the opportunities out there. But the supply of talent is increasing enough that companies can easily replace roles, so that seems to put a damper on salaries.

One behaviour I've observed in the wild is employee moat building. An employee builds or becomes expert in a system or a part of a business, and then they come to rely on that person so much that they can negotiate pretty significant raises. That's getting harder too, though, as talent supply keeps increasing and it gets harder and harder to maintain this kind of moat.

IlliniDave
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by IlliniDave » Wed Oct 02, 2019 6:01 am

On a gut level I'd go with yield for a job. But it comes down to what role career has in one's hierarchy. For the most part career has been a means to an end for me, and I don't really consider it key to my self-identity. So working for yield makes the most sense. For folks whose career is more central in their ambitions growth potential is a worthwhile consideration.

horsewoman
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by horsewoman » Wed Oct 02, 2019 6:09 am

It depends on your preference, I suppose. I'm the opposite of @Lemur, keeping my head down in MegaCorp does not work for me. The rules, regulations and ridiculous amount of inefficiency that is typically found in larger companies drives my nuts within half a year.
I'd rather have less money and a job in which I can
a) do my work the way I want
b) work the hours I want within reason (not a strict adherence to 9-5, but a flexible system)
c) effect direct change at my workplace - meaning, if I see inefficiencies I'm able to change the workflow for example.

In my experience most bosses in smaller companies do not really care HOW things are done as long everything runs smoothly. Because they are busy with their own work and need to keep things in the background running.
Personally I need to have the feeling that I'm at least somewhat important to the success of the company, otherwise I see no point in using up precious life time. That being said, I don't mind to go to work for 10-15 hours a week for many more years, but I want enough FU money to be able to look for a job that offers me the above mentioned perks. If ERE or "never-working-again" is your goal a high salary will be the most important factor.

Sclass
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by Sclass » Wed Oct 02, 2019 8:13 am

George the original one wrote:
Tue Oct 01, 2019 2:55 pm
If you're doing ERE instead of ER, then it seems job-hopping the highest salaries you can find is a good path. If ER, then you need to stay just long enough to be vested in the retirement option (if such a thing even exists any longer... which apart from Federal jobs, I don't think it does) before job-hopping.
This is much better than what I said. I got it backwards. I worked at HP for a few years and the place imploded. So much for slow going. Even the moat builders got wiped out as entire business units got wiped off the books leaving them jobless without an industry to ply their hyper expertise in.

After reading what GTOO said I think the answer is the same one I give about what type of stocks should I buy. The ones that make the most money of course. :D Work is just a vehicle for the ERE lifestyle that needs to provide sufficient capital in a reasonable amount of time. My megacorp pals were chasing long term security at the expense of pay at places like HP, GE, ATT, Etc. Didn’t turn out to be that smooth a ride for most.

My 60yo buddy slogging it out at HP behind his moat drinks three bottles of Jack Daniels a week. He joked it was his medicine to help him put up and shut up. Sad place even for a survivor. Being 60 over there is like being 1/1000.

conwy
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Re: 'Growth' vs 'yield' jobs - which should you take?

Post by conwy » Sat Oct 12, 2019 3:32 am

It's interesting reading your responses.

Someone made a comment about self-identity as it relates to one's work. This is a complicated and messy topic for me. Yes, I actually do love programming and do somewhat 'identify' as a programmer, designer, problem-solver and technologist. At the same time, a lot of the environments I work in are unpleasant and don't allow me to express that identity how I'd like to. For example, I like to read books, papers, etc in my spare time and then try to apply that learning to my job. I'm also interested in design, planning, quality aspects of software, etc. but these often aren't high priorities in the companies I work for, which just want to bang stuff together and ship it tomorrow.

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A lot of companies seem to either operate inefficiently (larger, established corporations / yield jobs) or operate like sweatshops (smaller, startupish companies / growth jobs).

I've been in both situations and found each challenging. But overall I lean toward the inefficient corporations, because at least you get to have a life and aren't working crazy hours and weekends.

The larger corps slowly wear down my ambition, as, day-in, day-out I have to work with people who seem to have zero passion for the job and can't wait to clock off or talk endlessly about their latest consumerist purchase. Whereas the smaller corps quickly burn me out by overworking me, knowingly setting ridiculous and impossible KPIs and giving practically no thought to long-term planning, strategy, design, quality... and the above are precisely the things I love most about software.

A kind of positive exception was my last job - a small tech team embedded within a larger corporation and dedicated to building out a specific platform to be rolled out to the whole company. So the pace wasn't as pent-up as a startup and we actually had enough time to do the job properly while working a regular 8-hour day. But there was also a good deal of challenge, skill-building, knowledge-transfer and genuine excitement within the team to make it interesting and not one of bore-your-socks-off roles. Looking back, I didn't know how fortunate I was to have that gig, until (for various reasons) I had to leave.

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