Earlier this year, during the InTech50 conference (organised by industry think-tank iSpirit and Terrene Global Leadership Network), we chanced upon an opportunity to interact with over 120 product entrepreneurs from 50 IT product startups. Among the many questions we asked was – what is the biggest gap you witness in the IT product ecosystem in India? Almost unanimously came the response: talent availability. Sure, this is an open secret, but, given the success rate in India’s startup ecosystem in the last five years, is the perception about working for startups getting better among prospective employees? “It surely is,” says Tina Lakshmanan, head of finance and human resources at Unmetric, the social media benchmarking company. “In the last five years, there has been a surge of successful startups, particularly in the technology and e-commerce space, which has led people to realise that the learning curve when joining a startup is much higher than when working at an MNC,” she says.
Adding to this, Peyush Bansal, the founder and CEO of Valyoo Technologies (the parent company of Lenskart.com) indicates that just about a year ago, people were not willing to join e-commerce companies because of the uncertainty associated with them. But those who did are reaping the benefits of it, today. “Though ecommerce companies are growing disproportionately, the number of people questioning the success of the top 10 e-commerce companies has gone down significantly, primarily because of the strong growth and investor-backing these companies have received,” he says.
Of course, investor backing acts as the trump card for seeking talent because someone has done a due diligence on the company and determined its worth, before putting in the money. “Investment acts as a seal of approval for startups. And quality talent accepts this as a metric for high quality and joins the company,” says Ambarish Gupta, founder and CEO of Knowlarity Communications, a cloud-based telephony service provider. Knowlarity is backed by Sequoia Capital and Mayfield Advisors. Recently, in July 2014, it raised US $16 million from both, taking its total investments (since 2012) to US $22.6 million.
At Lenskart, we measure culture in terms of work environment and performance measurement tactics. So, it is the duty of the HR manager to ensure that he/she takes the prospective employee through the company’s culture, so that they can decide if they would fit into such an environment.
Making it personal
Unlike traditional companies, which hire an external recruiter to identify potential talent, startups prefer to have founders personally involved in the recruitment process. Firstly, because, particularly in early stage companies, the founders stand a better chance of convincing an employee to see their vision. And secondly, because, startups place a greater importance towards the attitude of the employee than his/her educational qualifications and work experience.
But, when it comes to the actual hiring process, each startup The Smart CEO spoke to had a different perspective to share. For instance, TaxiForSure, the cab services company, hires a lot of failed entrepreneurs. “There are no set tasks in a startup and the employees have to work in a fast paced, challenging environment. That’s why we hire employees who want to take ownership and behave like entrepreneurs within the organisation,” explains T.N. Hari, HR director and consultant at TaxiForSure. Apart from this, he indicates that, especially for senior positions, Raghunandan (co-founder) and he share a 75-slide culture document with prospective employees, before calling them in for an interview. “Even before we initiate discussions with a candidate at a senior level, we give them access to this document, which talks about the company’s culture in the form of a story,” he says. Agreeing with this, Bansal says, “At Lenskart, we measure culture in terms of work environment and performance measurement tactics. So, it is the duty of the HR manager to ensure that he/she takes the prospective employee through the company’s culture, so that they can decide if they would fit into such an environment.” Adding to this, he believes that adequate branding is also an effective route to attracting quality talent. “You need to employ a pull model, not a push model. And when you invest in branding, employees hear about your company and want to work with the brand,” he says.
Investment acts as a seal of approval for startups. And quality talent accepts this as a metric for high quality and joins the company.
Unmetric, on the other hand, adopts, what it calls, an orthogonal hiring strategy. “What we mean by this is, we hire smart, intelligent people into roles they wouldn’t otherwise consider,” says Lakshmanan. For instance, the team has aeronautical engineers, lawyers and school teachers overlooking its marketing, operational and finance departments. “And as our team size expands, we rely on LinkedIn recruiter tools to get leads on prospective employees,” she adds.
What’s unique at Knowlarity is its strategy of hiring based on speedy growth in the previous job. “For example, if there are two candidates with the same skill set, capabilities and experience, with one coming from a humble pedigree and the other from a high pedigree, we would choose the former,” says Gupta. His reasoning is, if the former candidate has been able to neutralise his initial disadvantage in the past few years, he will surpass the latter candidate in the next few years.
In it for the long haul
While creating the right culture and building a flat organisation form the core of retaining talent in the long run, ESOPs also play a critical role, especially for senior hires. For instance, TaxiForSure conveys to its senior hires about the company’s wealth creating potential and past valuations before they take up a stock option. “This is a very powerful strategy. For example, if someone is earning Rs. 50 to Rs. 60 lakh per annum and has the potential to make Rs. 3 crore through stock options, there can be no other better retention tool,” reasons Hari.
Contrarily, Bansal believes that stock option is more of a risk-reward instrument. “If employees don’t see it as a retention tool, it’s close to ineffective. Instead, it can be a stock reward, where if a company does well, it can give stock options to a handful of employees as a reward. ESOPs should be more substantial, where the risk is more,” he opines.
At the junior level, rewards in terms of cash compensation act as effective retention tools. “You need to invest in the core 20 per cent of your employee pool based on performance metrics,” states Bansal. He indicates that though this strategy might lead to attrition, it retains quality talent, thus helping deliver greater value for the company. TaxiForSure adopts a similar strategy, where it reviews talent and revises employee compensation based on performance, every six months.
What’s the deal clincher?
In every interview, there is that one question that acts as the determining factor between acceptance and rejection. For instance, at Unmetric and Knowlarity, that question is, what is the biggest challenge you’ve faced and how did you deal with it? “We’re not worried about how they overcame that challenge. Instead, we are trying to judge their thinking process and clarity of approach,” indicates Lakshmanan. On the other hand, TaxiForSure, places more importance towards the candidate’s assessment of how he/she would fit the role, whereas, at Lenskart, the candidate’s assessment of his/her strengths and weaknesses acts as the deal clincher. “We don’t hire people who come to us with no weaknesses, because, if they can’t analyse and be receptive to feedback, they may not be open to learning, which is crucial in the startup world,” indicates Bansal.
As he rightly puts it, while the talent hunt may seem like a herculean task for the startup ecosystem in India, it is keener on investing in learners, simply because quick learners make the best doers.
HOW SILICON VALLEY OFTEN TACKLES
THE HIRING CHALLENGE
Talent acquisition is a challenge not only for startups but also for MNCs across the world. That’s why, in 2012, to address the talent gap, Silicon Valley saw the rise of this practice called acqui-hiring, where a company is acquired not for its product or service, but for the technical talent it possesses. Often, the product or service is diluted soon after acquisition. While Facebook has recorded the highest number of acqui-hires, the other tech giants that have practiced this are Salesforce.com, Twitter, Zynga, Yahoo, Apple and LinkedIn.
Some experts view acqui-hiring as an exit strategy for the startup entrepreneur, because the investor gets the money back (if the startup has been funded), the tech giants acquire good technical talent and the founders have their share of success. Typically, the valuations vary, based on the number of employees, the value-add for the acquirer and cost per engineer. The purchase price is usually higher if the startup is VC-backed and earns considerable revenues than otherwise.