Talent Boom for Start-ups!?

Jordan Green, President Emeritus/Founder, Melbourne Angels

Start-ups have been facing two connected, rising trends in recent years that challenge the vibrancy and economics of the sector. First, is a shortage of talent and second, is the associated rise in the cost of talent.

With start-ups becoming the mainstream focus of almost every country in an effort to generate innovation and economic growth, workers have felt they no longer needed to compromise on remuneration. Seeking competitive market salaries for jobs in pre-revenue start-ups is the main contributor to start-ups becoming at least 30 percent more expensive to fund in the last five years.

There has been a concurrent boom of new entrants into the start-up funding market across emerging VC funds, government programs, family offices, equity crowd funding services and a plethora of online platforms taking fees for matching founders with investors. Having so many new, unsophisticated, and inexperienced sources of start-up capital there has been enough funding to sustain the wages growth. With economic downturns, inexperienced, impatient and failing investors leave the market in droves, as is being evidenced in most markets around the world.

Let’s consider the other conundrum that has been a growing challenge. Everywhere, governments, unions, business bodies and the community at large are recognising the ‘shortage’ of engineers and other technically qualified people to meet the demand of the technology driven start-up sector. In Australia, a recent report estimated the country will need an additional 100,000 engineers to deliver on the net zero by 2050 goal. Even larger numbers are being cited in the larger populations and emerging economies of Asia.

Yet, universities and professional associations highlight that significant proportions, often as many as 25 percent, of engineering and technical graduates can’t get jobs in their profession. It would seem one of these two things can’t be right, there can’t be a shortage of qualified people to fill the available jobs while there is also a shortage of jobs for the qualified people.

Of course, life is never that simplistic. Some people are crying out that it is because the universities are not providing the right training. Others say that the increasingly short tenure of many employees challenges employers to invest in new talent due to the high cost of staff turnover. Yet, most corporates are still prioritising university qualifications in their recruitment and selection process, as are most start-ups, too.

In my early days as a start-up founder (admittedly, last century) employees didn’t expect to get paid properly until the company was generating enough revenue to fund their wages. That was one of the main reasons for providing equity participation, to offer at least the possibility of compensating for the early sacrifice. Today, most people approach start-ups expecting both full market-rate salaries and equity participation. They see it as a right, an entitlement, not a genuine compensation for making a sacrifice to help build the shared future of the venture. They want no sacrifice and all the upside – just plain greedy.

Let’s get back to the labour shortage issue. Have you seen the massive job cuts taking place in the tech industry across the globe?

Some recent job cut announcements in USA tech companies include:

• Amazon         10,000 jobs
• Cisco             4,100 jobs
• Coinbase       1,100 jobs
• Docusign       670 jobs
• Facebook      11,000 jobs
• Ford               3,000 jobs
• HP                 6,000 jobs
• IBM               1,700 jobs
• Lyft                700 jobs
• Microsoft       1,000 jobs
• Netflix            450 jobs
• Oracles          201 jobs
• Redfin           862 jobs
• Robinhood    713 jobs
• Salesforce    950 jobs
• Shopify         1,000 jobs
• Snap            1,200 jobs
• Stripe           1,100 jobs
• Tesla           10,000 jobs
• Twilio           850 jobs
• Twitter         3,750 jobs
• Walmart      1,500 jobs
• Zendesk      350 jobs

It’s not just in the USA, or USA companies laying off their international workforce. As of early December, at least 18,000 jobs were cut by Indian tech companies, 20,000 in China and a further 5,000 across South-East Asia.

" Seeking competitive market salaries for jobs in pre-revenue start-ups is the main contributor to start-ups becoming at least 30 percent more expensive to fund in the last five years "

Not just job cuts, also hiring freezes by the larger companies. Hard on the heels of the so-called Great Resignation (did it really happen outside the USA?!) this puts a flood of highly qualified, well-trained and process disciplined workers into the available talent pool without the option they assumed of being able to go to another large employer.

Here is the opportunity for astute start-up leaders and skilled HR professionals. Macro-economic trends are shifting it back to a buyers’ market for start-ups seeking the right talent. Employment terms should be more affordable and the value of the talent more attractive. Not only will the ex-corporate staff bring their core technical skills but, they bring a practiced understanding of working in well-formed processes that deliver efficiency and quality. Well, okay, not all of them but, enough to make it worth considering.

The HR challenges include job satisfaction deeply impacted by the need to blend cultures and properly manage expectations. Start-ups can’t, and I would argue shouldn’t, offer all the peripheral and material perks of the corporate work environment. In a start-up, each worker must carry more responsibility and accountability for their own work, and for the work of the team. Failure needs to be an acceptable and necessary step on the path to success. The pace of achievement in a start-up needs to be fast, really fast.

All that means there will be pressure, lots of pressure, on everyone. Good start-up workplaces offer their staff clear purpose, community, mutual support, social activities, and individual recognition to help minimise and manage the negative impacts of the pressure. Note, it is about managing the impacts, not avoiding the pressure. The pressure is a necessary ingredient for start-up success.

Inspirational and supportive leadership combined with a well-formed people and culture strategy can use the glut of qualified talent to launch start-ups into their stratospheric growth.

What has brought me success as a founder, a VC, and as an Angel Investor is being able to see the positive in every change and help founders and start-ups grasp that opportunity. When the big opportunity is all about talent, everyone will need well aligned, insightful guidance and support from their HR folks.

Microsoft