This economy is strangling recruitment in startups.
June 5, 2012 Leave a comment
When I say I work with startup companies, people keep saying to me “Oooh, that must be difficult in the current economic climate”. In many ways I find things aren’t that bad. The total paralysis in the immediate aftermath of the crisis is largely behind us. Big companies are still looking for ways to make or save money. Many are also sitting on decent cash reserves as a result of a cautious approach in recent times, and we’ve started seeing some of this directed to making acquisitions, which is good news for all. Levels of investment by angels are fairly consistent, and are swinging back towards a balance between supporting existing investees and putting money into new companies. Things could be better, but they could be a lot worse.
The one area that is really killing us is recruitment – it is incredibly difficult to hire the right people at the moment. Why should this be the case when so many people have been made redundant from companies of all types, and unemployment is relatively high? Here are my thoughts on the reasons why recruitment in startups is being so badly affected.
For the last few years the news media has been keeping us regularly updated on job losses, and the number of people re-entering the job market seems to be vast. At first it appears that this should form a pool of talent available to work in startups, but this has proven not to be the case. Firstly, startups need to hire motivated, creative people. These are not necessarily the people that an organisation gets rid of first – logically unmotivated and non-creative people should be first out the door. Secondly startups need people with incredibly specialist technical skills to work at the very bleeding edge of technology. These are exactly the people that retain their jobs in tough times, as they are irreplaceable.
This may answer the question “why aren’t startups able to recruit people from the pol who have been made redundant”, but doesn’t fully explain why it is so hard to get good quality applicants.
Most people see startups as a risky form of employment, and in an economic climate with high uncertainty, having a “secure” job in a large organisation feels nice and safe and comfortable. The reality may be quite different, but prising people out of these “secure” jobs into a startup is harder than ever. Why aren’t their jobs really secure? Most of them have a contract with one or three months notice, so the only certainty is that they have a job (or at least a salary) for that long. Startups do sometimes run out of money, but it is usually predictable some time in advance and startups that have just received funding may have cash in the bank to pay salaries for six or even twelve months. In fact, they may have cash to fund salaries for longer than many more established companies.
In addition to the perceived riskiness of startups, motivation is low. There have been relatively few trade sales or IPOs recently, so startup stock options haven’t been translated into cash for startup employees. Seeing your classmate/neighbour/ex-colleague driving a flashy new car and going on fancy holidays courtesy of his or her stock options makes joining a startup seem pretty attractive, but that hasn’t happened enough in the hard times to keep generating excitement about what startups can offer.
A final confounding factor is that although there have been large numbers of redundancies, many of the same organisations have been hiring people as contractors to meet their needs for skills and manpower. This helps them avoid the cost and potential liabilities of taking on employees, and with relatively few jobs about, more and more people are prepared to work on a contract basis.
Even where skills are available in the market, recruitment is still harder than in the recent past because so many people are looking for jobs that hundreds of CVs come in. Sifting through them to identify the good ones is more time consuming than ever.
This combination of factors is making life very difficult, and I think there is a real danger that it will become a limiting factor in the ability of some companies to grow. If anyone has any additional (or better!) suggestions for why This economy is strangling recruitment in startups, I’d love to hear them! Join the debate by leaving a comment below.