Camel startups build sustainability and resilience into their business model from the get go. They don't grow at any cost.
Silicon Valley exists in an ecosystem unto itself - with deep talent pools, vast amounts of available venture capital and a supportive corporate and government ecosystem. Yet, at what I call "the Frontier" where new ecosystems are popping up around the world, the best entrepreneurs face a different environment altogether. Common wisdom like "grow at any cost" or "move fast and break things" are not only inapplicable, they are unhelpful too.
At the Frontier, the best entrepreneurs are not just taking a different strategy, they are reinventing the startup playbook.
In Silicon Valley, a kind of mythology permeates stories about founders like Steve Jobs and Steve Wozniak, Mark Zuckerberg, or Elon Musk. But they were never truly alone. Each led a small army. Apple now has 80,000 employees, Tesla and Facebook have 38,000 and 25,000 respectively. Talent, perhaps even more than capital, is the critical resource for a startup’s success — even the ones associated with legendary founders.
However, the availability of trained and experienced talent is a near-universal pain point for many startup ecosystems. In a survey, more than half reported that recruiting and retaining talent represent their most acute challenges — twice as many as those who selected availability of capital. In a similar study of more than six hundred entrepreneurs in emerging ecosystems, more than 60 percent responded that their inability to access the right level of talent would critically impact their businesses.
Significantly, 75 percent of those with rapidly scaling startups (which need new talent at a faster pace) categorized lack of available talent as the single most important barrier to their businesses. The research indicates that this is the only challenge that becomes more acute over time as team size grows. However, many startups have found ways to build and scale top teams. Here are five strategies to consider:
Looking beyond traditional recruiting and assessment approaches can help find diamonds in the rough. In locations where there are fewer trained candidates, hiring someone with the perfect résumé is simply not a practical goal. Instead, focus on character, behavior, and demonstrated skills rather than the perfect résumé.
Mark Essien, is founder of Hotels.ng, a prominent Nigerian startup that offers the country’s leading online booking platform. Their biggest barrier was not sourcing hotels for the platform but finding teammates. Many of the best candidates in Lagos, Nigeria’s capital, had already been discovered and were working with leading startups or large companies.
So Mark launched the HNG Internship, an online internship that serves as a digital filtering mechanism that can reach far beyond Nigeria’s capital. The company screens candidates through a task-based, impartial recruiting process. The recruiter assigns prospective recruits a series of computer science problems. Over time, the problems get more difficult.
When 95 percent of candidates have been eliminated, the final few are interviewed and a subset is hired. The program is evenings only and Hotels.ng pays everyone in the pool a stipend as they progress. Mark has forged partnerships to fund his program at a greater scale, including with state governments in Nigeria as well as various corporations. He thinks that, over time, this structured candidate-testing platform could become an industry standard. The first internship class had seven hundred applicants. The last batch increased nearly sixfold, to 4,000.
For technical roles, like computer scientists or accountants, a skills-based testing approach works well. However, assessing potential job performance is more challenging and nuanced for team-based roles that involve creativity, relationships, and strategy. This is where the implementation of behavior-based models to understand a candidate’s character, aptitude, competence, and projected performance is needed.
Paul Breloff and Simon Desjardins, co-founders of an executive search and talent tech company, observed that universally, hiring represented the most important bottleneck across their portfolio. They founded Shortlist to solve this challenge. Shortlist is a recruiting platform focused on competency-based hiring. The company has created more than a thousand digital modules to evaluate how candidates perform in simulated real-life work environments. When a candidate applies for a job, they encounter a customized scenario based on the company, industry, and role they are applying for, and they perform tasks that shed light on their capabilities and motivation levels.
Shortlist is in high demand among startups and now has more than six hundred clients in Africa and India. And that’s after a mere $3 million in funding.
Hiring based on capabilities and behavior assumes local talent is readily available. Sometimes, either because they operate in nascent ecosystems or have already exhausted available sources of talent, companies need to actively build and train their pipeline.
At Shopify, a Canadian e-commerce enabler, CTO Jean-Michel Lemieux and other executives realized the company had maxed out its traditional recruiting channels. So, in 2016, in partnership with Carleton University in Ottawa, the company created a work-integrated academic degree to increase the pipeline of candidates.
Over four years, students complete an honors degree in computer science and gain more than 4,500 hours in practical work experience — double a typical co-op or internship-based program. Each semester, students take three classes and work directly at Shopify for twenty-five hours a week. Students receive academic credit for the work experience, as long as they complete a practicum report reflecting on what they learned after every term. What’s more, Shopify covers the four-year tuition cost and pays the students a salary for the time they work.
On the one hand, Shopify is able to create a proprietary talent pool pipeline — finding, testing, and attracting the best of the class organically. On the other hand, this program benefits all participating students and the startup ecosystem more broadly by offering accessible and affordable practical lessons on the front lines of a world-class technology company.
All graduating students receive an offer to work at Shopify full-time. Impressively, gender diversity in the program is much more balanced than in traditional engineering programs. In recent cohorts, 50 percent of candidates are women, compared with fewer than 20 percent in computer science degrees on average. Elsewhere, the bottleneck may be different, but a similar pipeline creation approach is possible.
Companies must leverage the best talent and this often means looking beyond their current location. Immigration (both in-country and international) is a powerful tool. For SkipTheDishes’ Joshua Simair, sudden shifts in the political landscape helped.
After the US Trump administration nixed the Obama-era entrepreneur visa program, many countries around the world created new accelerated visa programs, sensing an opportunity to recruit talent that might otherwise have landed in the States.
SkipTheDishes was able to leverage a Canadian immigration program designed to attract immigrants to smaller provinces. Joshua aggressively recruited prospective immigrants and brought them to Manitoba through this program.
SkipTheDishes’ approach is certainly not unique. Shopify sourced top engineering talent it discovered in competitions around the world. Idriss Al Rifai from Fetchr built an entire immigration team to increase the size of its pipeline for drivers, recruiting drivers from Pakistan, India, the Philippines, and Nepal and bringing them to Dubai and Saudi Arabia.
Businesses can leverage a distributed strategy to build teams in multiple geographies. Companies like Basecamp, InVision, and Zapier have gone to the extreme and become fully remote. Regardless, taking a global lens to talent, whether one relocates candidates or builds a distributed model, is an effective way to increase the available talent pool.
Silicon Valley accepts high employee turnover as a necessary by-product of its strategy of hiring only A-players. However, when a company invests so much in finding and training candidates, they should take a longer-term view of the relationship.
Chris Gladwin is founder of Cleversafe, which was sold to IBM in 2015 for $1.3 billion. Chris reflected on the Chicago ecosystem, saying, “One of our key advantages was much higher employee retention. It is certainly different than in the Bay Area. We’ve experienced a median retention of ten years.”
Some of this retention is structural. Operating in nascent ecosystems, employees have fewer options, so mutual dependence and alignment for a long-term relationship is more likely.
Harnessing powerful visions can help find and hire mission-aligned employees. These employees stay 50 percent longer than at other companies and are more likely to become high performers. In interviews with leaders of hundreds of startups, the one unanimous sentiment was the importance of passion.
Giving employees an opportunity to channel their passion drives retention. This trend will become increasingly important as millennials come to represent a larger part of the workforce. A recent study of 3,000 professionals in the United States discovered that more than 85 percent of millennials would take a pay cut to work for a mission-aligned company (versus only 7 percent among baby boomers).
To attract candidates, it can be tempting to try to replicate the superficial perks of Silicon Valley and its startup culture — including unlimited vacation policies or its stock options’ potential financial incentives. But these often miss the point.
The best startups look to offer perks and financial compensation that reflect their unique strategy, organization, and location. A study that surveyed more than 70 companies across European startup ecosystems and analyzed more than 4,000 option grants determined that expectations for stock options were much lower across Europe than in the United States, with tremendous variety by country. On average, European employees owned half the options of their Silicon Valley counterparts. The statistics are even more striking in emerging ecosystems.
Of course, offering fewer stock options does not obviate the need and desire to offer employees a stake in the business. Lyndsay Handler, CEO of Fenix International, an energy startup based in Uganda, built phantom shares (code-named “Fenix Flames”). As she explains it, “Many of our staff in Africa were not rich by any standards, yet were asking to invest their savings into the company.”
Fenix Flames resemble direct stock ownership more than options, which means they are easier to understand and, importantly, benefit employees even if the company doesn’t have exponential growth. Lyndsay granted Fenix Flames to every employee, all the way to the installers in remote Ugandan villages. This was a transformative financial investment for many of her staff during the company’s subsequent sale to ENGIE, the French energy giant.
Alex Lazarow has worked at the intersection of investing, innovation, and economic development across the public, private, and social sectors for more than a decade. He is a venture capitalist with Cathay Innovation and was previously with Omidyar Network. He is a Kauffman Fellow, Council on Foreign Relations term member, and an adjunct professor specializing in social-impact investment and entrepreneurship at the Middlebury Institute of International Studies at Monterey. A graduate of Harvard Business School and the University of Manitoba, he is the author of OUT-INNOVATE: How Global Entrepreneurs–from Delhi to Detroit–Are Rewriting the Rules of Silicon Valley.
- Reprinted by permission of Harvard Business Review Press. Adapted from OUT-INNOVATE: How Global Entrepreneurs–from Delhi to Detroit–Are Rewriting the Rules of Silicon Valley by Alexandre Lazarow. Copyright 2020 Alexandre Lazarow. All rights reserved.
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