By Anastasia Tohmé
International MBA – IE Business School
As part of an initiative from IE Business School Venture Lab, a couple of us went to the Empire City to explore the rise of the startup ecosystem. The city that was once known to be the global financial hub has now transformed itself to become home to over 10,000 startups. The spot has become so raging that not only American startups are basing themselves there, but also many Europeans startups are moving their operations and opening headquarters.
One of the main topics of discussion during the trip were the differences of establishing a startup in NYC versus it’s older, successful and tech-bubbly sister: Silicon Valley / The Bay. The two main advantages of having headquarters in NYC that came up several times were the diversity of business sectors in the city and the talent availability.
Dennis Crowley, co-founder and CEO of Foursquare, commented that because the city is full of artists, fashionistas, foodies, financiers, lawyers, etc., it is very easy to disconnect from the tech world, recharge oneself and find inspiration. In the Valley everything is all about tech and it can become overwhelming very fast.
Pat Phelan, co-founder and CEO of Trustev, highlighted the struggle Silicon Valley startups have to go through to find and retain talent. The war for talent and willingness to pay has drastically increased the competition, whether it’s in the function of engineering or sales – it’s any talent. He discussed more in depth the challenges in recruitment that I will cover throughout this post.
Let’ s talk recruitment…
Some numbers to put you in context:
Average CMO salary in NYC = USD 240K yearly
Average mid-level sales guy = USD 300K yearly (excluding in NYC bonuses)
Engineers are even more expensive.
If you find those numbers high, imagine the astronomical wages in Silicon Valley!
The advantages of surrounding yourself in the early stage of a startup with top talents:
Recruiting can be difficult, especially if you’re recruiting the best and if you’ re not recruiting the best, you’re in big trouble. It is very important to have the right people on board from the beginning because startups can’t afford making hiring mistakes as it can affect the launch of the business. Surround yourself with highly skilled talent as early as possible. An advantage in doing so is that you will be creating an attraction net as talent attracts more talent.
Pat Phelan from Trustev had a very interesting view on top talents, quoting: “´A´ player will want to work with ´A´ players, ´B´ player will attract ´C´ players and ´C´ players will practically attract anyone.” Startups need a robust base and this is acquired by surrounding oneself with fully self-sufficient people that take initiatives and positively impact the company. Moreover, not abiding by this will have an effect on the culture and the credibility of the startup that is being defined.
“If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants.” — David Ogilvy
The importance of having a talent acquisition / recruitment manager on board early on:
External recruiters nowadays are very expensive, thus having a talent manager early on facilitates the hiring and ensures a proper fit with the startup’s culture that is being shaped. Silicon Valley Bank Director, Bonnie Ryan Arrante, stressed that point as being the key success for startups, saying that if there was something Silicon Valley Bank could have done differently, it would’ve been hiring a recruitment manager earlier on.
However, internal recruiters don’t come cheap, but the investment pays off and leads to higher efficiency on the long term, especially for tech companies making new hires. If you’re a startup looking to hire more than 20 employees in the coming year, it would be wise to consider hiring first an internal recruiter as part of the growth strategy as it can save you hundred of thousands of dollars when compared to the fee an external recruiter would charge (average fee varies between 20% and 30% of candidate’s first yearly salary).
Outsourcing R&D and engineering to other countries, specifically Europe, where the talent is cheaper and easier to find due to the absence of competition is a noticeable trend in NYC, due to its proximity to Europe in comparison with Silicon Valley. Another advantage in doing so is the stability of the workforce, which guarantees employee retention in comparison with the United Stated where talent is at war and is being pilfered from one startup to another. Startups such as Outbrain, CartoDB and Trustev all have part of their operations abroad and have all advised on considering this option.
Due to an increased bargaining talent power and a highly transparent market, the days of attracting talent simply by equity are long gone. In the United States, there is an overinflated idea about equity; talents now look for a full package of salary, equity and culture. Creating a family culture that increases performance and that serves as a “how to act” guide for the employees is very important for talent attraction and retention.
Difficulty finding a technical/engineering hand to join your team:
The best advice we received was from Miguel Arias, COO of CartoDB, who recommended looking for just one guy by attending events or looking deep within your network. When found, usually this guy will bring the rest.
Avoid hiring on projects/ short-term basis:
This type of hiring can backfire as it can interfere with the startup culture and usually comes with risks, particularly regarding information security. Moreover, it raises questions on the commitment of such a person. Full time hire is always better, especially at the take off of the startup, as you need stability and steadiness.
A rising trend of hiring remotely:
This is very common when a startup needs a local in a specific city or country. Additionally, the use of Slack, amongst others, has facilitated the coordination and execution of operations with remote employees. Technology has nowadays simplified the ancient practices, as most jobs require little calls or meetings except with the sales team.
As a recap, along with the creation of a culture that empowers an organization to attract and retain top talent, make sure you have the right recruitment strategies put in place early on, as human capital is the driving force behind a thriving and evolving business. It is not uncommon to see companies regarding employees as liabilities where, as a matter of fact, they are their biggest assets.
«When you’re in a start-up, the first ten people will determine whether the company succeeds or not. Each is 10 percent of the company. So why wouldn’t you take as much time as necessary to find all the A players? If three were not so great, why would you want a company where 30 percent of your people are not so great? A small company depends on great people much more than a big company does.» — Steve Jobs
Big thanks to Joe Haslam, co-founder of Hot Hotels and IE Business School Professor, for piloting us through the startups in the city and to all the entrepreneurs we had the opportunity to meet.
¡Hasta la próxima, Nueva York!