The IITs are completely right in banning startups (and how startups should respond)

Reality over romance

If you’re involved in the storied universe of Indian tech startups — hell, if you just regularly read newspapers — you might be dimly aware of a brewing fracas involving startups rescinding offers to IIT students, and being subsequently banned from future campus placements. In a country caught between hurtling past extreme poverty, and earnestly participating in the future, the response was riven by disagreements.

The part of India that’s living in the future — startup entrepreneurs, VCs, ambitious kids, and builders — have predictably found this to be an affront to their values and goals. In service of a promising future, such a move has been blasted as shortsighted, unfriendly to students whom universities purport to serve, and impinging on the free market principles of innovation that is gospel for post-liberalisation India; the startup world in particular.

The future is already here — it’s just not very evenly distributed. — William Gibson

One particular take I found interesting was by Abheek Anand of Sequoia, here. It chronicles his personal experience through the boom and bust cycle that typifies life in the startup ecosystem, and advocates a great appreciation for risk-taking. It rings true to me personally, and I’m very sympathetic to the idea, but I think the general thesis for India is incorrect.

The IITs are doing a fine job for what their incentives are.

And I’ll tell you why.

To understand this, you have to first distinguish between what universities in India are looking to do when they run “Placement Activities” against the more American model of “Career fairs”.

Then you have to consider the business model and goal asymmetry between startups and large corporations.

India is not the US; this is a truism, but bears repeating. Between the GDP per capita being $1805, an impending transition to a modern services economy, the role of a university is largely upward social mobility, and thus getting people ready for employment. We just don’t have the basic infrastructure for most people to take risks.

The US on the other hand has a GDP per capita of $51,486, and a far larger services economy, and thus a very different labour force. Colleges perform functions beyond mobility — edification, self-actualization — creating virtuous citizens ready to conquer the highest levels of Maslow’s hierarchy.

Shamelessly taken from somewhere off the web

In this vast ocean, IITs are the remote islands that many of the most ambitious within India pick as a thoroughfare to a desirable career and life. Despite the immense competition, the IITs remain a greater equalizer of opportunity than many of the gilded universities in America, which optimize for social success for the 90th percentile (if you’re interested, Malcolm Gladwell’s podcast series “Revisionist History” has a couple of instructive episodes on the challenge of equal opportunity education in America). Thanks to the economic focus, gate-keeping at IITs involves a high degree of intelligence and — sometimes at the expense of softer skills, diversity, and nebulous notions of cultural fit that the west valorizes.

When you think about this setup, it lends enormous power to the IITs; having a pool of bright, highly educated kids is akin to being a union; you can basically perform collective bargaining on behalf of your students, and reap dividends on successfully fulfilling your promise.

It’s a beautiful model and has worked for years. The IITs do their jobs remarkably well.

But it doesn’t work for startups. To understand why, you have to think about what startups do, and why they’re ill-suited for 20th century world of industrial capitalism.

Startups — insofar as you can delineate two optimizing functions: value discovery and growth — are vastly different from corporations where business value has been uncovered, and value is smoothly being captured for periods where the corporation’s products and services remain relevant. To paraphrase David Manheim’s excellent essay “Go Corporate or Go Home”, these organizations have scaled through measurement. That’s why you can have a KPMG or a Citibank coming in and hiring 2–5 kids per batch. Jobs roles are clear, and value creation can be measured.

Startups are in a completely different game.

Startups are first discovering how to create value — what in the argot is referred to as product-market fit — and then racing to grow fast enough to capture it before avaricious competitors do, or plodding corporations notice the carpet being pulled under them. Everything from the lean startup movement to the structural model of how VCs investment is geared towards unlocking this value at speed and scale.

This seemingly marginal bit of the economy is part of an incredibly powerful system of markets that keeps the wheels of society turning, with it giving rise to the tremendous wealth of the last 300 years. But, particularly in its current incarnation, mostly doesn’t work; most startups fail, and many people don’t make significant money. It’s fairly risky. But it’s also incredibly rewarding for the right person.

People who thrive in this world — especially in the value discovery phase — are bright, ambitious hustlers who have a natural instinct for thinking through intractable problems, and an optimism that carries them through the struggles of building something from scratch. Or, on average, IIT kids who have been filtered for requisite grit. But even within this set, the performance range, risk appetite, and life goals are highly skewed; some turn out to be world beaters, most don’t. The worst part is, it’s impossible to tell in advance.

Some of it is down to varying risk appetites. Owing to the vagaries of life, people start from vastly different stations. If you’ve grown up in perennial poverty, encouraging risk-taking before establishing some baseline security is probably a bad idea. Until India reaches a point of having high quality infrastructure, good free healthcare, cheap housing in metros (lol), asking everyone to take risks is a terrible idea. And therefore the IITs are completely correct to discourage aggressive hiring behaviour that redounds badly on the institutions or the doe-eyed kids just looking for big start.

Think of banning as a co-ordination mechanism to encourage more prudent behavior.

Still vexed by the blanket bans? You shouldn’t be. Startups don’t do a good job of campus hiring anyway, and campus hiring is biased against them.

Placement is the lazy HR person’s solution to finding people.

Think about it for a second. Placement, thanks to the dynamics of collective bargaining, are often a poor fit for startups to hire.

  1. They’re held for jobs 6–12 months out. Most startups can’t predict if they will even be alive then. In larger startups, the job functions and scale may rapidly change.
  2. Startups are forced to make decisions swiftly. Anyone who has ever hired at an early stage startup knows how dangerous this can be. Ideally, you need many rounds, tasks, and more importantly time to be comfortable about fit, especially early on.
  3. They can suffer from adverse selection. Thanks to the ease of the process, the pay packages being tacitly subjected to market forces, among others, means the risk of attracting the wrong sort of ambition.

So it comes as no surprise that startups fare poorly from this exchange. It’s just not meant for them.

So what should startups do?

Play to your strengths.

Think about it. We live in an amazing world where we’ve built this incredible technology that allows people to find what they want, and talk to whom they need to or want to. It’s called the internet. And thanks to zero marginal costs, distribution is free.

Startups have an amazing ability to compete asymmetrically. And this can be applied to hiring. So what if placements don’t work? Until the career fairs model (whose freer labour market is more amenable to startups) takes off, startups have a powerful ability to pull the right kids to them.

  • Build a brand and a product your future employees use and love.
  • Founders, write about things people — especially young graduates —want to read; your early days, how to build, what to optimize for early in life, your values, how to get hired, what your engineering teams are building etc.
  • Talk about why your culture is powerful. Give talks. Do events at universities.
  • Build incredible internship programs that generate word-of-mouth.
  • Hire fewer graduates. Chose people 1–2 years into their careers. Track them right from college, and make the move when the time is right. Let the large corporates take care of the training that was supposed to come from the universities; you don’t have the time to waste.

Play to your strengths.

Risk-taking is a laudable thing. It’s a pioneering quality that pushes society forward; it’s also deeply fulfilling to the person. Abheek’s approbation is correct, but the lesson of his story is rather that the 90% percentile risk-takers will eventually find a way. Risk-taking is an indomitable urge; and only for so long can you say no to the pull of high adventure.

Enjoyed this? Press ‘heart’ below.

My newsletter: https://tinyletter.com/hermeticsounds