Now is the Time for Startups to Hire Top Talent
This article originally appeared in Fast Company on 5/26/23. Read the original here.
A lot of attention has been given to how challenging it has become for startups to raise new capital during the current financial winter. On the other hand, hiring has become easier across some industries. Whereas the past few years have been a crazy market for hiring talent, especially in software and financial services, the balance of power is returning to companies that are hiring. Over the last few months, I’ve been working with a number of portfolio companies that have plenty of months of runway to snatch up top talent. While more technical roles in artificial intelligence, defense, climate, robotics, and life sciences remain competitive for many of these portfolio companies, here is how I see the new hiring landscape shifting.
With large layoffs from many companies, including Amazon laying off 27,000, Alphabet cutting 12,000 jobs, Meta letting go of more than 21,000, and Microsoft reducing its team by 10,000, there is an abundance of great talent available to hire on reasonable terms. Many of these amazingly talented people who have been laid off in recent months want to work on the most exciting emerging technology, including AI, robotics, and rocketry that will take us to Mars. They’re looking for something more engaging and fulfilling than iterative product updates like they were probably working on at their former employers.
If you’re a founder and don’t snatch up some of these incredibly talented people, there is a chance that you’ll be competing against them soon as they found their own companies or find work with your competitors. I think we will likely see a new wave of breakout startups form in the next 18 months as many of these people go and start their own companies. We may not see the dramatic impact of these companies for several years, but the next Google, Facebook, and Amazon (likely in the AI space) are being founded now. Rather than compete against these people in the years ahead, you should scoop them up now.
You can also take a little more time to hire the right people. In hotter market conditions, there is often significant time pressure on companies to make rapid hiring decisions. But in today’s world, you can afford to take more time interviewing candidates and run a robust process involving on-sites and project work to truly determine who is the best fit. Particularly in a world with less access to cash, it is crucial you select the best talent possible and take the time needed to vet people before hiring them. Hiring the wrong talent is the most expensive mistake you can make.
When you have found someone you want to close, you shouldn’t need to stretch anywhere near as far on compensation as before. It appears compensation numbers have plateaued and perhaps even pulled back some. Make sure you are getting the latest compensation data studies to ensure you are well-informed on how these changes apply to your particular hiring needs. Tech salaries increased 2.3% in 2022, below 2021’s 6.9% growth rate, according to a Dice report. I expect 2023’s numbers to be even more modest. This is good news for your ability to attract and retain the talent you need affordably.
Founders should ask their investors for market compensation data to help make a decision about pay and benefits. You should also check these figures with other companies and with interviewees before going into an interview process to make sure expectations are aligned. Few things are as bad as missing a critical hire because you made an insulting salary offer as a result of poor research.
As an early-stage startup founder, I found hiring from my first-, second-, and third-degree networks to be the most effective strategy. This means proactively communicating to your team, your team’s contacts, and the circle beyond them about what you are doing, why it’s important, and how they can help. References from within the network should be taken seriously.
Many lessons have been learned from the massive overhiring that followed the pandemic. Companies overshot their hiring targets because they expected the good ol’ days to keep on rolling. We’re starting to return to a new normal of hiring that is focused on efficiency, accountability, and long-term sustainable growth — all of which are lessons we’re trying to instill in our portfolio companies.
All potential hires should be evaluated in the context of the company’s long-term interest. You do not want to hire for today, tomorrow, or next week. You hire to find the best partners for years to come. A startup cannot thrive with high turnover rates. Every employee must evolve and grow with the company as it grows. It is easy to get caught up in growth for the sake of growth. Every time you hire a new team member, you should know exactly why you are hiring that individual because hiring is a startup’s single greatest risk.
Despite decreases in startup funding and massive layoffs, there is reason for startup founders to be optimistic about the future. Startups are in a unique position to take advantage of the opportunities that arise during the current economic winter, and that includes hiring. The founders who take advantage of these economic conditions to strengthen their team and invest in their future will be in a better position when an economic spring finally arrives.
Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in seed-stage companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture.
