Today’s economic environment favors financial conservatism and risk avoidance. Firms that value cost savings over rapid expansion are rewarded. Investors are reacting to the shift in focus from the last decade of relatively easy money that rewarded innovative disruption – a perfect environment for startups to thrive, and they did.
Over the past few years, startups have attracted the most talented workforce through high salaries and promise of equity payoffs. But as the money pool undergirding the startup industry dried up, so, too, did the ease in hiring.
Obstacles to employment
Today, three primary obstacles to startup team building are becoming difficult to ignore as uncertainty rises.
Old competition is new again
Competing with an established firm in the same or similar industry poses a problem for startup employment. Prospective employees wanting to minimize risks prefer to work for an established company that guarantees financial stability. Promises of outsized spending on in-office luxuries and future equity payoffs are increasingly less believable as the investor money funding these startup mainstays rotates into more value-driven investments.
The bottom line is that investment money is no longer thrown at every startup in the Bay Area in hopes of capturing massive tail successes and unicorns with multi-billion-dollar valuations like Square, Inc, and Instacart.
Find free courses, mentorship, networking and grants created just for small businesses.
Imprecise outlooks
In addition to fewer material benefits for employees, startup firms need to become more focused on tangible goals and well-developed glide paths. Startups cannot have vague mission statements and plans, nor can they do expensive R&D on every potentially promising side alley. Employees need a strategic vision, and many startups are not used to strategic development beyond “we seek to disrupt the legacy industry through new technology and addressing a growing market share.”
Like financial risk aversion driving employees to reliable standby firms, future uncertainty and shrinking job prospects force startups to develop their immediate and long-term outlook. This uncertainty is reflected in how in the United States, only half of millennials have more in savings than in credit card debt. Across the border in Canada, 75%+ of millennials are considering purchasing electric vehicles just to help save on daily fuel costs incurred while driving to work.
But the macroeconomic outlook isn’t the only disruptor to hiring.
$10K Grants Are Back! How to Apply and Learn with Verizon Digital Ready
A new mentality
Upcoming generations have different values than previous ones, and this contrast is particularly stark in employer/employee outlook. Remote work became the norm during the COVID-19 pandemic, and millennials are wary of returning to the office. This isn’t the only cultural shift for millennials and the Gen Z population, and many more are more entrenched in the prospective employee zeitgeist.
Changing norms and the need to change with them
Startups, and companies in general, need to adapt to changing cultural norms. Millennials and younger generations are emphasizing their work/life balance, with more than 90% valuing that balance over other material benefits.
This driver is a fundamental change that startups need to react to if they are to attract top-tier rising talent. Startups are notorious for long hours and a culture that rewards those putting in the time in late-night and early-morning work sessions. Remote work can even exacerbate the feeling of always being in the office, with the average work day up to one hour longer than in-office work.
These changing norms mean startups must be proactive in competing for employees with non-material benefits. Even if the macroeconomics were healthier, new generations prioritize a work/life balance over pay, and millennials would even take a pay cut for a better balance.
Not only has this made prospective employment difficult for startups, but it’s also affected retention. The Great Resignation proved this – 4.5 million employees quit in March 2022, and the job market continues to favor the workers with low unemployment and high demand from companies.
Even if new generations don’t overtly quit, many employees are “quietly quitting” or reducing their output and quality of work while remaining on salary to protest against perceived injustices. One additional contributing factor is the rise in hustle culture, with as many as half of the generation making around $10,000 annually with a side hustle, demonstrating that traditional employment isn’t the mandatory lifestyle it once was.
Startups must react to these trends and socio-psychological changes and revisit these aged cultural cornerstones of startup culture.
More Money Isn’t the Only Thing That Will Attract Quality Employees
How to find employees today
It isn’t all doom and gloom. Startups are inherently more agile employers and can react to economic and cultural changes faster than legacy firms with long-entrenched norms. To better recruit and retain employees, startups should:
Adapt to the times
Proactively monitor emerging trends in employment outlook from both the employer and employee perspective. Changing economic variables means that your firm cannot afford to offer generous compensation packages or be too discerning in screening applicants. Instead, find a middle ground – reinforce “legacy” workplace norms that are critical to your vision but be flexible if changing aspects of your culture isn’t a true life or death scenario.
Also, realize that you may not be able to get the best of the best, so develop secondary and tertiary screening criteria to get the best of what’s available.
Manage expectations
Determine what’s needed instead of what’s nice. If you have an abundance of jobs that can consolidate into two or fewer titles and roles – do it. The money isn’t there to onboard a new hire for each new area of emphasis, so cross-train and manage workforce bloat.
Focus on the big picture
Winnow down the firm to what matters, financially and strategically. Startup angel investors and private equity will start wanting to see a tangible return on their investment and will be less patient in waiting for 10x multipliers. Instead, cost-cutting and revenue generation will be essential.
This will also let you manage workforce expectations. If you must internally justify expenditures, you may have a more challenging time advocating for three new hires that one person could do on their own over new manufacturing efficiencies. Narrowing the company’s focus to critical strategic infrastructure helps too. Showing employees a clear vision for the future reinforces their confidence in longevity and, thus, the viability of continued employment.
HR Experts and Business Leaders Share Their #1 Tip for Hiring Top Talent
Improve and iterate
Continually improve processes by treating recruitment like your R&D management systems. You wouldn’t stick with a method of production because it was the first you tried, irrespective of the outcome, so why do it with recruiting? Constantly evaluate what processes bring the best recruits, what motivates them to accept positions, and what retains that talent. Tweak, blend, and modify often to find out what’s optimized and what isn’t.
Conclusion
Recruitment is rarely easy, and it will only get more complex. The competitive landscape is shifting in favor of mature firms with steady cash flow and reliably steady employment prospects. Instead of throwing money and equity at top talent to draw them away from other startups, you’ll now need to offer financial steadiness and a clear vision of the future. Startups have long been hailed as technical innovators and market disruptors. Now is the time to use that adaptability and flexibility in recruitment.
