Although it’s not the only startup-friendly city in the US, San Francisco has one of the most dizzying startup concentrations and made itself a reputation for being a sandbox of innovation, especially in the tech sector. In May alone, 14 Bay Area startups secured over $1.1 billion in funding, showing that not even the pandemic could slow down the spinning of this business machine. But, for all its advantages and startup-friendly scene, San Francisco is a highly competitive place, and startups aren’t immune to failure. Before they can count themselves success stories, startups first have to overcome their first impediment: the numbers. Statistically, an estimated 90% of new startups fail, 34% of which do so within their first two years. As for why so many new business startups fail, reasons such as lack of management experience and insufficient funds come to mind, but there’s not the only ones or the biggest. In fact, according to the US Startup Outlook 2019, access to talent was the main issue affecting new businesses in 2019 (63%), even more than healthcare costs and cybersecurity.
A business is only as good as its employees. So, what makes talent so hard to come by, and what can you do when you have brilliant ideas, but no one to execute them?
What are the talent challenges that startup entrepreneurs should watch out?
The San Francisco startup scene is experiencing continuous growth, so we won’t see recruiting, acquisition, and retention challenges going away anytime soon. What are the biggest ones?
High competition. With new startups appearing every day, candidates always have options to choose from. Moreover, when new job openings are created, they’re filled by candidates from similar companies. It’s also a common practice among bigger companies to look for employees at smaller competitors, which cannot compete with them in terms of salaries.
Job hopping. Talent is always in demand in San Francisco, so employees spend less time in one place. This limits efficiency and productivity because startups are constantly recruiting and training and employees don’t have time to grow and mature.
Inflation. Salaries and bonuses continue to grow, to the point where small startups can’t keep up with what well-established multinationals can offer.
Talent development. Once startups hire the perfect team, it’s very difficult for them to invest in the staff’s development because they have to redirect the funds elsewhere. This causes employee dissatisfaction and makes them leave the company.
Can outsourcing boost the startup success rate?
Startup outsourcing is often cited as the surefire way of coping with all the challenges above, and, all throughout 2020, its popularity continued to grow. According to the latest data, as much as 68% of US companies are currently outsourcing some percentage of their workforce. In the next four years, the global IT outsourcing market is expected to grow by $98 billion, thanks to benefits such as:
Major cost savings: outsourcing is currently the easiest way to save money while at the same time benefiting from top talent. It is estimated that an offshore employee costs up to 33% less than an American one. Through outsourcing, startups can manage their budget more efficiently. For example, San Francisco has one of the highest rent prices in the US, and the money saved through outsourcing can make a huge difference because you no longer have to spend extra on infrastructure. Plus, through outsourcing, you avoid dealing with compensation inflation and other financial issues at the beginning of your journey.
Increased efficiency. The business scene is becoming increasingly competitive, so once you have a revolutionary idea, you have to bring it to the market as soon as possible, before other companies get ahead. Because you no longer need to allocate time to employee training and onboarding, the product can be finished faster.
So, outsourcing can clearly help with talent access challenge, but first, it’s important to establish which outsourcing strategy is right for your organization because no, they’re not all the same:
- Hire freelancers on a project basis through platforms like Freelancer, Upwork, and PeoplePerHour. This can be a quick option, but its efficiency is limited to small, one-time jobs.
- Set up an offshore team to work exclusively for you, in your time zone. The biggest advantage here is that you’ll have consistency and work quality, while paying much less than if you were to hire the same team in San Francisco.
- Outsource all work. This option is generally not recommended because you have less control over processes and some things must really be done in-house.
To win in the marketplace you must first win in the workplace.
Outsourcing is a clever way for small startups to keep up with the competition, cut costs, and maintain efficiency levels but, not all processes can be outsourced. You still need a core team right here, and once you find the right people for the job, you need to play the long game. High turnover not only increases expenses, but also leads to workplace tensions, reduces productivity, and affects employee morale, so you need to invest in talent retention.
Unsurprisingly, employees need competitive wages and benefits to stick around. According to a Glassdoor survey, almost half of employees who quit their jobs were unhappy with their salary and received a better offer elsewhere. Moreover, 56% are motivated by insurance, health benefits, and overall financial stability.
That being said, money only matters up until a certain point. Between two jobs that offer similar compensation packages, candidates will choose the one with better advancement and career growth opportunities; people don’t want to be cogs in the machine and work mechanically for 40 hours a week. They want to learn new skills and be part of projects that make a difference in order to stay competitive. And last but not least, employees want to be engaged and feel that their contribution matters. Although this doesn’t cost anything, it can often be overlooked when deadlines and busy schedules come into the picture, but taking the time to acknowledge your team’s efforts and ask for their input really does boost loyalty.