Start Ups at a fundamental level turn ideas into businesses. They are created at a very small level and have the potential to grow into a bigger business. However, they are high-risk ventures, with a small percentage of them succeeding.
IMPORTANCE OF START UPS FOR A RECRUITER
There are immense challenges including but not limited to competition, risk management, financial planning, sustainability, culture and leadership. The greatest challenge is to put together the team to get the fledgling organization up and running.
Hiring is the most critical task for a startup, as hiring the wrong applicant can make or break any startup.
Start Ups are a global phenomenon. With both the private sector and the Indian government actively encouraging Start Ups, they are becoming attractive places to work.
In 2021, India emerged as the third-largest startup ecosystem in the world after the US and China, and the pace of growth is not showing any signs of slowing down.
Since Start Ups are gaining popularity, it is essential to understand them better. Such an understanding would equip recruiters with the needed knowledge to formulate appropriate recruitment strategies while faced with the challenge of recruiting for a startup.
In this section on Start Ups, we will first aim to understand Start Ups in general, move on to startup situations specific to the Indian market, and finally understand the recruiting scenario typical to Start Ups.
DIFFERENT KINDS OF STARTUP
Start Ups typically have less than 30 employees. They are financed via bootstrapping, outside investors, or loans. They are not considered corporations or “mature” yet.
There are five common types of Start Ups across various industries, all of which have different approaches to scaling. They are small business Start Ups, buyable Start Ups, scalable Start Ups, offshoot Start Ups, and social Start Ups.
Small business Start Ups
The distinction between a startup and a small business is fuzzy. Perhaps that’s why so many people use the terms interchangeably. Most Start Ups have some “bigger” endgame of being bought out or receiving an injection of cash.
Small business Start Ups are different. From solo businesses and partnerships to small teams, these Start Ups are happy staying Start Ups.
And while they’re interested in growth, they grow at their own pace. Such Start Ups are often bootstrapped or self-funded, meaning that there is less pressure to scale ASAP or be held responsible for the immediate needs of investors.
Buyable Start Ups
The concept here: small teams build a business from scratch and sell it to a more significant player in their industry.
These types of Start Ups are usually associated with software/technology. One often comes across headlines about giants like Amazon or Uber buying out smaller Start Ups. Mergers and acquisitions like this happen all the time. Also, in recent times, increasingly, Start Ups are acquiring other Start Ups.
Building something worth being acquired for millions or billions is easier said than done. Competition is fierce in any given software industry. Remember that Start Ups don’t necessarily need to be profitable to be bought out (and many aren’t). This represents a sizable risk for investors, but an even more significant risk is for business owners stuck trying to sell off a company that’s bleeding money.
That said, there are plenty of independent app-makers and small teams that spend a few years on a business (or even a side hustle) that get sold to a larger company.
Scalable Start Ups
The common thread between all types of Start Ups is the need to scale.
This rings true whether you’re a business with dozens of employees or a duo working out of a room in your home. But some Start Ups are easier to scale than others. Most consumer and business apps are examples of scalable Start Ups: once they’ve built buzz and a user-base, it becomes easier to acquire new customers. It’s a sort of snowball effect.
Scalable Start Ups do this by raising capital from outside investors (think: angel investors, venture capitalists, business partners, friends, family). With newfound cash, they can support growth initiatives to score more customers and eventually grab the attention of folks willing to buy them out.
However, some Start Ups can continuously scale themselves without a traditional exit strategy. Convert Kit is an excellent example of this. The company has received funding in the past but recently crossed $15 million annual recurring revenue and intends to maintain its sort of “startup” status.
Also, companies that scale and seek capital don’t necessarily have to resort to millionaires or billionaires to make it happen. Many Start Ups such as Oculus managed to grow via crowdfunding from eager, prospective customers.
Offshoot Start Ups
Not all types of Start Ups are built from the ground up.
An offshoot startup is reasonably self-explanatory. Simply put, they are Start Ups that branch off from larger parent companies to become their own entities.
For example, an offshoot business might be established in an effort for a more prominent company to enter a new market or disrupt a smaller competitor. Because these Start Ups act independently of their parent companies, they have the freedom to do business and experiment without drawing as much attention or scrutiny.
Social Start Ups
Start Ups are sometimes stereotyped as being growth-obsessed and money-hungry.
That said, some Start Ups are specifically designed to do good. Social Start Ups, including charities and nonprofits, scale for the sake of philanthropy. They operate similarly to any other startup but do so with the help of grants and donors.
A shining example of a social startup is Code.org, an organization that’s managed to raise nearly $60 million (from the likes of Google and Facebook) to help give students opportunities in the field of computer science.
Different types of funding
The type of investors would vary depending on the startup's lifecycle stage. The various financial sources available for a startup are; self-financing, friends and family, angel investors, micro venture capitalists, crowdfunding, venture capitals, late-stage venture capitalists, private equity firms, hedge funds, and banks. Let us look at some of them briefly.
They are typically high net-worth individuals who provide financial backing at this stage in exchange for ownership equity in the company. Usually, angel investors are found among an entrepreneur’s family and friends circle.
Micro venture capital
Micro VC is money invested to seed early-stage emerging companies with amounts of finance typically less than traditional venture capital.
Venture capital invests in Start Ups that have gained some momentum. Start Ups at this stage may already have some sales.
Late-stage venture capital
They provide the financing to grow beyond critical mass and to attract public financing through a stock offering. Late-stage funding has become more popular because institutional investors prefer to invest in less-risky ventures (as opposed to early-stage companies where the risk of failure is high).
It involves attracting small amounts of funds from a large number of individuals. The money is either donated or given in exchange for small equity or other perks.
We saw different types of Start Ups. Although Start Ups are varied, they go through a similar lifecycle as they scale up.
In this early stage, the entrepreneur initiates activities to turn their idea into a profitable business. After that, however, the entrepreneur considers a higher risk or even uncertainty level, continues working on the new venture idea, makes the team, uses personal funds, and asks family members and friends to invest in their idea. Bootstrapping is sometimes defined as a highly creative way of acquiring resources without borrowing. The purpose of this stage is to position the venture for growth by demonstrating product feasibility, cash management capability, team building and management, and customer acceptance. Potential investors in this stage are startup owners, friends, and family.
After the bootstrapping stage, the founder enters into the seed stage. This stage is characterized by teamwork, prototype development, entry into the market, valuation of the venture, seeking support mechanisms such as accelerators and incubators, and average investments to grow the startup. The seed stage is characterized by the initial capital used to do product and/or service. Thus, the founder seeks support mechanisms such as accelerators, incubators, small business development centers, and hatcheries to accelerate the process. A significant number of Start Ups fail in this stage. Since they could not find support mechanisms and in the best case they would turn to a low-profit company with a low rate of success. On the other hand, those who succeed in receiving support would have a higher chance of becoming profitable. Valuation is usually done at the end of this stage. Potential investors at this stage include angel investors, family, friends, micro venture capitalists, and crowdfunding.
The creation stage occurs when the company sells its products, enters the market, and hires first employees. Some in the industry believe that entrepreneurship stops when the creation stage ends. At the end of this stage, an organization/firm is formed, and corporate finance is considered the main choice for financing the firm. Venture capitalists, late-stage venture capitalists, private equity firms, hedge funds, and banks could facilitate the creation stage.
Startup scenario in India
India has emerged as the third-largest startup ecosystem in the world after the US and China, and the pace of growth is not showing any signs of slowing down. Over the last year, India has added several unicorns.
A privately-held startup company valued at over $1 billion is called a unicorn. Apart from unicorns, however, the number of future unicorns called “gazelles” and “cheetahs” in India is growing at an unprecedented pace. “Gazelle” is a startup founded after 2000 with the potential to go unicorn in two years, while “cheetah” may go unicorn in the next four years. Gazelles have an estimated valuation ranging from $500 million to $1 billion, and the valuation of cheetahs ranges from $200 million to $500 million.
The Indian government has been actively promoting Start Ups by launching "startup India.” For the purpose of government schemes, the startup is defined as an entity:
The entity shall cease to be a Startup if:
Further, the startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, set up for such purpose.
Opportunities and stumbling blocks
Role of technologies
The underlying enablers of this startup ecosystem include smartphone and internet penetration, cloud computing, application programming interfaces (APIs), and a national payments stack in place.
Role of Government Policies & Forex Inflow
Increasing Investments Do Not Ensure Success of a Startup
Indian Investors Unwilling to Take Risks
RECRUITING FOR Start Ups
While recruiting, Start Ups primarily look for applicants through employee referrals, then scan their professional networks and seek recruitment agencies’ help.
Processes are less standardized than a large corporate, and an applicant must fit well with the company culture. This is critical for the applicant to succeed in an environment that can be fast-changing until the company matures.
Factors for attracting talent IN A STARTUP
Majority of the startup companies rely on exciting and challenging tasks; a strong team and corporate culture, flexible hours, remote working options, and excellent work autonomy are the main attracting factors for applicants. However, salaries offered by them may not always be the best in the industry.
A strong online presence
Start Ups need to develop a company profile showcasing company culture. Potential applicants would be interested in knowing more about the company. Since a startup is small, one of the main ways a potential applicant would research a company is through an online search. A startup should capitalize on this opportunity and develop a thorough online presence explaining why a potential applicant should consider them. A mature presence on Online platforms such as LinkedIn, Glassdoor, can help attract the right type of talent.
Whom to hire
No matter how obvious this may seem, this is precisely where many Start Ups fail: they hire all the wrong people because they’re not sure who they need. For example, as an early-stage startup, one may need to be focusing more on product development than marketing. How can something be sold that only works in theory? The team needs to decide who should be hired first, then make a plan and stick to it.