Top talent still won’t come cheap — even in the Covid era

Hiring is almost always a serious expenditure for startups, particularly at a senior level where salaries can be eye-wateringly steep. But if the Covid pandemic lays waste to many once-promising businesses, will we see an abundance of C-suite talent available for hire at rock-bottom prices?

recent report from Beauhurst found that over 600,000 startup and scaleup jobs were at risk in the UK alone, and analysis from Dealroom.co estimates that almost a third of European tech companies are vulnerable or at risk of collapse.

Whilst senior management roles are usually less impacted by layoffs, they’re not impervious and when companies go under, well, everyone goes with them. So, yes, it’s likely there will be a discernible increase in leadership talent on the open job market in the months to come. In fact, even before the end of March I was starting to hear from C-suite execs who were either newly available or worried that they were about to be.

Now, it’s a pretty rare thing for these people to be actively looking for roles so, for startups that are still hiring their senior team, a deeper talent pool will definitely be an advantage. And if there is more talent available, it should be cheaper… right?

Snapping up senior talent

Well, maybe, but perhaps not for the reasons you’d think. Almost all of the senior execs I’ve spoken with recently are pragmatic about their expectations and willing to take a pay cut for a good opportunity, but this isn’t actually a new phenomenon.

At Upscale Partners, we conducted research last year that found over a third of people at C-level had accepted a lower basic salary to join their current startup in the UK. In the vast majority of cases, it was offset by a bigger stake in the business (the average equity held by those who’d taken a pay cut was 2.5%, compared with 1.7% for hires that had been offered an equal or increased basic salary).

Financial flexibility tends to correlate with previous success — individuals who have made good money from delivering an exit (or, indeed, several exits) are comfortable enough to take a pay cut for the next opportunity they believe in. The flipside is that these people can be difficult to move and are rarely found between roles, unless taking a career break. If more of them become available over the coming months, it should create exciting and affordable options for hiring startups that wouldn’t ordinarily get a look-in.

Not a buyer’s market

On that basis, there could be some bigger bangs for your senior talent buck — but I don’t think we’re talking about a buyer’s market here. Despite widespread hiring freezes, experienced leaders will still be sought after and genuine ‘A-players’ will either be snapped up quickly, or in a position to take their time in pondering the next move.

“The shift to remote working means that the competitive landscape is expanding geographically.”

The shift to remote working also means that the competitive landscape is expanding geographically. With tech giants like Google and Amazon extending their work-from-home policies, and an increasing number of startups around the world adopting a ‘remote-first’ approach, potential candidates will have fewer limits on their options, which would throw the talent market wide open.

Making an enticing offer

It’s important not to conflate ‘available’ with ‘desperate for work’, because startups will still need to present a compelling proposition if they’re looking to recruit. In the current climate, most candidates will be even more diligent in probing the risk and robustness of the ambition — so being able to sell a credible vision is going to be vital.

At C-level, candidates are usually looking for some combination of the following:

  •       Exciting technology/IP that has the potential to truly disrupt and make a positive impact
  •       Strong product-market fit with demonstrable traction (or sales, if revenue-generating)
  •       A shared ambition, passion and enthusiasm amongst the team and stakeholders
  •       A healthy runway and committed investors
  •       The scope and freedom to make a genuine impact on the business

Linked to this should be the stock offering — if you can’t be generous on basic salary, then be prepared to make up for it with equity. Index Ventures has a great guide on rewarding talent for European entrepreneurs, and our own research found the following equity averages for key non-founding C-suite roles:

Position Average equity
CEO 5.4%
CTO 2.79%
COO 1.79%
CFO 1.32%

Finally, for those fortunate startups who actually can afford to offer market-rate salaries, don’t be disingenuous in trying to bag an experienced candidate on the cheap — it’s a sure-fire way to damage the relationship, sometimes irreparably.

“Don’t be disingenuous in trying to bag an experienced candidate on the cheap — it’s a sure-fire way to damage the relationship.”

I’ve seen this happen both in the negotiation process and after the person has been hired — in the latter case, the founders had convinced an experienced CFO to join for less than their asking price, on the good faith that they simply couldn’t stretch further. All was going well until a couple of months later when the business broke the bank in order to bring in a CMO on a much higher salary. Trust quickly deteriorated and when the CFO was approached to join another startup with improved compensation, he accepted (leaving the company to spend more time and money on finding a replacement).

Fundamentally, all negotiations are about value perception, so no party should end up feeling sold short. It’s unlikely the Covid crisis is going to change that.

Emma Brown is cofounder of Upscale Partners, the specialist search firm for investment-backed tech ventures.

Source:  https://sifted.eu/articles/startup-senior-talent/

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