Why startups should thank the IITs for blacklisting them

5th Sep 2016
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So after a tussle with the startups that rolled back their job offers, the IITs recently blacklisted 31 startups from hiring on their campus. Many well known startups like Zomato, Grofers, Portea, Nowfloats, HopScotch and Zimply got thrown out immediately, while others, Flipkart being one, were let go with a reprimand. The message was loud and clear:

“We have blacklisted 31 companies for playing with the career of our students,” said Kaustubha Mohanty, coordinator of the All IIT Placement Committee (AIPC). “Collectively, we wanted to send a strong message to the companies, especially the startups, who come to campus and then dishonour their promise...”

Thank-you

While “playing with the careers” looks a bit stretched, the IITs are justified in cracking down on these startups. Retracting or delaying job offers is harsh and does impact the career plans of the affected students. However, it would have been much better if, instead of completely shunning them, the IITs had left the decision in the hands of the individual students, some of whom may have wanted to take more risk for potentially higher rewards.

This is an opportunity for startups to rethink their hiring

Instead of whining and sulking, startups could actually use this as an opportunity to rethink their hiring.

Most of the startups making a beeline to hire at the IITs are heavily funded. Many of them are yet to find a sustainable business model and most have still not achieved profitability. But thanks to the rich funding, their talent acquisition strategy is to hire predominantly from the IITs and other competing startups, whatever be the cost.

The result– there is bidding war for talent in the overall talent market, which has pushed up salaries significantly. Quartz just featured a detailed article on this topic, according to which the startups in India are offering massive pay packages that go up to Rs 70 lakh per annum. Data from various other sources also indicate that the salaries at top startups have increased 40 percent in the last year. This concurs with the salary numbers Mahesh Murthy complained about in his Facebook post last week:

IIT-blacklisting-starting

Higher salaries are good for the employees, but might be a risky bet for these startups. As per the above Quartz article, technology startups in India today are spending between 50 percent and 70 percent of their budgets on salaries. No wonder many startups are shutting down (e.g. Askme) or otherwise downsizing their employee strength (e.g. Grofers, PepperTap and Flipkart) when the going gets tough.

It’s time to hire on the fit, not on the brand name

Hiring from the “branded talent pool” available from the top institutes and other top startups is tempting, but may not always be the best strategy for all startups. Competitively, this high cost can be crippling– data available shows that well-funded startups are paying almost double the salaries for the same level/quality of job roles as compared to other startups with pockets not quite so deep. And even after paying this high premium, the talent doesn’t seem to be  sticking around.

NV chart 1

For many startups, there is a better strategy. Followed by statups such as Zoho, Wingify and QuickHeal, this involves tapping into the talent from other places and grooming them for bigger roles. A search on LinkedIn for tech roles shows the following difference:

NV Chart 2

This indicates that these startups hire a lot more talent from top regional colleges rather than only hunting for folks from the IITs. And they have done just fine- they have built world-class products as complex and large scale as any other startup. This strategy not only saves tonnes of money but also succeeds in recruiting people who fit the role better and stay longer in the organisation.

In conclusion, I hope this crackdown by the IITs will make startups revisit and revise their hiring strategies in their unique context. Blindly copying other startups and bidding for top rated talent is not only bad for the startups themselves, but also to the ecosystem in general (think artificially high salary expectations, more shutdowns and layoffs). The focus should instead be on finding the talent that is the “right fit”; talent that will stay and grow with them for the years to come.

I would love to hear more viewpoints on this issue. Let me know yours in the comments section!

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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Authors
Nikunj Verma
Nikunj is CEO at CutShort which connects top professional with the right jobs using AI, gamification and network graph. He is a MBA from XLRI Jamshedpur.

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