In venture capital, you soon learn that one factor, above so many others, differentiates the best companies from the rest – talented people. Not just as founders, but at all levels.
This is especially true in software. I work in a VC firm that backs cloud software companies. These companies are united in that they have low physical inventory, and limited overheads in terms of developing and distributing their products. Without expensive warehouses to pay for and complex logistics to manage, the variables for ‘winning’ boil down to people.
So, when the talent landscape changes, this can have a huge impact on software companies in particular. It is worth noting, then, that in just one year, the base salaries for tech roles that are essential to growing software companies have shot up. They haven’t simply risen at the usual rate either, they have leapt up.
Three roles that come up often in early-stage ventures are junior software engineers, product managers and VPs of sales. These roles are critical and cover three key elements of a SaaS companies’ lifespan: product design, development and revenue generation.
If you compare salaries for these roles, and how they changed between 2020 and 2021, you will see that the minimum base salary shot up exponentially: 41% for junior software engineers, 19% for product managers and 66% for VPs of sales. The long and the short of this means that for the same three junior software engineers in 2020 who cost €85k, those individuals cost companies at least €120k in 2021.
This huge leap is indicative of a wider industry trend, which is that access to talented people is only getting harder. Following a landmark year in European startup investment, freshly funded startups are in fierce competition for the same talent. Piling on demographic pressures and the ‘Great Resignation’ to boot, founders need to approach the competition for talent as strategically as pursuing fundraising or new business.
There was one interesting data point: the top end of the salary ranges didn’t rise – in some cases, it actually fell. However, this is likely because skilled people are ‘levelling up’. In other words, simple, talented people know their worth and are less likely to settle given the competitiveness of the current market. Those capable of commanding higher salaries and titles did so, likely levelling up into more senior positions. An effective VP sales that upgraded into a GM or CRO role would graduate beyond the VP salary band, leaving the ‘top end’ of the salary band unaffected.
In the current labour climate, ‘low ball’ offers just aren’t going to cut it, and ‘market-level’ salaries are table stakes, especially against the backdrop of rising inflation. So, money talks. But it always has. What else can founders do to win the talent battle? In cases where wholesale increases on salary aren’t possible, there are additional strategies that founders can consider.
Create roles people want – and a clear career path
Top candidates are discerning and take ownership of their careers. They’re looking for signals that the role will help them achieve professional and personal goals. Founders can make this easier by communicating a clear employer brand and articulating a clear route for how people can develop in their roles.
By designing roles with clear career paths and attractive company cultures, founders can put themselves in the best possible position to land the best candidates.
Consider the overall package – not just gym memberships and bean bags
It’s one thing to talk about base salaries and benefits. Bonuses and equity schemes are the key levers that founders can use to attract great talent. Communication on equity schemes is often insufficient for potential employees to understand the full potential of their holdings. The intricacies and mechanics of such schemes need to be explained and presented to employees in terms they can comprehend.
Start (and keep) looking closer to home
Finally, it’s one thing to look at this on a cost basis. When the labour market is competitive, and the cost-to-hire and salaries increase, founders need to consider the fire in terms of value created. How many customers can the person in the job find, how can they expand the product suite, and how can they, in turn, attract new talent.
In these times, retention of great talent is key, and ‘building’, rather than ‘buying’ new talent may spare founders from the talent war.