Why Startups Struggle To Retain Talents?

Working in a startup requires employees to don multiple hats and do multi-tasking for long hours. The uncertainty also looms over sustainability of startups because of their higher failure rates. These factors lead to poor work-life balance and push employees to jump ships due to job insecurity.

A survey reveals that the startups struggle to retain their employees and have attrition rate as high as 54.38 per cent. The Federation of Indian Chambers of Commerce and Industry (FICCI) in partnership with Randstad India, one of the leading organizations in the HR services industry, has launched their exclusive survey on startup hiring trends. Over 300 startups participated in the survey.

Why Is Attrition Rate High In Startups?

According to the FICCI-Randstad India survey, the high attrition rate in startups is due to factors such as better pay packages offered by larger corporations, as well as concerns over job security in a startup. Other factors contributing to attrition in startups include a lack of clarity around career progression and credibility.

Why Should Startups Worry About Attrition?

The high attritions rates divert the attention of the startup from focusing on its core business to team building by hiring and training new employees. Replacing employees is time and cost intensive as the HR needs to go through the entire cycle of hiring and provide trainings to the new appointees. The overall efficiency of the already short-staffed startups goes down as the additional responsibilities go to the shoulders of the old employees during this transition.

Are ESOPs The Answer To Attrition?

According to the FICCI- Randstad India survey, 57.28% of the surveyed startups believe that ESOPs (Employee Stock Option Pool) have the potential to serve as an effective instrument for retaining employees. Furthermore, 41.49% of surveyed startups have already implemented ESOPs as a retention strategy.

What Is Employee Stock Option Pool? Why Do Startups Need An ESOP?

The Employee Stock Option Pool (ESOP) consists of company shares reserved for the employees based on their seniority and date of employment. 

The Startups use ESOPs to firstly incentivize talent to join a startup and secondly the stock option allows startups to reward employees without increasing their cash burn rate. Giving employees stock options may be costly from an equity perspective—but the startup doesn’t need to pay out any additional cash. ESOPs help startups to retain or hire new talents by incentivizing without burning their cash outflows.

Will Hiring Trend Go Upwards In 2023 In Startups?

Despite the current trend of layoffs among larger corporations, the survey reveals that around 80.49% of the total startups are planning to increase their manpower hiring in 2023, while 15.78% plan to maintain their existing headcount, majority being early stage. 

The startups with a current workforce of fewer than 20 employees, are actively seeking to expand their workforce in 2023. Notably, these startups have secured Series A and Series B funding, are well-capitalized, and are actively seeking to hire new talent. 92% of these startups stated that their hiring decisions will primarily be driven by new project orders, additional funding raised from investors and expansion strategies.

Which Sectors Show Highest Hiring Trends?

The sectors depicting the highest hiring intent include the healthcare sector, IT/ITes, agri/agritech, AI/ML/DeepTech, Fintech and Manufacturing; while Hyderabad and Pune are emerging as regions exhibiting strong intent to hire for senior-level positions. 

Sectors like Agri/Agritech, AI/ML/Deeptech, Automotive, and E-commerce/delivery services are expected to increase hiring in the 11-20% range, while Aerospace & Defense, Energy, and Healthcare startups are expected to increase their hiring activities by over 30%. Overall, sectors depicting the highest intent to hire include healthcare (13%), IT/ITes (10%), agri/agritech (8%), AI/ML/DeepTech (7%), Fintech (7%) and Manufacturing (7%).

Recruitment In Startups Will Be At What Level?

While startups are planning to expand their workforce, a substantial portion, 31.92% anticipate an increase in hiring by over 30%. 28.08% of companies plan to expand their teams in the 11-20% range. 

The study also states that hiring will primarily occur at the junior and mid-levels. Approximately 37.97% of startups have indicated that they intend to recruit more junior-level employees, while 27.27% of respondents are planning to focus on mid-level hiring. However, the Agri/agritech and automotive sectors will focus more on senior level C-suite hiring.

What Are The Key Startup Hiring Trends?

Permanent vs Gig Workforce:  While 57.76% of startups are looking for permanent recruits, only 42.24% are looking to hire temporary and gig workers.

Geography in Focus: Hyderabad and Pune are emerging as the frontrunners in senior-level hiring, reflecting strong intent among startups in these regions. Additionally, middle-level hiring is expected to be prominent across cities such as Kolkata, Bengaluru, Mumbai, Chennai, Pune, and Delhi/NCR.

A considerable proportion of hiring activity across startups is expected to occur at the junior level, with Delhi/NCR, Bengaluru, Mumbai, and Hyderabad being the prominent cities in this category. 

Qualifications in Demand: As much as45.21% of startups are looking to hire semi-skilled employees, while 41.49% of startups are seeking highly skilled professionals. In terms of campus placements, a majority of startups, (67.55%) are focusing on private MBA and engineering colleges, as well as state universities, as these institutes offer quality talent at affordable salary packages.

Only a small proportion (9.16%) of startups are opting for premier institutions such as IITs and IIMs for their campus placements.

The Chairman of FICCI Start-up Committee, and Co-founder, AceVector Group & Titan Capital Rohit Bansal, said, "Startups create a large range of jobs as they grow and mature…A multiplier impact on job creation is seen in the growth and expansion stage when operations expand, and various initiatives mature. The dynamic working environment in startups provides the ideal training ground for aspiring entrepreneurs who then move on to create their own startups. This creates a virtuous cycle of growth, with each successive cohort adding jobs and enterprises. With their pan-India footprint, startups create jobs and economic opportunities beyond just the top cities and are key partners in India's growth story."

 Presenting insights from the startup hiring trends survey, Viswanath PS, MD & CEO, Randstad India said, "Startups are rapidly emerging as significant players in India's employment landscape. With the emergence of several new-age innovative organizations across sectors, the Indian start-up ecosystem will be a significant contributor to India's economic growth over the next few years. More importantly, these startups will eventually go on to create unique employment opportunities and career paths, innovation and competitive dynamics in the world of work.”