3 Tips For Startups To Win Over Top Candidates In London's War For Talent
I was at an event last night hosted at Lyst, a gathering of COOs in the London tech scene.
I introduced myself to the group as a "recovering COO" and it was good to see some old friends and make some new ones.
The topic of talent comes up every time we meet. All agreed that hiring great people in London is getting more difficult. There are many opportunities for smart team players who want to make a difference, especially in tech, product and design.
Part of the challenge is finding great candidates. Equally difficult is getting a "yes" after having made an offer. Good candidates invariably have more than one offer to choose from.
Startups are competing with each other and the wider job market for the best talent. Having a strong vision of what the team are trying to achieve is a must. Finding candidates that buy into that vision is the first challenge. Putting a package together that closes the deal is another challenge.
A startup usually has to be frugal with cash. Big salaries are not usually an option. Even offering mid range salaries, a vision and story isn't enough to win the best candidates.
To complicate matters, many candidates don't understand or value the main lever that a startup has to work with, (stock options) and in many cases.
A couple of tips then from the group on how to close a deal with frugal resources...
Tip 1 - the three way offer
To preserve your option pool for those that will value it most, make a three way offer like this.
We can offer you either
a) higher salary, no stock options
b) mid range salary, a few stock options
c) lower salary, generous stock options
This method often works as the candidate will choose what matter most to them. It's a simple risk/reward choice. By only offering stock options to candidates that appreciate their value you can maximise use of the option pool and offer compelling packages to those that want to share the upside.
It's also a great negotiation tactic. In many cases people will choose the middle option. That means the middle option should be constructed on terms that work best for the company.
Tip 2 - offer benefits, but use a menu
In the same way that candidates may or may not value stock options, there are certain benefits which are valued differently by different candidates.
Gym membership, life insurance, critical illness cover, pension contribution, private healthcare. All of these things can cost a company less to buy than it would cost to an individual. Offering benefits as part of a package can increase the overall perceived value without increasing the actual cost to the same degree.
A simple example is healthcare. It might cost someone £100 a month to take out private healthcare if they were to apply directly but under a company scheme the company would only pay say £60.
By offering benefits it means that a modest salary with a high perceived benefits package can be worth more to a candidate than a higher salary with no benefits. Plus, the overall cost to the employer can be lower.
The key to is to structure a benefits package with the maximum value to the candidate that has a minimal cost to the company. To do this, you can create a "flexible" benefits scheme and one way to do this is to use a points system.
A points system works like this. Each team member would have a number of points to spend (e.g. 1,000). Each benefit has a number of points allocated. The points relate to the relative cost to the company. A pension contribution of 1% of salary might cost 500 points for example, maybe an extra holiday day costs 200 points of maybe private medical care costs 300 points. The numbers I've just given are just examples.
The point is that the company only spends money on benefits that the team member actually values. I've built this type of benefits system on two previous occasions and a great package need only cost 5% of salary. The perceived value is more like 10%.
You can also reward loyalty by adding more points for long service.
This kind of scheme works better for growth companies (as opposed to early stage companies) as some degree of setup and administration overhead is added.
Tip 3 - avoid making an offer via a recruiter
Everyone loves to hire direct and avoid recruiter fees but the reality is they are difficult to avoid altogether.
If a recruiter is rewarded with a % of base salary beware of making an offer via the recruiter. They will sometimes bump up the salary demands of the candidate to get a better % cut. If you talk directly with the candidate, you'll get a better negotiation experience and a better result. Make this clear when you engage a recruiter that you intend to work this way. Alternatively, negotiate a fixed fee with a recruiter to avoid any ulterior motives disrupting the offer.
The London talent war has no signs of easing. If you have any other tips, do leave a comment below.