Are startup hires different from others?

If you’ve read my previous post, Not a respectable career choice, on how fresh engineering graduates feel about joining startups at the entry-point of their careers, you would have realised that startups are not a priority choice for fresh graduates – engineering or otherwise. This presents a tough situation for startups as, in most cases, startup enterprises neither have corporate reputations to speak of, nor are able to pay high salaries to attract experienced industry executives. So, they have no choice but to fall back on hiring fresh graduates, or others trained in specific vocational skills.

Like all businesses, large and small, most startups feel it’s essential to have a good team to execute a project or run their businesses. They may not have large funds at their disposal, but they know that if the team isn’t right, then it’s bad for the business. Things don’t, and won’t, work well. During my meetings with entrepreneurs across India, I discovered insights which I feel are worth sharing here – if only to pass on wisdom to other would-be entrepreneurs, or perhaps graduates who may change their minds and consider joining startups after reading this blog post.

Owners of startup ventures are no different from CEOs in large businesses in believing that quality is important. Perhaps one difference is that they cannot risk hiring three persons to do a job if one right person can do the job efficiently. So, startups automatically tend to look for and hire efficient people… at least, from the lot that comes knocking on their doors. Of course, startups face a serious problem: most hires don’t stay long. Most startup employees leave when they get better jobs. Which happens all the time! Retaining people is a serious challenge for startups.

One way to solve this problem is to keep looking for people until the right ones come along. That’s, of course, time consuming. Another way is to identify people from universities, colleges and vocational training institutes and offer jobs to the right ones – or the ones who would consider startups as career options. One entrepreneur told me that he was a faculty member in an engineering college, and while teaching and working with students, he would identify the right students and ask them if they’d like to work with him. Some have joined him. Others have provided references to prospective hires. Many startups hire their teams through references.

What kind of a mindset and maturity does the entrepreneur need to have to identify and hire the right people? Well, seldom do startups hire by the hundreds. They hire fewer people based on their projects and needs. An engineering startup, for instance, may work on a core technology or a niche business area and have a smaller core team who remain stable for a while. A core team cannot be replaced frequently, so retaining the core team members is a priority for startups. Startup salaries, though on the lower side compared to industry standards, are normally based exclusively on merit. The better a team member performs, the more money he or she earns.

Therefore, the mindset of the person who joins a startup, as a fresh graduate or someone leaving behind other job offers in bigger companies, is somewhat different. And, that’s what owners of startup ventures need to check thoroughly during job interviews. They have to identify and select the right candidate in first few minutes… before getting into the technical questions.

Those who join startups are entrepreneurs themselves. Being an entrepreneur is all about taking risks. So, joining a startup means these persons are mini-entrepreneurs themselves… that they take a known risk on joining a startup. That they know that the job is not scalable; that they can get better salaries elsewhere; that they can lose their jobs at any moment… if funds run dry. Knowing all this, if these persons are still willing to join a startup, they are considered to possess an entrepreneurial mind and are, most likely, the right kind of people for startups.

In turn, they get trained heavily and are enriched in knowledge. This craving for knowledge in lieu of better salaries offered by large companies and the chances of a better life and lifestyle that come with better pays and stable jobs is what drives people who chose startups over others. Apart from this, they have the mindset to get things done on their own… above and beyond their job description. Because they feel that the product they create is their product, not the product of the company they work for. They have a high level of motivation to get things done on their own.

So, they choose more of an adventurer’s life than a more-settled life. They choose a high-risk high-reward option as against a low-risk low-reward option in a larger company.

Not a respectable career choice

A recent article, titled Indian graduates, especially women, don’t want to work for startupsby Diksha Madhok in Quartz India talks about the reluctance or disinterest Indian engineering graduates have in joining and working for startups. The article is based on a recent study of 120,000 students who graduated last year from more than 500 engineering colleges.

The study, which was done by Gurgaon (Haryana) based career consulting firm Aspiring Minds, finds that only 6% of engineering graduates (both male and female students) would aspire to work for startups. Another 32% would consider small and medium enterprises as a career choice; while 62% of engineering students would prefer working for bigger companies.

Image courtesy qz.com and Aspiring Minds

Image courtesy qz.com and Aspiring Minds

The article mentions that, in comparison, 18% of students in China and nearly 50% of students in the US have indicated their interest in working for startups or small companies – broadly described as businesses employing less than 100 persons. That’s probably because India’s startup industry is in its nascent stages and the startup ecosystem is yet to be formed, suggests the article.

The article also offers possible reasons for such reluctance to seek employment at startups and/or small companies by graduate engineering students:

One of the reasons for such a lukewarm response is that working for startups is still not considered a respectable career choice by one’s family and peers. Startups tend to lack job security and the resources of larger firms. 

“At a social gathering, you want to show off and tell people that you work for a big, famous company,” says Varun Aggarwal, director at Aspiring Minds. “If you work for a big brand, your marital prospects are also better.”

[Citation: Indian graduates, especially women, don’t want to work for startups by Diksha Madhok in Quartz India; Aspiring Minds, Gurgaon.]

The education-skills disconnect

There’s a skills shortage. Not just in India, but the world over. Corporate organisations, large and small businesses, start-up firms, governments, NGOs, healthcare and utility services, industries far and wide, and even education and training institutions which have the onus of producing skilled manpower for the industry and the world’s economy, are all complaining that there aren’t enough skilled people, nor enough people with the right skills, to meet the demand in the marketplace. In short, there’s a disconnect between the supply of skilled manpower from the education institutions and what’s in demand by the industry.

In Asia, where the demand for skilled people is far higher in sheer numbers than anywhere else in the world, governments in specific countries are investing heavily in education and training. India is a case in point, where the college-going population and, in turn, the working-age population (estimated to be growing at 12 million every year) thereafter are growing in leaps and bounds. To manage the growing college-going population, the Indian government plans to introduce another 800 universities and 35,000 colleges by 2020, mainly through public-private partnerships (PPPs).

Despite this focus and growth in higher education in India, employers, be they public or private organisations or the government, complain that the large majority of university graduates who enter the working population are unfit for the jobs in the marketplace. Not only do these graduates not possess the ‘technical’ skills required for the jobs, they lack soft skills as well. They even lack skills and attitudes necessary to adapt to new technologies at work and the discipline to fit into the work culture. These drawbacks mean further investments by the employers to prepare the newly-hired employees into the workforce.

For one thing, the university education curriculum is slow to change with the times. Thus, falling behind in providing state-of-the art education and training needed in jobs in the marketplace. Most of the education is theoretical, with very little focus on practical teaching which is expected to provide actual skills. Moreover, many universities, colleges and training institutes – particularly the new privately-owned ones – lack qualified and experienced faculty members to impart the education and training needed by the industry. There seems to be a skills shortage here too.

India’s higher education vision

“Study after study has shown that a country’s long-term prosperity depends on the quality of its human capital,” says [Jan] Rivkin. “So if we’re really falling down in that arena, we have an economic problem so important that business leaders can’t sit on the sidelines.”
– Harvard Business School Professor Jan W. Rivkin, a leader with University Professor Michael Porter of the School’s U.S. Competitiveness Project in an article by Julia Hanna titled How Business Leaders Can Strengthen American Schools which is published in HBS | Working Knowledge.

If the United States is worried about its education system, then we, too, should be worried about the Indian education system. In fact, we should be worried like hell because the Indian education system is in shambles compared to the US one. More so, because we have millions and millions of more students to manage, educate and prepare for the workforce than what the US education system is facing currently or will face in the next ten years.

If we consider only the higher education segment of the education sector in India, there are 25-27 million students studying in Indian universities and colleges at the moment – and another close to a quarter of a million students going abroad to study every year. This college-going student population in India is expected to grow to 140 million in the next fifteen years. According to the foreword of a FICCI-EY report called Higher Education in India: Vision 2030, prepared for the FICCI Higher Education Summit 2013,

By 2030, India will be amongst the youngest nations in the world. With nearly 140 million people in the college-going age group, one in every four graduates in the world will be a product of the Indian higher education system. By 2030, the already existing challenges for Indian higher education access, equity and quality – will only be greatly exacerbated unless we significantly transform our higher education model. Needless to say, 2030 calls for a new vision and a new aspiration, and this is the genesis of the “Higher Education in India: Vision 2030” report – to articulate an ambitious vision for higher education reform and lay out a roadmap to achieving it.”

These numbers can be mind-boggling to the leadership of any country, let alone India, which is expected to go through a period of change now that a new government is in place.

For several years now, there has been a belief that the private sector in India will be the saviour for Indian higher education. With Public Private Partnerships (PPP), the Indian government will attempt to meet the demand of the marketplace. According to the foreword of an earlier FICCI-EY report called Private sector participation in Indian higher education, prepared for the FICCI Higher Education Summit 2011,

“The unprecedented growth in Higher Education during the past two decades has to a large extent been due to the participation of private sector. This is particularly true in some of the large states of India and also in much of the professional disciplines. Their presence in the Higher Education sector is manifesting in many different forms of colleges and universities. Their investment in Higher Education has considerably supplemented the Public investments and helped to enhance the enrolment capacity in selected disciplines as well as employment potential. In the long run it is anticipated that the proportion of private institutions in Higher Education will be much larger than at present.” – Prof. M Anandakrishnan

And,

“While the public sector has historically dominated the higher education landscape, the role of the private sector has increased significantly over the last decade, with majority students currently enrolled in private institutions. Moreover, the private sector can be credited with the establishment of some globally-renowned institutions that have established state-of-the-art infrastructure and impart world-class education. Going forward, the role of the private sector can be expected to assume greater significance in establishing quality education institutions.” – Amitabh Jhingan

To come back to the FICCI-EY 2013 report, Higher Education in India: Vision 2030, the strategy to involve the private sector seems to have worked to a great extent (although these figures are greater than others published on the internet): “The current higher education system in India is massive with over 30 million students enrolled across 45,000 institutions.”

For now, let us simply accept India’s Union Budget 2014 announcement made earlier today, as quoted by Mr N Chandrasekaran, CEO & MD of Tata Consultancy Services, and reported in The Economic Times online: The FM [Arun Jaitley] has also acted positively to further develop quality higher education and encourage skill development programs.”

[Citation: How Business Leaders Can Strengthen American Schools by Julia Hanna in HBS | Working Knowledge, Research & Ideas, 09 Jul 2014; Higher Education in India: Vision 2030,a FICCI-EY report (PDF); Private sector participation in Indian higher education, a FICCI-EY report (PDF); N Chandrasekaran quote in The Economic Times online.]

Student loans rescue Indian higher education

Figures differ from source to source, but there are over 20 million students studying in Indian colleges and universities as I write this blog post. Today’s article by H Chaturvedi in Business Today, titled Higher education needs a fair deal in Budget 2014, pegs it at 27 million; and goes on to state that that still leaves behind around 100 million youths in the 18-23 years age group who don’t have access to higher education in India.

The picture is dismal, but the Indian government plans to embark upon a next-to-impossible task of introducing something like 35,000 colleges by 2020.

Keeping in view the 2014 Union Budget announcement on 10th July, in his article in Business Today, Mr Chauturvedi says, We do not expect miracles from the finance minister but he can fulfill the promise to spend six per cent of GDP on education, of which 1.5 per cent will be allocated for higher education, provide better access to higher education for underprivileged sections and even middle-class youth.” Yes, we hope so too.

For students who have already obtained admissions in Indian or foreign universities and colleges, the going has not been easy. Apart from government colleges in India, tuition fees in private Indian colleges and foreign universities and colleges are high. If a student has to pay for living expenses as well, plus foreign travel, the expenditure goes into several lakhs of rupees. The low conversion rate of the Indian rupee against the US dollar or the British pound, for example, hasn’t helped the Indian student.

In spite of these challenges, amazingly, the demand for better higher education in India and in foreign universities and colleges continues to increase. Leaving aside the wealthy who can afford to pay for education on their own, Indian university and college students – and their parents – have no choice but to seek student education loans from banks and private financial institutions as a means of rescue from their predicaments.

An article in Financial Express, earlier in March this year, by Surabhi, titled Education loan gets a big boost, reports, “All banks, public sector as well as private, offer both education as well as vocational loans to students for regular degree as well as post graduate courses by recognised universities in India and abroad.

Such loans are an attractive option not only for students from economically weaker sections of the society but even for those from middle or higher middle class due to the easy repayment options and availability of funds.”

The Financial Express article goes on to say,

“Reflecting their popularity, official data reveals that public sector banks have disbursed Rs 57,700 crore as education loans and 25,70,254 such accounts were opened by December 31 last year. Of these, the largest number of accounts were opened by State Bank of India (6,14,957), followed by Canara Bank (2,45,155) and Indian Overseas Bank (2,17,045)… 

Under priority sector guidelines of the RBI, banks can give up to Rs 10 lakh to students for studies in India and Rs 20 lakh for courses abroad. 

But the Indian Banks’ Association — the umbrella body for all lenders, has said that banks can consider a higher quantum of loans on a course-to-course basis. This means that students studying in institutes that have fees over Rs 10 lakh such as the Indian Institutes of Management or the Indian School of Business may get higher loans sanctioned.”

Private sector non-banking financial services companies like Credila (owned by HDFC) or Avanse Financial Services (owned by Dewan Housing Finance) are also noteworthy players in the student education loan market. Credila, for instance, is rumoured to have disbursed Rs.1,000 crores in student loans in 2012. And business is growing rapidly.

Education costs vary widely depending on the education programme, the duration of the programme, the university or college fees, costs of living, travel, books, laptop, etc. An MBA programme in a private institute in India, for example, can start at Rs.5 lakhs and go up to Rs.25 lakhs in more reputed management institutes. Studying in a foreign university or college could mean double or even triple of these expenses.

Student education loan interest rates hover around 13% and normally have a repayment period of 10-12 years. It is anticipated that the 2014 Union Budget will increase the repayment period to 15-20 years to ease the payment burden on the students and their parents.

According to the Financial Express article Education loan gets a big boost,

“An added bonus for students is that education loans are collateral free up to Rs 4 lakh. For loans between Rs 4 lakh and Rs 7.5 lakh, parents have to be a joint borrower and collateral is just in the form of a third party guarantee. For loans above the amount, a physical collateral has to be provided.”

However, there is margin money that needs to be deposited upfront (as a down payment) to the lending bank or financial services company during the loan sanction. It’s usually 5% of the loan amount for Indian colleges and 15% of the loan amount for foreign colleges. Applications which are unable to provide the margin money are usually rejected.

Although the student is the borrower, typically, the student’s parents or close relatives become co-applicants to the loan. This becomes almost necessary during admissions to foreign universities and colleges as a show of ‘proof of funds’ is mandatory to obtain admission.

Says Mr Chaturvedi in his Business Today article Higher education needs a fair deal in Budget 2014, There is a dire need to expand educational loan facilities in the country. Currently, only 1.5 per cent students get educational loans due to high interest rates and cumbersome procedures to get a loan.”

[Citation: Higher education needs a fair deal in Budget 2014 (H Chaturvedi, Business Today, July 7, 2014); Education loan gets a big boost (Surabhi, Financial Express, March 17, 2014)]