Why India’s Startups Are Losing Their Talent

This article originally appeared in Quartz. View the article here.

The glory days of India’s startups seem to be coming to an end: Valuations are dropping and funding is slowing down. But most importantly, high-profile departures have become a trend.

With saturated markets and poor innovation, startups that were once quick to throw money at talent from the West are now laying off hoards of employees or even shutting shop completely. And in the midst of this churn, some executives have even started burning out, leaving behind big-ticket salary packages for the respite of other, more mature industries.

Mumbai-born Dinesh Mirchandani, an engineer from BITS Pilani, isn’t surprised. After graduating with a masters in computer science from North Carolina State University, Mirchandani worked at minicomputer maker Digital Equipment Corp in the US for ten years. But upon his return to India in the early ’90s, he decided the local tech sector was simply too underdeveloped to join.

“It was all about labor arbitrage,” Mirchandani says. “There was no meaningful innovation happening.”

Instead, he joined Boyden India, the oldest premier executive search firm in the country that was first brought to India by his father. While the company has helped recruit many experienced locals and expats to big-name Indian companies, Mirchandani’s work has steered clear of budding startups for the most part. As he explained in a conversation with Quartz, that’s because the sector is yet to grow up.

This conversation has been edited and condensed.

What’s going on with startups in India right now?

When we pick up something, there is this rush towards exuberance. Everything is great, you know you got 10 unicorns in India. Everyone is saying we all want to work for Flipkart and there’s this massive rush of people trying to get through the door at Flipkart…(Then) someone comes along and says I’m going to double what you’re making and give you 8x in stock. They want to make their big bang, Rs40-50 crores ($6-8 million). Today those same people are out of a job. What they didn’t realize is how fast things change, and the things that have changed are the valuations.

I know Uber is valued more than GM (General Motors) but there’s some meat behind the model here (in the US). The problem with some of the firms in India is that they don’t have the substance to justify their valuations. Someone came in and set correction points; they started firing people, and I’ve seen this before during the dot-com boom bust.

With the slicing of valuations and the current funding crunch, should startups stop bringing in talent from abroad?

There is a case to be made to bring in talent from the outside when you don’t have skills of a certain kind. If Flipkart is scaling up and they need a technology backend that you can only find in Silicon Valley or, say, Germany, it makes sense to go into that market and find the best in class.

Expats are no longer that much more expensive than locals. The whole idea of expats is not fancy perks, those have vanished. Indians are being paid in dollars right now. Sometimes Indian talent is overvalued…you can actually get a much better deal on a person [from abroad].

Are there particular positions you should not hire foreign talent for?

It really depends. For instance, when hiring a CFO (chief finance officer) a local knows how India works but there’s a case to be made about hiring an outsider with a different approach, fresh thinking, and no baggage.

What are the benefits of hiring in a structured manner?

Whether you’re a startup or a 100-year-old company, you have to get the structure right. What (startups) do is they say, let’s hire people and base the structure around them. But you really need to architect the structure right, then go out and start hiring. If you do that, I think you have less chance of misfiring.

What should startups be wary of while hiring?

You can’t bring in someone, double his fixed compensation, and then offer stock on top. If you’re smart, they’ll take a cut in pay to join you or, at the worst, they’ll move laterally. You’ve got to keep your cost base down.

Is diversity a concern in India, as it is in immigrant-filled Silicon Valley?

I think companies in the tech sector are definitely getting more diverse about hiring needs. They are no longer fussed about sending a Tam-Bram to Houston. That says, ‘we are in your market, we’ll recruit people who are qualified and blend them into our culture,’ just like an IBM does in India. TCS (Tata Consultancy Services), Infosys, all top tech firms have a very multinational workforce.

What about gender disparity? Is it getting better or worse?

The number of women doing engineering degrees or (working) in tech is much more than when I was in college. But there’s an inherent challenge. Women drop out of the workforce.

Now, the 26-week maternity leave is something people are going to have to struggle with. It will compel some firms to say, let’s not hire women unless they’ve had their kids. It’s nice that they (the government) try to do this but there are other things they could’ve done first.

The government doesn’t mandate how many women you should have in the private sector, maybe they should do that. You know, say, “when you file your returns, we wont accept it until you can show us a gender-balanced workforce.” What companies could do is make it easier for women to work flexible timings.