Yes, financial capital is a crucial factor in achieving startup success, but it might not be the most important factor. According to accelerator program alumni, talent acquisition and retention is their largest barrier to growth (easily beating financing).
65% of start-up failures are due to ‘people problems’.
According to Noam Wasserman’s The Founder’s Dilemma, 65% of start-up failures are due to “people problems.” While this is a global phenomenon, early stage enterprises serving low income consumers in emerging markets face an especially tough challenge of attracting and retaining top talent.
In the growing world of impact investing that seeks to support such enterprises, most of the focus to-date has been on solving for the financial capital gap that prevents many promising ideas from scaling up. Structured efforts have been made to connect investors to opportunities and provide support to entrepreneurs on how to more effectively pitch their businesses to potential funders. While financial capital is indeed a critical barrier, an increasing body of evidence suggests that it is not the most important one. In a 2012 survey, Village Capital Alumni (all founders of companies with core impact objectives) cited talent acquisition and retention as their #1 barrier to growth (easily beating financing).
This finding was the impetus for Village Capital and Potencia Ventures to research the state of the human capital market in social enterprises operating in emerging markets. Over the past 6 months, we have surveyed over 200 organizations and conducted in-depth interviews with 35 founders, managers, investors and HR experts at organizations operating in 25 different countries.
Hiring talent is a year-round, under-resourced activity. Tweet This Quote
We’ve worked to diagnose the specific HR-related problems facing these enterprises and the actual toll they are taking on the sector. Later this spring, we’ll be releasing our full report, which will point to potential disruptive solutions and further areas for research. We’ve listed two of the more basic conclusions below, which may not be surprising to some readers – certainly not for the small handful of organizations testing new talent acquisition approaches. What is surprising to us is how little is being done overall at a global level to address these challenges given their obvious importance.
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1) Hiring talent is a year-round, under-resourced activity. Over half of the surveyed enterprises are actively hiring year-round. Only 20% of enterprises surveyed had a dedicated staff member for HR and hiring activities. The vast majority of investors, accelerators, and capacity-building programs are providing limited or no HR support.
2) Enterprises are already paying for outsourced HR Services—and are massively underwhelmed. In-depth interviews with in Kenya and India revealed that a large percentage of start-ups—over 50%– have paid for external HR services to support their recruitment efforts, yet most have been disappointed with the results.
Over the next few weeks, we will be conducting more in-depth interviews to further validate the results of our activities to-date and to stress-test a few potential high level solutions tailored to small businesses.