Europe is going through tremendous challenges, recently exacerbated by the Brexit mess. I spend a fair bit of time in Europe on a regular basis, and every time I am there, I feel anguished by the malaise that envelops so much of the continent.
In theory, Europeans know that they have to get on the entrepreneurship bandwagon, and certain cities have successfully jumpstarted thriving eco-systems. Berlin is doing a nice job, and London was, until it opened this new can of worms.
There are, however, other ideas that I am thinking about, to give the continent a boost. I would like to see some European entrepreneurs step up to the plate and start executing on them.
Among the cities I have recently visited are Bologna and Palermo in Italy, Vienna, Budapest, and Prague. My contention is that there are pools of talented programmers in these and other cities who would want to work on interesting projects, but perhaps lack opportunities.
The international demand for technology talent has left Europe somewhat under-leveraged. Primarily, archaic and deeply leftist labor laws are to be blamed for this deficit. Companies don’t like to hire in Europe lest they cannot fire people if things don’t work out.
So, my thought is to be creative about these constraints and create a marketplace like Upwork but with a specific focus on European freelance talent. The other thing I would like to suggest adding to this marketplace is a network of co-working spaces in different European cities where the talent can come together to work together. And finally, I would like to see training built into the framework as well.
So, let’s say, I am a programmer with Ruby-on-Rails expertise, and I want to work for a US startup, I can enlist myself on this marketplace, and get placed into such a company.
On the other hand, if I am a US company that wants to build an off-shore team in a place where the competition for talent is low, and I can build a low-attrition, stable team, I can work with this marketplace to hire, say, a dozen programmers who fit my requirements, in Palermo or Bologna.
My newly hired team has been sufficiently trained to hit the ground running by the marketplace, that is also performing, essentially, as my hiring agency.
My newly hired team works out of a co-working space in a restored palazzo on Piazza Verdi in Bologna.
This team of 12 are not on the US company’s payroll. Nor is it on the European startup’s payroll. All the employees are freelancers, and they just work out of the co-working space, and get trained and placed by the startup.
What about the business model for such a startup?
Well, there are several components. First, the hiring company pays a recruiting fee to put the team together, including training charges. Second, there is a monthly fee for the co-working spaces that the hiring company also pays. And thirdly, there is a commission on the fees paid to the freelancers, all of which are processed through the marketplace.
Let’s look at some numbers.
Say, Company A in Silicon Valley hires a dozen engineers in Bologna at a monthly fee structure of $5k/month or $60k/year. That’s a $60k/month or $720k/year billing. If an upfront recruitment and training fee of 25% of that amount is paid as the first component, that amounts to $180k. The second component, say, is another $250/month in co-working space fee per hire, that amounts to $3k/month, or $36k/year. The third component, say, is 10% commission on the package, which is $500/month per person, or $6k/month for the team, and $72k for the year, recurring.
So, the total revenue that can be generated by placing a team of 12 is $180k upfront, plus $108k/year.
To get to a $1M annual run rate, we need 10 such teams to be placed, which will also generate $1.8M in upfront fees.
The model, I believe, is quite scalable.
And various entrepreneurs all over Europe can start such initiatives in their local geographies as well.
Google founder Sergei Brin recently reinforced a point I have been making for years: Do not come to Silicon Valley to start a company. It’s too expensive. With this model, however, Europe can tap into Silicon Valley’s entrepreneurial expertise and experience, while offering a cost-effective and low-attrition way of scaling teams at dramatically lower costs than the Valley.
Traditionally, India has been Silicon Valley’s low-cost center. However, India is neither that low cost, and definitely not low attrition anymore. The competition for talent in India is terribly high now. Building a stable software team is tough.
Europe should make a play for this opportunity.
Photo credit: Josh Hallett/Flickr.com.