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A Startup Idea for Indian Entrepreneurs to Address the Talent War

Posted on Thursday, Jul 14th 2016

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Along the lines of my previous piece, Startup Idea For European Entrepreneurs To Create Jobs For European EngineersI believe there is a set of very similar ventures to be developed in India.

The Indian IT industry is going absolutely gangbuster. In addition to the highly acclaimed Services industry, over the past decade, a thriving startup scene has also now come together.

Across the board, however, a tremendous talent shortage is developing. Especially for entrepreneurs trying to build stable product teams, the battle is uphill.

My solution, once again, is to look outside the major metros and build teams in small cities with local engineering talent. An entrepreneur can create a marketplace like Upwork but with a specific focus on Indian small-town talent. The marketplace also has a network of co-working spaces in different Indian small towns where the talent can come together to work together. And finally, there is training built into the framework as well.

So, if a programmer with Ruby-on-Rails expertise wants to work for a well-funded Bangalore startup, she can enlist herself on this marketplace, and get placed into such a company.

On the other hand, a Bangalore company that wants to build a satellite team in a place where the competition for talent is low, can build a low-attrition, stable team. It can work with this marketplace to hire, say, a dozen programmers who fit its requirements, in Shantiniketan or Siliguri.

This newly hired team has been sufficiently trained to hit the ground running by the marketplace, which is also performing, essentially, as a hiring agency.

This newly hired team works out of a co-working space with nice amenities.

This team of 12 is not on the Bangalore company’s payroll. Nor is it on the marketplace 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?

There are three 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 Bangalore hires a dozen engineers in Shantiniketan at a monthly fee structure of $1k/month or $12k/year. That’s a $12k/month or $144k/year billing. If an upfront recruitment and training fee of 25% of that amount is paid as the first component, which would amount to $38k. The second component, say, is another $50/month in co-working space fee per hire, that amounts to $600/month, or $7.2k/year. The third component, say, is 10% commission on the package, which is $100/month per person, or $1.2k/month for the team, and $14.4k for the year, recurring.

So, the total revenue that can be generated by placing a team of 12 is $38k upfront, plus $21.6k/year.

To get to a $1M annual run rate, we need 46 such teams to be placed, which will also generate $1.7M in upfront fees. In some cases, existing startups would expand their hiring, and 12-person teams would expand to 36- or 48- people teams. So 46 teams may not necessarily be for 46 separate employers, they could well be just 20-25 employers.

Also, the only employers who should be targeted by the marketplace are those that have solid funding (Series B and beyond).

The model, I believe, is quite scalable, and it will generate a lot of high-paying jobs in small town India.

And various entrepreneurs all over India can start such initiatives in their local geographies as well.

It looks like entrepreneurs in Bangalore, Hyderabad, Pune, Chennai, Mumbai, Delhi-NCR can each use their satellite centers where they build their stable team extensions as the Indian startup eco-system matures over the next decade.

Photo credit: Courtney Boyd Myers/Flickr.com.

 

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