Indian internet startups have a ‘soaring salaries’ problem

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Indian startups in internet-led sectors such as e-commerce and cab-hailing apps are not short of funding, but they are increasingly spending more on salaries as they scale up and try to stay ahead of rivals.

The country’s huge outsourcing industry has led to an explosion in the number of information technology workers, but most of them do not have the high-end skills and abilities that are now required by startups. Those who do, are coming at a big premium. Thus, the salary spend is taking funds away from expansion plans.

“Large funding rounds of the bigger e-commerce giants, a lack of right people in the market, and intense competition has meant the ‘good, employable’ skills are being paid very large salaries. I have seen engineers being paid 3x to 4x above the normal, accepted levels at a particular skill set and experience bracket, simply because the founders could not afford to let them go,” said Titash Neogi, chief product officer at Themeefy, an edu-tech startup. 

Venture capital firms have invested $4.5 billion in Indian startups so far, surpassing the $4 billion invested the whole of last year, according to data tracker Venture Intelligence. But that might not be enough for firms to scale up given how fast the salaries have risen, at levels they did not expect.

“Good tech skills are in short supply, especially around tech such as Node.js, Bigdata technology, UX and UI design as also in the areas of content marketing, growth hacking, product management, analytics and security. It’s really hard to find people who really understand these from the ground up,” said Sandeep Todi, co-founder, Remitware Payments, that facilitates on-demand remittance payments between nations.

For certain roles, salaries in India are at par with the pay for similar roles in the Silicon Valley. For example, senior technical staff who lead teams are making about $200,000 a year, double of what they were making in 2012, with annual raises of about 30-40 per cent. That’s a lot, compared with India’s per capital income. And organisations are being forced to cut back after raising salaries in the last year.

“Startups are with their back against the wall because everyone is chasing those ‘assets’ which are in short supply. Sadly, the best bidder always wins though smart folks do look at the job content and not just the money. It would be sad to see more Zomato, Housing, and Tinyowl-type layoffs where startups have to cut manpower costs which they drove up in the first place,” said Todi.

And they are going to stay that way, because of a shortage of such skills. India has about 1.3 million software developers, and about 4,000 startups. But it still has a lot of catching up to do with the U.S. has twice as many developers, who are also better trained and have experience of scaling up startup operations. And while China has less startups, it has some of the world’s biggest by valuation, such as Alibaba and Xiaomi.

Startups in sectors such as food delivery apps, e-commerce and financial tech such as bitcoin, payments and wallets will need to continue paying significantly higher than market rates. “These are all areas where domain-specific skills are in short supply because new habits need to be formed and cutting edge technology is needed to make all pieces work together,” says Todi. For e-commerce and food delivery apps, the challenge is providing last mile connectivity and handling massive scale.

Companies like Flipkart, Snapdeal and inMobi have hired people from the Silicon Valley to try managing the shortage of such skills, and that has come at a high cost. They have managed to absorb that, being flush with funds, but other startups might find it difficult to survive with such salary rates particularly because funding has been skewed in favour of certain sectors while several startups need to hire people with advanced skills. “I think the entire early stage startup industry is at a peril right now due to lack of talent – leading to thwarted innovation, and high failure rates,” said Neogi.

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