Small, but attractive — What attracts talent to startups?

If finding top talent is your top priority for this year, you’re not alone. 76% of the hiring decision makers list attracting quality candidates as their number one challenge [1]. For startup companies, this number is likely to be even higher. After all, for most of them, their employees are their number one assets.

Finding and hiring top talent is tough. It’s tough for everyone. But young startups, in particular, have a couple of disadvantages over more established firms, like low familiarity among potential employees or the lack of funding to match large firms’ perks. Nevertheless, a lot of these companies succeed in growing their team. Why is so much top talent joining unknown startup companies? A few years ago, I asked myself this question while I was pursuing my Ph.D. Today, I want to share some of my findings from academic research that shed some light on what drives a typical startup employee and what specifically attracts potential employees to new ventures.

What attracts talent?

In 2016 my co-authors and I asked 307 individuals from Boston, Los Angeles, New York City, and San Francisco to rate a series of hypothetical startup profiles on their attractiveness as potential employers [2]. We contrasted the startups’ employment offering with their legitimacy as employers. In essence, we asked whether a startup’s perks, monetary incentives, their culture, and their vision for the company were more important than, for example, the work experience and entrepreneurial track record of the founders as well as the reputation of, for example, the startup’s investors. Going through the hypothetical start-up profiles, our participants were confronted with decision scenarios like: Would I work for a startup that has a bold vision and great team, but is paying below-average salaries and is run by founders with limited work experience? Or, would I rather work a startup that is fully financed by a reputable VC firm and offering great financial benefits and perks, but seems to not care about the relationship between management and employees?

One of the results of this experiment was a list of employment aspects ranked by their perceived attractiveness to job seekers. Here is the ranking of our study, from most to least important:

1. Monetary incentives like fixed salary and bonus as well as other non-financial perks like company get-togethers, free breakfast, and top-notch tech equipment.
2. The relationship among employees as well as the perceived support by management.
3. The ideological aspirations of the startup, such as having a bold vision to innovate.
4. The legitimacy of the startup signaled through, for example, reputable investors or business awards.
5. The legitimacy of the founders based on their previous academic, entrepreneurial, and work experience.

Finding entrepreneurially-minded talent

You might think that the fact that money attracts employees is not big news. For us it was though, as start-ups (especially young ones) are rarely able to pay competitive salaries. So how would anyone ever decide to work for a start-up if money would be the top criteria to apply? Who would apply regardless of monetary disadvantages? To answer this question, we turned to analyze whether the entrepreneurial orientation of our participants played a role in their decision making. Do individuals that are particularly proactive, innovative, and risk-taking (three core entrepreneurial traits) take different judgments when it comes to evaluating the attractiveness of startups’ employment offering?

Here are three things that we learned:

1. Innovative employees care less about monetary incentives but more about a startup’s vision.

For startups with tight funding but a strong need to innovate in their market segment, this is good news. For entrepreneurially-minded talent with a strong innovative behavior, typical elements of remuneration such as salary levels are less important. What counts is the startup’s vision. To succeed in hiring innovative employees, the startup’s vision has to match the potential employees’ personal needs and values. You could almost say that innovative employees tend to accept lower pay as long as it satisfies their need to work on something innovative and exciting.

2. Employees’ work experience matters

Whether you are trying to recruit senior talent or junior startup enthusiasts actually makes a lot of difference: While entrepreneurially-minded, innovative senior candidates tend to be more attracted by a firm’s vision and a legitimate, reputable founder team, entrepreneurially-minded, risk-loving junior candidates tend to be more attracted by an environment with strong relationships among colleagues. For sure, more senior employees will benefit startups with their experience but they also expect a higher pay. Importantly, however, this findings tells us that fancy perks and a kick-ass office are not enough. Talented employees look for meaningful work and a company culture that allows them to strive. And what employees look for in particular seems to depend very much on their level of work experience.

3. There are alternatives to matching large firms’ salary levels, especially for entrepreneurially-minded talent.

Despite limited financial resources, startups need to offer and promote financial incentives and other non-monetary perks — after all, those still seem to work best in attracting employees. However, in our study a supportive and caring company culture as well as an enticing vision also ranked high, especially among entrepreneurially-minded employees. The advantage: Having a great company culture and a strong vision to innovate costs little and both can be developed internally almost immediately after founding the startup.

Whatever your hiring priority is for this year, these research insights may help you to recruit a stronger team, to attract entrepreneurially-minded people, and to build a better organizational culture. If you want to find out more, feel free to read the original publication or a short piece about one of my previous studies published in the Harvard Business Review.