More Than Wars and Covid, Founders Worry About The War for Talent

In a recent LinkedIn survey, I asked founders and the fintech community at large what they saw as the greatest challenge in the new year. The options in the survey included market volatility, Covid, political turmoil, and the war for talent. Whereas only 6% of respondents picked Covid as the top challenge, an overwhelming 48% pinpointed the war for talent as their top concern.

Believe it or not, based on board room discussions over the last few months, this does not come as a big surprise. In board after board, the founders we work with raise their hand to highlight being able to recruit the best people as their greatest challenge.

Given the amount of funding that has flowed into startups, (two record years in a row after all), most successful startups are now flush with cash, and as they now have to deliver on their lofty goals and ambitions. Not surprisingly, they are all trying to hire rapidly, and in most cases they are going after the same kind of talent, if not the very same people.

So what are the big takeaways from this? There are implications here not just for founders and VCs, but for cities and governments as well. There are many forces at work here, and the conclusions can be nuanced, so it worth picking them apart carefully.

To start with cities and government policy first, one clear conclusion is that cities where top global talent congregates have a lot to gain. Given a legacy of many years where we saw anti-immigrant sentiment rise in Western societies, it is now much harder for talented workers to gain entry and find jobs in big cities across Europe and the United States. Cities and countries which are more welcoming and more attractive for the global talent pool will attract more of these workers, and then will in turn become more attractive places for setting up the big startups of tomorrow.

*Phone taken by yours truly at the London Wetland Centre in Barnes. No, it has nothing to do with the war for talent.*

It is worth noting that the primary axis of competition in this context will be between cities, not countries. For example Miami is emerging as an attractive competitor vs. San Francisco and New York given recent legislative changes to the tax code in that instance. This is not to say that national policies do not matter – decisions around granting visas are usual taken at the federal or national level, and can influence the relative attractiveness of cities within a given country.

Another strong force at play here is the emergence of remote working, especially for tech teams and developers. While some of this will undoubtedly get reversed as Covid (God willing!) becomes more endemic, it would be naive to think that there will be no permanent changes to remote work. Hence, companies that are able to hire remotely, and work effectively across a dispersed geographical base, also stand to gain.

Another winner will be companies that provide the necessary legal and operational infrastructure for remote work, and as QED we have already made several investments into this space we are very excited about.

From the perspective of the founders, there are also a myriad of takeaways that are worth noting. As we have been saying at QED for some time, it is now clear that every founder is first and foremost not in the fintech business, but in the people hiring business. Founders that internalize this fact as well as all the implications that follow, will clearly be better positioned. This probably means that founders will spend at least half of their time on either hiring, people strategy and organizational structure related issues in 2022.

The other big implication is that the cost of losing a team member in 2022 is higher than it has ever been. This in turn implies that retention and employee satisfaction are at all time highs in terms of organizational priorities. While this may be clear to most of us, what to do about it, and how to keep retention high can be far from obvious. While this short article does not allow itself to explore the issue fully, one important insight can be pointed out with confidence. Culture will matter more in 2022 than it ever has before.

At QED, we are known to be big advocates of building businesses on solid foundations such as strong unit economics, but the foundational importance of culture is one that we emphasize just as often. And culture is not something that a founder can outsource or let a Chief People Officer deal with. Culture is existential, and once lost or gone astray, finding your way back home may be impossible. Cherish and nurture your culture, and be clear about what your culture is, but just as importantly, what it is not. The best way to reinforce culture is to openly reward those that exhibit the cultural qualities you are looking to promote, and swiftly deal with those that do things that are counter to your culture. This is especially true for rapidly growing companies. We have many companies in our portfolio that are looking to more than triple their headcount in 2022, and the best founders in those circumstances are keenly aware the challenges involved in maintaining the right culture in with that sort of growth.

In fact, when expanding to a new geography, one of our founders spent a year growing and setting up the new location, primarily because they wanted to make sure that the new country is set up with the right culture. That sort of leadership sets the right tone for the whole organization, and lays the foundation for an amazing culture, not just today, but for many years in the future.

Leave No Business Behind – Capitalise’s Covid Response

More than half a year into the Covid pandemic the grim toll on not just lives but also mental health and our economy continues to build with no end in sight. There will surely be much accounting to be done in terms of which responses were right and which misguided, with many learnings and lessons for the future. Part of this post mortem will surely also include how various business reacted, and what they did to help their respective communities.

In that spirit, Capitalise (which is also a QED investment) constitutes a very interesting case study as the team very much found themselves in the eye of an unexpected but nonetheless perfect storm.

By ways of context, Capitalise works with accountants to give them the tech enabled tools to better serve their small business clients. These tools are varied, but many of them center around helping the small businesses get the funding they need to grow and prosper.

Shortly before the pandemic was yet to hit, Capitalise had embarked on a fundraise as part of its normal fundraising cycle. Given strong traction in the latter half of 2019, the company had decided to push back the fundraise to early 2020. The logic behind this was sound: It would mean using up more of their capital cushion, but nobody had any doubt that they would complete a successful fundraise given the performance metrics they had under their belt.

The fundraise was progressing quite nicely when in February, in the span of a few fateful weeks, it became clear that the virus that had originated on the other side of the planet was now spreading across the globe and would soon be classified as a pandemic. The impact of this on Capitalise was immediate: Small business funding, and by extension Capitalise’s revenue took a big hit, and all the potential investors that had lined up decided to play for time to see how things would shape up.

With revenue falling and the funding round on hold, the team at Capitalise found themselves in a position any founder would dread. Of course, on top of all this came the stress of trying to run a business which was situated in London that was quickly becoming the global epicenter of the pandemic.

There comes a point in every classic drama where the protagonist has to make a decision that will determine how the story will end and how the finale will unfold. This is commonly referred to as the second act turning point, and typically requires the main character to draw on their values, strengths, and powers in facing the adverse circumstances. The founders and team at Capitalise were now in for such an epic test, and without hesitation chose to focus on how they could give their accountant customers the tools to go out and help the thousands of small businesses that were now facing severe and in many cases existential cash flow issues.

The quick and decisive action by the UK Chancellor Rishi Sunak had already made a tremendous difference with their Bounce Back and CBILS initiatives, but these impactful initiatives came a long way from covering every impacted business. To address this gap, in conjunction with The Corporate Finance Network, Capitalise launched #LeaveNoBusinessBehind drawing from the UN’s similarly named initiative. The movement was supported by the Association of Chartered Certified Accountants (ACCA), AccountingWeb, Accountex, AVN, Clarity & Forgotten LTD. Its objective was to provide accountants resources to support their clients.

As they started working in tandem with the government programs to enable the accountants to deliver much needed lifelines to the small businesses, Capitalise faced the first of many choices it would have to take. To deliver the maximum level of loans to businesses in need would mean Capitalise having to forego its own commission income in many circumstances, and this at a point in time where every pound of revenue mattered immensely. Needless to say, the team decided to do the work needed to process many of these loans for free.

The Capitalise team: Helping accountants deliver for small businesses come rain or shine

In parallel to this, the company also got busy on the product side, and in the span of a few weeks took to market a new product that would enable businesses to litigate on bad debts, which at this point in time was becoming a crucial priority for many businesses.

The story is far from over, but after those initial fateful months in March, April, and May Capitalise closed a significant funding round with a mixture of its internal and new external investors, and after the initial hit and sacrifices, delivered record revenues in both June and July.

There are surely many such stories yet to come out, and what we do in the commercially focused startup world pales in comparison to the heroic efforts by the doctors, healthcare workers, delivery staff, all other essential workers that toiled so hard during this period. But in the end, every business matters, and it is the sum total of all these small businesses, whether they be pubs, restaurants, theatres, or retailers that make up the fabric of our modern society. In normal times, these businesses serve us on a daily basis, adding to our quality of life. As the going gets tough, it is important we do all we can to not leave any of these small businesses behind.

Of Tsunamis and Tech: How Wagestream Responded

Tsunamis are a series of waves caused by a large and sudden displacement of water that is triggered by earthquakes, volcanic eruptions or underwater explosions. Rather than resembling ordinary sea waves that are caused by wind, tsunami waves resemble rapidly rising tides that can reach up to ten meters in height. The series of waves usually hit in periods ranging from minutes to hours, arriving in so called wave-trains. While at first they can appear as a big wave on the horizon, as people living in ocean basins can tell you, they are not to be taking lightly: The 2004 Indian Ocean tsunami was amongst the deadliest natural disasters in human history, with at least 230,000 people killed or missing.

When I think of the Covid-19 pandemic that erupted in early 2020, I in many ways cannot help to think of a giant tsunami. I remember seeing it rise slowly but surely in the distant east, thinking it was scary but unlikely to have such an impact on our distant shores. But with the unrelenting force of nature it was upon us before long, and all that was left to do was to seek higher ground and respond in the best way one can. Whether the worst of it is now behind us, or whether what we have just been through in the last three months was just the initial installment in a longer series of powerful waves, one thing is clear – our society, in fact the entire world, is continuing to go through a trauma, and as the waves recede there will be much reckoning and rebuilding that will need to be done.

There will surely be a particular reckoning in the area of public healthcare, and whether a majority of Western societies were right in running their healthcare systems with a business minded “Just In Time Inventory” mindset borrowed from globally integrated and cost focused supply chains. These are complex questions, and rather than diving into them here, I’d like to focus on something more upbeat and optimistic, and something that is also much closer to what I do. How did the start-up world respond when the wave started hitting? I’d like to focus in particular on the companies where I serve on the board here in London and the first case study I’d like to bring up is Wagestream, on which I had also done a blog last year.

One of my friends used to say that when under stress and pressure, there is a very strong tendency in people to revert to their comfort zones. He had said this in the context of businesses and their leaders undergoing stress, so for example in a financially and quantitatively focused organization the tendency may be to open up the excel spreadsheet and start sharpening the pencil on costs, whereas a more sales and marketing focused one may be more focused on opening up PowerPoint to draft a new story, etc. Startups are by definition nimble and agile organizations, and hence it is no surprise that when under pressure they would rely on their tech, innovation, and product development skills to respond to the crisis.

Wagestream’s response was in fact a prime example of such product innovation under pressure. One salient memory that will stay with me forever was the Friday before the lockdown was announced, in Wagestream’s Holborn head office. Life was by no means normal and we all had a sense that something big was happening, and the crowed sidewalks for High Holborn would not remain so for long. The cadence and intensity of bad news was rising sharply, and one could almost touch the fear spreading through all segments of society.

It was under these circumstances that Wagestream announced that they were to host their first ever companywide product innovation competition. Everybody was to be involved and were allocated to a number of smaller teams that would compete to come up with new product ideas with the winning ideas to shape not just the future of the company, but also their response to the Covid crisis. I was asked to join the jury for selecting the winners along with the cofounders, and the competition was on!

I have to say I was incredibly impressed with what the team had produced in a very short time! Every idea was amazing, and all of them had the same laser like focus: How can we use our strengths and positioning as an organization to better help our customers and their employees, many of which were incidentally key workers for the NHS, BUPA, and other organizations. I don’t like spoilers, so I will not give away the winning answers here, but you can check out the results yourself from Wagestream’s web page.

Karl celebrating his two year anniversary at Wagestream, just weeks before the product innovation competition. Photo courtesy of yours truly.

One anecdote that really stands out which I’d like to share was regarding one of the winning ideas that was submitted by Karl, one of the very first employees at Wagestream who had actually just recently celebrated his two year joining anniversary (he was the first one to celebrate this milestone at Wagestream). As we were announcing the winners, we asked Karl how long it would take him to implement it and bring it to life. It should incidentally be noted that the competition had only been announced twenty-four hours ago. His answer was a simple shrug of the shoulder, nonchalantly stating “I’ve already done it”. This is probably one of the most brilliant responses I’ve ever heard, and in that time of crisis it was a much-needed morale boost for the entire team.

There may yet be many more waves that come to hit us, but as David Deutsch says, problems are inevitable, but problems are also solvable. As I continue to work with amazing startups such as Wagestream I cannot help but believe that whatever the world throws at us, we can overcome it together.