Start-ups hit the brakes on hiring as costs soar

  • August 15, 2022
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Entrepreneurial teams perform better if able to choose their own team members or their own ideas, finds new research from ESMT Berlin. However, this benefit to performance disappears if given autonomy to choose both. Scholars suggest autonomy can lead to better entrepreneurial team performance, but there are different types of autonomy. Viktoria Boss and Christoph Ihl, both from Hamburg University of Technology, and Linus Dahlander and Rajshri Jayaraman, both from ESMT Berlin, investigated how two types of autonomy affect the performance of entrepreneurial teams: choosing project ideas to work on and choosing team members to work with. The researchers ran a field experiment involving 939 students on a startup entrepreneurship course in which students are organised into teams to develop and pitch business ideas. Individuals were assigned to one of four scenarios: 1) choosing their team members and idea, 2) choosing their team members, 3) choosing their idea, or 4) choosing neither their team nor idea. In teams, students developed an entrepreneurial pitch deck; a presentation aimed at hypothetical venture capitalists to secure funding. Pitch decks were assessed on six criteria: novelty, feasibility, market potential, likelihood of success, likelihood of invitation for follow-up, and investment amount. Results show that teams with autonomy to choose ideas or team members outperform teams without the autonomy to choose either. However, the effect of choosing ideas is significantly stronger than the effect of choosing teams. Also, these benefits were not seen for teams granted full autonomy over choosing both ideas and teams. Professor Dahlander says, “Choosing ideas or teams can lead to a better match of ideas with team members’ interests and prior network contacts among team members, respectively. Also, granting autonomy increases feelings of confidence which can have a motivational effect. However, if confidence rises above a critical threshold, teams can experience overconfidence and exhibit complacency and lack of focus. This points to the possibility that those who chose both teams and ideas experienced too much confidence too soon, reducing subsequent effort.” These findings are important to the professionalisation of entrepreneurship, particularly incubator and accelerator programmes, most of which give aspiring entrepreneurs a choice on both ideas and team members. These results suggest granting autonomy solely over choosing ideas would lead to the highest performance outcome.

Cash-strapped start-ups are slowing recruitment and ripping out unnecessary costs this year as rising costs batter the bottom line, top investors said today.

Soaring inflation in the UK is squeezing venture-capital backed firms, which most often operate at a loss, causing bosses to slow down hiring and mull shifting some roles to contractors.

“Startups have never been quick to hire and expand but growing costs are creating more of a challenge,” said Stephen Page, boss of seed-stage investor SFC Capital

“Hiring is delayed and alternative employment methods are considered, such as outsourcing and subcontracting or working on a freelance basis to get things done.”

The latest inflation print in the UK hit by 9.4 per cent, with predictions that it could hit 13 per cent in October driven by a spike in energy prices which have ramped up costs for firms across the country.

In three months to June, a squeeze on expenses this year caused UK job listings to plunge  according to tech startup recruitment platform Otta, with 20 per cent fewer new job listings posted on the site and the amount of live roles falling  by 13 per cent.

Seb Wallace, investment director of Triple Point, said hiring was being hit by the squeeze on costs.

“Across the board, we are seeing startups be more purposeful with hiring. Required hires are still being made, but there is less room for mishires in a tight labour market where salaries are increasing,”

“Startups are therefore thinking carefully about who they bring on board and the value they can offer.”

Wallace said that salaries are and “always have been” the key early-stage cost pressure in UK, with soaring inflation now exacerbating the squeeze.

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Start-ups hit the brakes on hiring as costs soar