Fiona Smith Columnist

Fiona writes on workplace issues, including management, psychology, workplace design, human resources and recruitment. She is a former Work Space editor at The Australian Financial Review and has also covered property, technology, architecture and general news.

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Buying in: Start-ups baiting the trap for top talent

Published 26 April 2013 07:35, Updated 26 April 2013 07:42

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Buying in: Start-ups baiting the trap for top talent

Katana1 co-founder Ross Ogilivie and CEO Nick Russell offer equity to key employees and say behaviour changes when team members see themselves as business owners, not simply employees. Photo: Angus Mordant

If Nick Russell wants to recruit you, he can be a hard man to shake. “I’ll just stalk them on Linkedin. I’ll arrange to be at the same place as them, at an event, and I’ll get in their ear,” says Russell, managing director of Sydney IT consultancy Katana1.

Ranked no.46 on this year’s Fast Starters, Katana1 is a small operation with only six staff, and each six-month search to fill a role costs the company. “It really hinders your growth,” Russell says. “The people-management is taking up more and more of my time.”

Like many other entrepreneurs, around 50 per cent of his week is spent identifying people he wants to hire and then talking them into ditching share options, car allowances, paid private health insurance and Silicon Valley training jaunts to come and work for a start-up. Russell says he explains to candidates from big companies that comparing their old job to one at Katana1 is like “comparing a Ferrari to a hovercraft – you will have fun in both, but they are very different”.

“At K1, you can become an owner of the business and you may end up heading up a team or division of the business that was a product of your imagination, but you may also have to build your own desk or go to the shop when we run out of paper.”

For Fast Starters, finding good staff is the second hardest aspect of starting a business – after the perilous swings of managing cashflow.

When they are competing for talent, start-ups can find themselves completely out-gunned by their bigger competitors. Many entrepreneurs wait in hope that they can catch a good recruit who is escaping a big, bad boss.

The founder and managing director of Sydney-based executive recruitment firm Callaways, Philip O’Sullivan, says top performers are treated like royalty and if the big companies don’t treat them well, there are plenty of employers keen to have them.

“You have to wait for a company to either get greedy and not pay appropriate bonuses, or put an idiot manager in charge...then you stand a chance of poaching a star,” he says.

In those early stages of a company’s life, each new hire can have an enormous impact on growth. “In this market, I can’t afford to make a bad, or even mediocre hire.”

Hiring horses for courses

But hiring is costly and time-consuming – making life tough for entrepreneurs who are already stretched getting their businesses going.

Managing director of Melbourne-based information management consultancy InfoReady (No.12 on 2013’s Fast Starters)Tristan Sternson says he hired a talent manager when he reached 25 staff (he now has 70 full-time and part-time), which took a huge load off his shoulders.

Before that, directors were spending almost half their time on recruitment.

Some companies bypass traditional recruitment, relying on their networks to unearth good talent.

The managing director of Sydney marketing company Letterbox Deals (No.22), Jamie Bakewell, says: “Recruiters are expensive and you take your chances with Seek. The best candidates seem to come from a limited pool of referrals”.

Others, such as Perth business advisor, Metrix Consulting (No.69), hire new graduates who are keen to get experience. Says managing director Marquis Pohla: “We believe in growing talent from the ground up. Therefore, the majority of our recruitment focuses on people who have recently graduated or those with limited experience [less than two years].

“We find there are many intelligent and enthusiastic people looking for an opportunity.”

Good on paper, bad in practise

However, sorting the wheat from the chaff in recruitment is a confounding experience for many.

The managing director of Melbourne IT infrastructure management firm Olikka (No.79), Michael Pascoe, says he can’t rely on resumes to find what he needs. “In truth, there are not that many stars in IT. We need people with a great technical mind, a real team-player attitude, fantastic customer skills, good at documentation, and at least a reasonable amount of hands-on experience in our specialisation.

“It’s been difficult to find good people. A lot of candidates seem good on paper or in initial interviews – many IT people seem pretty good at writing CVs and having the initial conversation, which means they get through recruitment agents convincingly.”

There are also many great people who can’t write a good CV and don’t nail that first interview. “Essentially, we haven’t worked out a more efficient way of narrowing the field, which means it only happens by in-person interviews that are very effective, but very time-consuming.”

Despite the popularity of using 457 visas to staff IT firms, added costs can be a burden, says Shaun Dobbin, CEO of Sydney marketing firm, Gomeeki (No.85). “[There’s a] massive shortage of skilled workers in the IT sector in Australia,” he says. “When we place an ad on Seek or any via other recruitment channels, we rarely get an Australian CV hit our desks. Many staff will require a 457 Visa, which brings increased costs to the business.”

A slice of the action

Beating competition from bigger employers takes some lateral thinking. Some Fast Starters use equity in the business to lure and keep the people who are integral to their growth.

At InfoReady, Sternson used a partnership arrangement to bring director Justin Parcel into the business, selling him 46 per cent of the company. Later, Cameron Boog (who runs the Brisbane office) took up five per cent of the company, as the first employee to be promoted through partnership.

“Both new partners have had significant success and have been influential in our growth,” he says. “We would not be in the position we are today, had I not relinquished equity to new executives, and we will relinquish further in future to new partners, to grow.” He says it was a good experience, but he admits it was a technical challenge. “We had to get the right structure and it was hard to get a valuation on how big the company is, when you are initially just a few contracts and a few people,” he says.

“And then, it has to be fair.”

Sternson says the structure of the partnership will allow other people to earn their way into the partnership.

Sydney IT infrastructure company, Virtunet (No.37), has been struggling with the complexities of employee-ownership.

Says managing director Martin Kosasih: “Employee share options is something that we’ve been working on for over a year and we’ve found that implementing it is costly, and the tax implications made it even more difficult.”

Katana1’s Nick Russell has also offered equity to key staff.

“On the whole this has been a good experience. It has been very interesting to observe the change in behaviour when our team members see themselves as owners of the business, rather than simply employees,” he says.

“The employees with equity are much more conscious of costs and the return on various investment decisions they are involved in.”

The prospect of being an owner can also be attractive to people who have been retrenched. “That certainly resonated with the last two sales guys who joined us,” he says.

What’s in it for them?

Katana1’s Russell (who founded the company with Ross Ogilvie) says he has to pay more for his staff to get them to come across.

Katana1 also has new “funky” offices in the CBD, a flexible working policy to allow people to work from home when required, and social events that are more interesting than just an evening at the pub.

With a Muslim and a Hindu among his team, free beer has been dismissed in favour of the cinema or a harbour cruise.

Revenge attacks

Four months into the life of Katana1, the company found itself defending legal action from the directors of Russell’s former business.

“This posed a huge threat at such an early stage of the business life cycle, both financially as well as emotionally. The cost of defending the legal action put a strain on our finances, both for the business and personal, which at that stage were basically the same pool of funds,” Russell says.

“The issue dragged on for several months which had an impact on our early growth.”

Callaways also had a legal stoush with the former employer of one of its recruits.

Says Philip O’Sullivan: “There are some really handy insurance policies you can get to protect you from legal costs if you are being legally ‘bullied’.”

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