Celso Malachias, founder and CEO, DNA Hunter based in Sao Paulo, Brazil on challenges of Information Technology recruiting in Brazil.
Challenging Times - Exclusive extended version
IT Professional Market in Brazil
The size of the Information and Communication Technology (ICT) workforce in Brazil has been estimated to be around 1.5 million workers, in total population of 210 million. This includes professionals working in hardware, software, technology services, and storage and processing techniques from non-local, sometimes non-proprietary servers (cloud), Business Process Outsourcing (BPO), Voice, Data. This group of professionals is often referred to as Core IT, in contrast to ICT professionals in other economic sectors, often referred to as In House. The former could be seen as the provider, while the latter as the recipient of such technologies. This market is growing, with an estimate of 70 thousand new professionals needed per year. Therefore, in a five year horizon, from 2020 to 2024, approximately 350 thousand new vacancies will be generated, which is great news. There are challenges, however, to fill these positions.
Challenge: IT market demands more professionals than provided
Despite the good news of growing demand for technology professionals, with the generation of 70 thousand jobs annually until 2024, there is another aspect to consider: how to fill that need, or in other words, how to fill those jobs by hands skilled in technology, and thus avoid a bottleneck in the country’s growth?
In order to find a reasonable answer let’s explore two possibilities.
HIring new graduates to fill vacancies
One possibility to fill the gap of ICT vacancies would be to employ new university graduates to fill base of the pyramid, as less experienced professionals. Science, Technology Engineering and Mathematics (STEM) universities offer 46 thousand yearly graduates eager to work in the Brazilian market, well below the 70 thousand requested by companies eager to hire. So, the calculation does not match, even without looking at required maturity aspects or knowledge of newer technologies.
So, how to fill the gap of technology professionals that the country will need over the years?
Let’s go to another possibility.
Part of the unemployed to fill the vacancies
Brazil is going through a period of economic recovery, with new vacancies in technology jobs, leaving a period of recession that left around 12% unemployed in relation to the economically active population, which represents around 13 million people.
Thus, we would think that the equation was solved, that is, that 70 thousand vacancies for technology professionals would be filled with part of the 13 million unemployed. Unfortunately, this does not occur directly or immediately, as most unemployed people do not have the qualifications required for ICT vacancies. There are government initiatives for recycling and requalification of the unemployed to make it employable. However, this takes a while. Thus, the need for the technology market for professionals does not seem to be met in the short term. Perhaps with public-private actions, creating multipliers to increase the number of universities and colleges, as well as the number of companies aimed at the requalification of the unemployed or even employed population could be a solution. But this would take years to implement.
Thus, without new variables added to the demand and supply of technology-skilled labor equation, the issue is not immediately solved, and the country will have to live with this feature of less supply, resulting in more expensive and demanding professionals.
And do startups have the same need? And for these companies, is it easier or harder to hire technology professionals?
Let’s take a closer look at these companies and realities in order to try to answer these questions.
Startups in Brazil: IT Professionals Wanted
The startup market, defined as the creation of many scalable, technology-based companies, emerges around the year 2000 and 2010 in the United States and in Brazil, respectively, a recent phenomenon. According to a local startup association, the number of these companies in Brazil grew steadily from 2,500 to 4,100 and 13,000 in 2012, 2015 and presently, respectively.
These startups at different stages of maturity are in great demand to hire professionals, especially with careers in technology. However, there are few sources regarding the total number of openings. However, according to a study by the Brazilian Association of Startups, there were around 5,000 openings in startups in April 2019. Most of these vacancies are for technology professionals, as young companies use technology as a mechanism to increase performance to gain scale.
And what’s it like for them to hire tech-savvy professionals? So, let’s talk about the topic: hiring tech professionals for startups.
Startup Challenge: Hire Technology Professionals
We have already seen that the demand for IT professionals is greater than the supply of universities in the proportion of estimated annual demand of 70 thousand professionals with the estimated supply of 46 thousand professionals at the bottom of the pyramid, with deficit of 24 thousand professionals per year. In the first year, there is a shortage of 24 thousand, in the second year, 48 thousand, and so on …
The difficulty of finding the qualified professional brings us to that scene loaded with objects and human beings, all very similar, from the book “Where is Wally?”, or how to find “the Purple Squirrel“.
An immediate effect of the scarcity of human resources is the increase in remuneration of existing professionals. Because the most qualified professionals are sought, the more they are disputed, the more they are paid. It is an expensive game to attract and retain. There are many factors that attract and retain so-called “talents,” but pay is an important variable in a human resource scarcity game. Many leave one company to join another, attracted by compensation. The whole market rises its pay. Organizations need to absorb these higher costs, which usually impacts their cost (profitability?) and their productivity. Market pay is one of the additional challenges for startups, as well as other aspects that we will see next.
Additional Startup Challenges
There are many startup challenges. Below I mention some specifics of hiring ICT professionals:
- Assertiveness: The young company has no time to make a mistake on admission, meaning it cannot take long to hire the right person, and certainly cannot hire someone wrong, in the sense of no fit with their needs. A mistake in admitting a professional can be fatal because it has no “room” to keep professionals who do not produce what they need. It has few resources, so all members are critically relevant.
- Technical Requirements: The technical requirements are usually broader in the sense of accumulating functions, that is, many vacancies have almost two or more functions in the same vacancy, that is multi-task contributors. Because it is a nascent company, it needs more generalists with multiple skills than specialists. For instance, it is common to see a Job Description with software development requirements, hands on, and at the same time team leadership, plus desirable experience in product development. Or, sometimes, it’s desirable an IT leader focused on systems development with experience in cloud infrastructure who also knows and has experience in product creation. This is seen early in the company´s life story, but as it scales, that is, grows according or better to the plans, the roles are split, for example, the software development function from the product management function.
- Even rarer professionals: To the previous set of technical requirements, if we add knowledge and experience requirements such as involving Data Science or Machine Learning, we get even rarer professionals, so called “purple squirrel” candidates, and thus much more expensive.
- What is difficult, selection, attraction or retention of these professionals? All of the above. This type of highly qualified professional, at both the management level (C Level) and the specialization level, is hard to find, hard to attract ,driven by challenges, and autonomy to perform, among other features of the environment, demands novelties, more space and more challenges to keep them going. Otherwise, they go to another startup, “skip to another square”” in the “startup game”. They (also) choose!
- Behavioral requirements: Preferably professionals who have had a good experience in other startups, have a lot of energy to devote to the new project, communicate well, are proactive, collaborative, among other requirements. A key behavioral aspect, especially for the first C-level occupants of the company: professionals who “buy in” the new company project. They should appreciate everything, including the business model, founders, and the purpose, among others. A rule usually prevails here: the younger the company, the less likely it is to accept a long-time professional from large companies, because of different environments and processes. The big company usually has many processes and the small one usually has almost no processes. Processes consume time and resources; startups prefer to invest their time otherwise.
- Remuneration: I have already mentioned before, here I extend and present more details about it, and even suggestions on how to address the dilemma of hiring more experienced professionals that would therefore require greater remuneration. The aspect of attracting higher paid professionals is costly, as a startup usually cannot afford to pay a remuneration to a senior professional equivalent to one working in a medium or large company. The ideal professional is one who has already worked in a startup that has scaled up and got big, because this way the professional would have experienced exactly the planned cycle of the next startup, which is to grow and scale, in contrast to one who has worked in big companies, as already discussed. But then, going back to the beginning of this paragraph: How to admit the senior professional for what he already earns today? A possible answer is below.
- Participation in the company: To answer the previous question: Enter the participation in the new company. That is, for the new startup to hire a senior professional it needs, especially the first to occupy the highest levels (C Level), it must offer a fixed compensation plus a stake in the company. The more senior and relevant the role of this professional, the more accurate the selection process should be. For a senior professional at startup can change the future of the company, for better or for worse.
- Investment Funds: Investor entry is usually an important and positive step for startups at several phases of their life cycle. From angel investing, even Series A or Series B investors are well regarded and mark the momentum of the company. Not only for the financial capital invested, but also, and sometimes, mainly, for the knowledge capital, due diligence process, experience, relationship, social, contributed, by the funds to the startup company. It is step that prepares the young company for yet another moment of growth, or “scaling” so that it can generate its own livelihood. The presence of professional investors signals that the company is doing well, not only for clients, but also for professionals who are participating in a selection process, or even for those who are not yet part of the business. Investment funds increase the attractiveness of the company and for qualified professionals.
- Which comes first, the good professional at C Level or the investment in the company? We often think that the well-qualified senior professional will go to a startup when it has good financial resources, which is true. But the opposite is also true, hiring great professionals, especially to key positions, with good academic background and experience attracts investment funds. That is, to attract investors great professionals are an asset. Which then attracts an investment fund, which attracts the trader, and so on, in a positive cycle. Obviously, there are also other factors that the Fund evaluates in the company, such as financial, marketing, entry barriers, competitors, etc.
- Who does the hiring function at Startup? If it were a multiple-choice question, the answer would be: All of the above. Due to the importance of hiring specialized professionals, again, especially for the first occupants (C Level), everyone should participate, not only HR, if there is someone with this responsibility in the company. Furthermore, Human Resources function are usually not present in the early days. Not only the CEO should take care of this activity, but his peers, and co-founders. Still, eventually, a specialized recruitment firm, or even friends of other startups, or even angel investors can get involved in a key selection process by adding a second or third opinion. Take your time, do it with quality. Quite simply, the recruitment process has two major variables: Quality (assertiveness) and Time. If you have to prioritize which of these two variables to choose, choose Quality. Take your time. It is worth investing (this is a proper verb) time in detailed planning and careful execution. If you delegate, keep track of everything that happens in the selection process. If you hire a specialized outside recruitment firm, take part, do it together so that it will be a co-creation, a co-production.
- What if the startup is not in major centers of the country? If the startup is being born in smaller cities, an additional warning is worthwhile. Usually a startup is born in a large city, with access to resources from across the ecosystem to stimulate the creation of a new company. And if it is located in a small town, it is usually born near a technology hub, with a nearby university. A nearby university is a major provider of manpower, but usually reaches only to the middle of the professional maturity pyramid, imagining the base with newly graduated or less experienced, the middle with full professionals, and at the peak the most experienced ones. The problem of lack of skilled labor is heightened at the C Level, experienced skilled professionals. In this case, the startup will have to look for someone from out of town, but professionals may not want to relocate, taking longer to hire a suitable candidate. So, beware in these cases. The solution to the challenge of attracting a senior professional to the small town may be found by the professional moving to the city, the vacancy becoming partially remote, and even the C company level moving to a large city. Or “All of the above.”
Observation for this block. Each of the above could be expanded into an “own life” article, given its intricacies and details. But here is just a summary, and we’ll just touch the top of the Icebergs.
The hiring market for technology professionals at both the executive and specialist levels is in high demand in Brazil. The higher the requirements for hiring a professional (C Level or specialized) with an emphasis on ICT, the rarer the professional will be for the job, the harder to find and therefore the more expensive the professional will be. Message of emphasis on the rigor of the selection process, which is more demanding and requires more planning, knowledge and specialization. Close attention to those involved in the selection process, internal, external, approved and non-approved candidates.
Startup companies have additional challenges due to their characteristics, technical and behavioral requirements, especially for the composition of the first level. The process demands specific aspects, different from hiring in a large company, but also brings great satisfaction to all parties involved, company, candidates and third parties.
Summary: Do you want to undertake or invest in Brazil, with all its challenges presented? Go ahead, it’s a good time.