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Bangalore becoming too expensive for Startups ? - chaos documented..

About Bangalore becoming too expensive for Startups ?

Previous Entry Bangalore becoming too expensive for Startups ? Apr. 26th, 2007 @ 05:21 pm Next Entry
Startups have a tough time recruiting talent. The only real benefit that they have to offer an engineer is stocks. You would think that thats very good, and that should incentivize people enough to join startups, especially those who believe in what you are trying to do. (This is what I believed in when I joined a startup)

I guess it doesnt really work that well. At least in Bangalore where folks dont care as much about stocks as they care about salaries.

From Munjal Shah's blog - Riya (Like.com) have closed their Bangalore centre and are moving key folks back to the US center.
He has a very well written post about the rising salaries in Bangalore, which led them to this decision.

Its become common knowledge that freshers now start at 8-12L pa salaries in Bangalore.
Given how difficult it is to hire experienced people, its not difficult to imagine salaries 3-4X higher than that(Simplistically - someone who started at 6L, had a 25% raise every year after 8 years would be at 6*(1.25^8) = 35.7L) , and suddenly you are talking of figures which are around $90k pa - which is at par with what that person would be getting in the US as well. (what with the Dollar now trading at about 41Rs.)

Its going to become increasingly difficult for Startups based in Bangalore to survive for a reasonable amount of time even with a good amount of funding. As larger companies continue to increase their salary levels, to meet the talent shortage. As a result, we'll probably see fewer startups, and even fewer funded startups(because VCs would have burnt their hands).
And the people who work at the startup will work there for making the startup a success. So hopefully we'll see the success rate of startups in Bangalore going up (passionate employees ==> successful company )
The con is that, for a good engineer, taking the plunge of joining a startup will become even more difficult.

Disclaimer: These are my views alone, and do not have any reflection of the hiring policy that the startup I work for follows. For that matter, I dont even know about my companies recent hiring policies.
Current Location: Bangalore
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From:dilip
Date:April 26th, 2007 03:25 pm (UTC)
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Informative!
From:(Anonymous)
Date:April 26th, 2007 03:54 pm (UTC)
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True, but given the fact that the quality of engineers passing out is diminishing, I don't think there's anything wrong for quality engineers in demanding more. Also, isn't there a high level of risk involved in joining a startup?
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From:shashwat_09675
Date:April 26th, 2007 04:32 pm (UTC)

Very true... but whats the solution?

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The last batch I remember that had reasonable placements was yours when even getting through Infy was considered big. Nowadays when you go to the colleges for a company presentation or to organise an event, nobody seem to be interested in anything but the pay package being offered. You are talking from the software perspective, just imagne the kind of beating the start-ups in the other fields of engg are facing. Software salaries are a bench mark for all placements in progress and in other fields those salaries are unimagionable for highly experienced people.
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From:mekin
Date:April 26th, 2007 05:49 pm (UTC)

Re: Very true... but whats the solution?

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I think the system will auto correct ... demand vs supply ...

But yes ... we are lucky to have been at the right place at the right time to reap benefits from this boom
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From:derherr
Date:April 27th, 2007 04:56 am (UTC)

Re: Very true... but whats the solution?

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Nowadays when you go to the colleges for a company presentation or to organise an event, nobody seem to be interested in anything but the pay package being offered.

There is good reason for it. For a fresher, and I mean the average fresher, any work is good work and unless you really really know what you want to do and know the definition of "Good Work" and have a clear idea, any work you get is good.

Also, *MOST* work given to freshers in a mainstream company is very very average and the work by itself is no where close to being enough to tilt opinions. Also, there is the promise of good work to come with time and that promise holds with every single company that you join. There is *NO* company which says join us and your work will remain boring for ever ... there is always the promise of bigger things with time ...

So monetary compensation plays a very big role! and why not ... make hay when the sun shines ...
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From:anushsh
Date:April 26th, 2007 04:58 pm (UTC)
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Also I think the concept of long-term returns/profit is not very acceptable here. People ( Employees / VCs etc) want immediate outcomes. You might get some good funding if you are a Travel portal but not if you are trying to build something like this . I hope things get better.
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From:anomalizer
Date:April 26th, 2007 06:54 pm (UTC)
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It all started as pure cheap labour, when it got a little less cheaper, people started noticing that a lot of real cheap labour was sub par in absolute terms but the cost befenit was making up for the talent deficit. The talent deficit (from a percentage perspective) just keeps getting worse, the talent deficit <-> cost benefit gap at the lower levels keeps narrowing which eventually bubbles up to the upper level.

Call me pessimistic but I think that for a long time to come, as a country we will fail doing high end stuff due to the setup. We need some sort of a mass purging and revisit how we do things as an industry. The purging may not be direct, just the right corrections might result in many voulantary exits.
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From:umang
Date:April 27th, 2007 04:10 am (UTC)
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25% year-over-year for 8 years is a bit too much, don't you think? Where did you get these numbers from?

This is something I've been meaning to blog about for a long time and your post just triggered it. Reply coming up on my blog soon! :)
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From:mekin
Date:April 27th, 2007 04:18 am (UTC)
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Those numbers came from thin air.

But I dont think they are unrealistic.

You could arrive at similar figures like this:
6 * 1.5 * 1.48 * 1.3 * 1.3 * 1.2 * 1.15 * 1.12 * 1.1 = 38.2

Which definitely seem realistic & I know of folks who have achieved the 1st 4 years that ways .. the remaining 4 years are almost a given & if you add a job-hop thats a 20-40% increment out of turn
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From:bluesmoon
Date:April 27th, 2007 09:52 am (UTC)
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25% yoy for 8 years or even 43% yoy for 5 years (which should get the same returns) isn't unrealistic. It happens, maybe not to everyone, but it isn't unheard of.
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From:chirag
Date:April 27th, 2007 06:07 am (UTC)
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I had recently been on a campus recruitment drive for my company and we pay freshers in the range that you mentioned.

But we need to remember that this salary is mostly to attract talent. Freshers who are paid these amounts generally do not get any hike at least for first 2 years.

Also, personally I feel that 25% hike per year, compounded, is a bit unrealistic. Within a particular company a more reasonable figure would be 12-15% yearly compounded. Again if a person is hopping job every year and asking for 30% hike for every switch; the 3rd or 4th company to recruit that person can, at best, be called dumb. As far as I know most companies do keep an eye on number of jobs changed in certain years.

Barring few MNCs which hire couple of thousand people, I think most guys in India/Bangalore are paid what is a minimum wage in the USA -- $8/hr!!!
($8 * 40 hr/week * 4 weeks * 41 Rs = 52480 Rs)
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From:tameshru
Date:April 27th, 2007 07:21 am (UTC)
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Very nice post. Even though I thought 25% was a bit too steep, I agree with the basic principle( no pun intended). Gandiva had such a tough time getting and retaining good people. Pity that people don't value good work or realising a dream much. Hope things change.
From:ext_25833
Date:May 2nd, 2007 09:21 am (UTC)

Whats wrong in getting salaries equal to US counter parts

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If we look at the software without all the hype, i think we have experts here, at par with people in US. Hence, regardless of the location, good people should be paid equal. Does not cheaper labor have caveats ?
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From:mekin
Date:May 2nd, 2007 09:33 am (UTC)

Re: Whats wrong in getting salaries equal to US counter parts

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I am not saying there is anything wrong at all in getting salaries as high as in the US.

I am just documenting something that looked a little astonishing to me ...
Its almost like telling myself - this is happening.

I, personally, am quite happy about how things are going.
From:manjesh
Date:May 6th, 2007 05:59 pm (UTC)
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"Its become common knowledge that freshers now start at 8-12L pa salaries in Bangalore."

It seems like this and most other observations apply to only the creme-de-la-creme IT companies, not the real outsourcing (Infosys, Wipro, TCS, Satyam, HCL, etc.) giants.

And also, for similar candidates (well sought after fresh graduates), US companies pay close to 100k (including joining bonuses), if not more.

And I don't know what you mean by lifetime, but getting from 100k to 200k in a well-performing company, with your own performance levels at above average levels, should take around 10-12 years.
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From:mekin
Date:May 7th, 2007 05:02 am (UTC)
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It seems like this and most other observations apply to only the creme-de-la-creme IT companies, not the real outsourcing (Infosys, Wipro, TCS, Satyam, HCL, etc.) giants.

Thats true .. I am talking of companies like Riya .. as I further clarify in my next post - http://mekin.livejournal.com/43262.html

And also, for similar candidates (well sought after fresh graduates), US companies pay close to 100k (including joining bonuses), if not more
Thats new information for me, Thanks. The numbers I was aware of are about 20-30k lesser than that.

I am talking of companies like Google, Amazon & Microsoft .. and I am talking of top folks from PESIT, RV, etc. I know of more than 5 freshers who are starting at 10L+ salaries this year. I dont think they would get 100k in the US, but I might be wrong.

And I don't know what you mean by lifetime, but getting from 100k to 200k in a well-performing company, with your own performance levels at above average levels, should take around 10-12 years.

Thats a growth rate of 6-7% pa. For India, thats going to be average - below average at all levels given that inflation is going to stay around 5-6%
I think in India, above average( ok .. really good folks) will be able to achieve 15-20% growth rates.

If you agree to even a double of what US folks would achieve .. if that difference is sustained ... it wont be long .. when the 2 curves meet .. or come close
From:manjesh
Date:May 8th, 2007 11:19 pm (UTC)
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Well, to clarify, by well sought after fresh graduates, I mean people who have completed masters degrees. It may be true for bachelor degree holders too, it's just that I don't have any information about it either way.

But yes, I do agree that the gap between the salaries is rapidly diminishing in top end companies. For the rest of outsourcing companies, which should account for the bulk of IT professionals, however, I feel that it'll continue to be profitable to hire workers in India for a long time.

vis-a-vis the top end companies, well, they do keep insisting that they're in India not just for the cheap labor, but the quality as well. They'll just have to walk that talk.

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From:vijayr
Date:May 18th, 2007 06:05 am (UTC)
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I think that Munjal is BS'ing about the salary. Getting to 75% of US salary won't happen until much later in your career - and I'm talking 15-20 years.

However, he does have a very valid point about Bangalore (India?) no longer being a pool of cheap(er) talent. I think that's the original problem - if you look at India as a cheaper talent pool for your startup, you're f***d anyway. Why would I, especially as a startup employee, put up with being viewed as cheap talent? Especially when I'm contributing as much, if not more, to the success of the company?
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From:mekin
Date:May 18th, 2007 06:43 am (UTC)
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You would know more about what people get paid than I do ...
but dont you think people with 8-10 years of experience are close to or above the 25-30L mark ... which is close to 75% of 100k USD.

I do know of a couple of people in the 20-25 range with 6-8 years of experience ...

I am not saying this will become the norm .... but then startups dont want the average guys either.

I think Munjal's crib was with the communication & management overhead that comes with multiple office locations and the costs of which were earlier offset by salary differences which is no longer the case.
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From:vijayr
Date:May 18th, 2007 08:21 am (UTC)
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If you have 8=10 years experience, you're surely pulling more than 100k in salary. Especially with the job market as hot as it is now.

Yeah, I get it about the lower salaries being offset by the comm. overhead. My point is that him cribbing that salaries are increasing is missing the point - you're treating your Blr employees as second class employees to begin with.
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From:mekin
Date:May 18th, 2007 09:02 am (UTC)
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If you have 8=10 years experience, you're surely pulling more than 100k in salary. Especially with the job market as hot as it is now.

I did not know that ... the numbers I am aware of are from 3 years back ...
but as i said someone told me then ... " you might get to 100k in 4 years but you'll spend almost a lifetime getting from 100k to 200k"

So even if its not 75% of US salaries .. I am sure it would be more than 60%
..
The exact number is immaterial... but the basic issue is .. for startups ... you would want the best talent ... and thats quite expensive now .. so your burn rates even if you do your entire development in Bangalore are not much lesser than doing the startup in US itself ... so it might start making more sense to do the startup in US, at least if the market for the company is US.
From:(Anonymous)
Date:June 28th, 2007 11:37 pm (UTC)

Good post.

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Good post... can't disagree with the points you have mentioned there.
Most startups are now hiring college students as temps to work on small projects. The advantage is that its relatively cheaper to hire students.
Ofcourse they are no replacement for permenant employees, but it is a solution to get temp employees for a startup when you still can't afford permenant employees.

Munim
http://munimsblog.blogspot.com
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