Talent, Experience, and Risk
Hi there, Justin here. This week I'm thinking about how "we" can create more opportunities for high-potential talent to gain experience. Have you seen anything particularly interesting or impactful in that regard?
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Talent, Experience, and Risk
Last week, the South African domestic airline Comair went out of business. It’s not the first time its CEO, Glenn Orsmond, has been involved in a failed airline venture.
It reminded me of research on “mediocre talent”. A study from 2017, looking at the experience and outcomes of English football managers, showed that “liquidity constrained firms face strong incentives to hire experienced, but low ability workers instead of novice workers with higher upside potential”. In other words, experience is valued more highly than potential (and as a result, Glenn Orsmond gets hired as Comair’s CEO despite having been involved in three prior failed airline ventures). And while this is rational from an individual firm’s point of view, it is societally suboptimal, “in the sense that the average ability of the active labor force is below its long-run potential.”
Why are mediocre football managers repeatedly hired over high-potential but less experienced candidates?
The study’s authors provided two explanations. The first is downside protection. For “liquidity constrained” firms, less experienced talent with both a higher upside and higher downside carries with it a greater risk of bankrupting the firm than an experienced worker1. The second is fear of poaching. Success is highly visible, and “if successful workers are easily poached or have their wage quickly bid up by competing firms,” it is perhaps more rational for the firm to prefer experienced yet mediocre talent with limited downside if said firms can’t capture the upside anyway.
While this study’s findings are somewhat specific to the peculiarities of English football and its business models, this research nonetheless has me thinking about the extent to which we can extrapolate to the African tech ecosystem, as well. Does the startup ecosystem overvalue experience relative to potential? And to what end?
We know that there is a high demand for experienced talent, and it’s been a particular challenge for startups to afford talent amidst increasing competition, with Big Tech companies operating in-market and remote-first companies turning their attention to Africans. At the same time, Andela’s pivot to focusing on senior developers over junior devs is indicative of market demand for experience.
In Afrobility’s episode on Andela, its co-host Bankole Makanju spoke of this dynamic with engineering talent, in particular.
There’s a lot of junior engineers, but there’s not a lot of experience available for somebody to have shipped production-scale, 100 million transaction a second systems… With software engineering, there’s writing code; there’s writing production code, which fewer people can do; there’s writing production code at scale, which is a completely different skillset.… that is almost unrelated. It’s basically the equivalent of putting a plaster or becoming a medical doctor.
Andela’s surplus of junior developer talent perhaps implies that there is a dearth of experienced engineers and a glut of inexperienced yet high-potential talent for which there is less demand at present. It also implies that there is a scarcity of places where junior engineers can gain the experience to become senior engineers, hence a particular focus on internships and apprenticeships through programs like ALU, Shortlist, and others1.
The conclusion, then, is that the growth of the African tech ecosystem is constrained by the limited opportunities for high-potential talent to gain experience.
As the aforementioned study found, a firm’s preference for experience is socially suboptimal. I have long wondered aloud if, in these markets, protecting against downside risk - and, therefore, a perpetuation of the status quo - is actually riskier. The ecosystem unequivocally benefits from the development of high-potential talent.
At the same time, venture capital does not have the constraints that an English football team has. The downside of a bad investment is limited and, unlike firms that are unable to retain emerging talent, VCs benefit from being right early.
We should be disappointed, if we agree that talent potential spans geographies and genders and educational backgrounds, to see the profiles of those who receive the lion’s share of venture funding. According to The Big Deal, female-led startups attracted less than 7 percent of venture funding in 2021, and CEOs who studied in African universities garnered just 27 percent of funding despite making up 42 percent of all startups funded on the continent. This is not a problem specific to just the African tech ecosystem, however, but it nonetheless indicates that the ecosystem is missing out on its long-run potential.
Meanwhile, on an individual company basis, the researchers posit that a preference for experience provided less risk of “bankrupting the firm”. Though I’m not sure about the extent to which that applies to startups in a nascent talent ecosystem. While startups looking for talent with a certain experience may not necessarily indicate an overvalue of experience, particularly in a nascent context, an environment with scarce experienced talent requires that liquidity constrained firms place bets on emerging talent.
In African markets, which are difficult operating environments to be sure, liquidity constrained firms are failing even when led by experienced talent. So does the probability of success in this context increase, over the long run in particular, by optimizing for high potential talent?
If individual companies are not much better off when optimizing for experience over potential, and if it is socially suboptimal to optimize for experience over potential, then it becomes imperative for firms to prefer, create opportunities for, and invest in high-potential talent.
Although, it is ironic that, in the case of Comair, the firm ended up bankrupt anyway. ↩
Anecdotally, in a market like Kenya, with nearly 50% unemployment amongst University graduates, a distinct challenge is the chicken and egg problem with these graduates gaining the experience that will compel employers to perceive them as more employable. ↩
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