When I talk to founders, there's often one pervasive, prickly theme: talent.

There is, on one hand, the challenge of identifying and attracting top talent. And on the other hand, there is the challenge of competing with well-funded competitors for said top talent.

A few months back, the Financial Times published A Big Tech talent war threatens Kenya's start-ups, on the challenges African startups face competing directly against Microsoft's engineering hub, the Africa Development Centre.

The Kenyan experience maps to other major African markets. In South Africa, startups may find themselves competing directly with Amazon's sizable office in Cape Town and/or a more robust corporate environment nationally. Whereas in Nigeria, perhaps the biggest competitor is other markets, as countries like the UK have increasingly attracted Nigerians via their Tech Nation Visa initiative.

But beyond local competition or emigration, there is also the entirely global competition against remote-first companies who may as readily hire an engineer from an African country as from a European one. Increasingly, market competition isn't local or regional but global.

Routinely, founders have shared that the issue is not necessarily identifying talent, it's being able to afford talent.

So how can local tech startups - with their comparatively small war chests - how can they compete?

I wrote, a few months back, about ecosystem flywheels.

More capital into a tech ecosystem leads to better talent, which leads to faster growth, which leads to bigger rounds and exits, which leads to more capital.

But I missed something.

Seedtable's Gonz Sanchez applied Gresham's Law to talent in a past edition of his newsletter.

In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.

Gresham’s Law for Talent Markets states that Good and Bad Talent cannot circulate together. Good Talent wants to circulate with Good Talent. In time, if Good Talent is hoarded somewhere else, Bad Talent will be given more movement and circulation within the Talent Market.

So the flywheel actually looks like this.

Smart, ambitious people want to work with other smart, ambitious people. Good talent attracts good talent - at both the company level and the ecosystem level. (And conversely, bad talent attracts bad talent at both the company and the ecosystem level). We've seen this manifest not only in technical talent but also in the number of experienced employees leaving their (well-paid consulting, banking, etc.) jobs to start or join a startup on the continent.

The African tech ecosystem, in particular, had a banner year in terms of total funding raised in 2021, which means more money in the ecosystem is redirected towards talent. And as the pace of big rounds and exits continues - and as more representative examples of success within the African tech ecosystem increases - the talent loops will spin faster.

However, this doesn't entirely solve the compensation problem, as some startups will inevitably struggle to compete with better-funded startups outside of the continent and/or corporates within it. For that, Zack Kanter has argued there are four options:

1. Become among the best in the world at identifying mispriced assets
2. Convince incredible people to work for less
3. Pay top of market
4. Build a mediocre team

While everyone thinks they are doing 1 or 2, most are doing 3 or 4.

Some well-funded growth-stage companies may be able to afford to pay top of market, as will global corporates operating locally. And a higher volume of talent in the ecosystem, at large, should in and of itself attract more talent to the ecosystem.

But on the company level, many successful startups are going to be those that can do number 1 and identify undervalued talent. That is, of course, the thesis behind a company like Andela, albeit the identification of mispriced assets is for overseas employers.

Though perhaps at Andela's commencement, in 2014, and at the African tech ecosystem's most nascent days, the market was such that the majority of demand for Andela's talent came from US employers. But as Andela (and others) have invested in the development of tech talent across Africa, and as those talents have moved on to work elsewhere, it spins the talent loops flywheel.

Whereas there may not have been a robust enough local market for Andela to service in 2014, today we have startups like TalentQL and its AltSchool Africa training program doing the work of identification and training for local employers too.

So perhaps we should look at investing in talent development like investing in infrastructure.

While an individual company must bear the cost, it will pay dividends for them directly and that investment could create a moat for the given business. Sure, some talent will leave (for Microsoft et al.), but the ecosystem as a whole benefits from more skilled and experienced talent moving within it. When the ecosystem benefits, the companies within it benefit too, as even more skilled and experienced talent inevitably flows to it.

And as the competition for top talent continues to heat up, I'll be curating top jobs from the tech ecosystem on The Flip's job board. Check it out!

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✌️ Justin

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