Pivot from product startup to (tech-enabled) services provider

Data security wasn’t the only reason. On average, recurring revenue from a temporary or contractual workforce accounts for nearly two-thirds of the revenue for a big staffing company. Though permanent hiring contributes only about a third of revenues, the margins it offers are significantly higher.

For instance, while Quess makes 2-3% Ebita (Earnings before interest, tax, depreciation, and amortization) by placing temporary workers, that shoots up over tenfold to 30-35% for placing permanent. This means that staffing agencies naturally don’t want to work closely with tech recruitment startups.

Finding out the potential candidates

Left with no other option, startups turned to the web to source profiles of potential candidates. Which meant mostly LinkedIn and to a lesser extent on other social platforms like Github and Medium.

That was where Belong.co established its forte. It is credited as the first company in India to come up with the idea of “stalking” potential candidates by analyzing their social footprints like tweets, Facebook posts, blogs, etc., and figure out whether they are looking for a change of role. The company used software crawlers to scrape the web to get candidate information and then sell that database to employers.

Technically web scraping remains a grey area, as it is illegal if the lifted data is copyrighted.

Over the next year, many other recruitment tech startups started scraping data off the web, including LinkedIn public profiles. “It was necessary to grow,” says Kumar of Skillate, which claims to have over 10 million candidate profiles that it has created on the basis of public profiles available on the web-fed into its training program over the last one year.

But this focus on web scraping led to another problem, points out Quess’ Srinivasan. In their zeal to apply tech to capture data from resumes, they forgot that they did not have direct access to most job openings, which lay either with employers or recruitment agencies.

Meanwhile somewhere in mid-2015, amidst increasing competition, LinkedIn shut down its APIs that were being used to source user profiles.

“Are you guys funded?” was the first question they would ask.

“No, not yet,” said Kumar of Skillet.

It happened twice in the last six months alone.

Finally, a solution found!

Kumar had been pitching his solution to well-funded startups. One just walked away, while the other lost interest without even hearing the entire sentence. Both had initially shown interest in Skillate’s product over email.

“We can get funded only when we have clients, but nobody would give us a chance because we are not funded,” says Kumar.

Since last year, hirings have come down and smaller HR tech startups are finding it tougher to raise money or get clients or both. As per the available Tracxn data, venture funding between January and September 2016 in the space was down nearly 70% to $16 million compared to 2015.

“The majority of the investors think that HR tech companies can never be a product company [in the recruitment space] and in the end, they will become service companies and operate like recruitment consultancies—tech-enabled recruitment consultancies,” adds Kumar, who has finally managed to get five clients including Treebo Hotels and Furlenco.

And maybe rightly so.

“The biggest challenge is the attitude of employers. Companies are so specific and so close-minded, so unless and until they get the candidate with exactly the same criteria it will not work,” says Sachin Gupta, co-founder of HackerEarth, which started in 2012 as a recruitment solution for developers. Since then, it has pivoted to become a platform for organizing hackathons, skill assessments and innovation management.

“That is why companies [may] end up pivoting to service models. They [employers] want somebody who says I have spoken to the candidates, and they are willing to relocate..,” he says.

Employers have their own problems with such tech products.