THE STATE OF STARTUPS: An extensive survey of founders and their employees reveals how to run a company and recruit the best people in 2020

• First Round Capital, a prominent early-stage venture firm in Silicon Valley, released its fifth annual State of Startups report, which outlined predictions from startup founders and employees on trends for 2020.
• A key theme in the report was how crucial company culture and employee satisfaction was to the success of all early stage startups.
• The report found that employees were three times as likely to leave a startup that wasn't prioritizing diversity and inclusion as those that did. Similarly, compensation was less important to employees than the mission, team, and culture of a prospective company.
• One of the biggest disconnects in the report was around whether working from home helped or hindered productivity, with more employees in favor of the perk than founders.
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This year, tech workers have made it perfectly clear that they want to be heard. That has presented a crisis for founders and executive leadership hoping to attract and retain top talent - but also, an opportunity.

A new study from First Round Capital, a prominent early-stage venture firm in Silicon Valley, found that the shockwaves from 2019's employee activism movement will carry into 2020. The extensive report polled founders and employees on everything from overhyped tech to benefits and compensation, and the results lay out a guide to success for any founder looking to hire and retain the best talent going into 2020.

According to the study, "only 1 in 10 employees said cash or equity compensation was a primary reason they joined their company, and only 1 in 20 founders said equity played a starring role in their pitches to candidates." Instead, employees were more intrigued by their ability to make a difference at a company, the types of problems they could work on, and more intangible features like the company's team, mission, and culture.

This means that startups can capitalize on the stumbles of tech giants like WeWork, Facebook, and especially Google, all of whom have seen cracks in their culture emerge as rifts between executive leadership and their employees widen.

'It's an asset, not a liability'

"There is a common misconception that it's hard to compete for talent here," Y Combinator CEO Michael Seibel told Business Insider of startups hiring in Silicon Valley. "Google is a magnet for global talent, and it's all coming here. Do you think all those people are going to like working at Google? No. And do you think Google is perfect at hiring? No. You get to get feed off of Google's mistakes. It's an asset, not a liability."

One of the things early stage founders focus on, Seibel said, is the pay discrepancy between a tech giant like Google and what they can realistically offer candidates.

Young startups like those in Y Combinator's famed accelerator program typically have limited venture funding to spend, and still most of that venture cash goes towards paying top engineers and senior leaders. But the First Round report found that employees aren't as enticed by high salaries as these founders think.

This is good news for founders bracing for it to get more difficult to raise venture capital in 2020, meaning a lowered ability to make competitive offers for top talent. Rather than fat paychecks, the study suggests, would-be employees are more excited about the ability to make a difference.

Get your own house in order

That, in turn, puts the onus on startups and tech companies alike to make sure that their own house is in order, even in the earliest days, when it comes to corporate culture.

"You have to be deliberate about culture," said Lissa Minkin, a human resources executive at hardware startup Tile that did tours of duty at Facebook and eBay. "It has to be something you talk about at exec staff meetings. You can't just ignore it and expect it to be good. That's what I learned at Facebook. [CEO] Mark [Zuckerberg] and [COO] Sheryl [Sandberg] talked about culture every day and what was expected at the company and of us every day. The leadership team has to make it a priority as much as anything else the company does."

Part of that culture is reflected in a company's perceived commitment to diversity and inclusion initiatives, and what those processes look like in practice. The First Round report found that employees were three times as likely to leave a startup that wasn't prioritizing diversity and inclusion as those that did. Founders are on board, with 80% recognizing that a more diverse team is a good thing for their companies.

But where the two groups diverge most is over whether or not companies should allow employees the perk of working from home, a generous policy that has gained momentum with the proliferation of fully remote startups and improved collaboration software like Slack and Zoom.

According to the report, just 15% of founders felt confident that working remotely made their team more productive, but over 41% of employees stated the opposite. Founders that do work remotely, however, were six times more likely to have a positive opinion on the perk, perhaps explaining the growing roster of fully remote startups.

"I will be shocked if I have anyone coming to our office anymore that is adamant about building a team in San Francisco or the Bay Area," Initialized Capital founder Alexis Ohanian said at a fireside discussion earlier this year. "It makes me sad because San Francisco is great but no one in their right mind will build their company entirely here, and that's just how you have to think now."