Why does a Human Resources function need to be included in a start-up, from the start? The simple answer is that people are at the heart of your business, and it is critical to your business’s success that you get the right people on board from the beginning.

Not paying attention to HR is also a reason why many start-ups fail. Many entrepreneurs are eager to succeed and have high expectations for their businesses.

Nevertheless, some startups do fail, for a variety of reasons, the most common of which are:

  • Not researching customer needs before creating a minimum viable product
  • Failure to analyse the competition
  • Incorrectly assessing demand for your product

But a key reason for business failure sits with the People aspect of your business: failure to surround yourself with the right stakeholders, whether it’s employees, business partners, or investors as well as hiring the wrong people, which leads to strategic drift, spiraling costs, and a dysfunctional culture 1.

The Importance of Setting up HR in a Start-up

The Real Cost of Poor Recruitment

A strategic drift is when an organisation fails to recognise and respond to changes in its business environment. A good example of this would be a company that neglected to develop its online business platform in the face of the COVID pandemic.

Hiring the wrong people either because they lack the skills needed for the role or because they are not a company culture fit is very costly. They either have to be heavily trained and developed or fired and a replacement needs to be recruited, onboarded, and trained, adding to the original cost of hiring for the position.

A toxic company culture caused either – by unhappy employees or the wrong hires – invariably leads to a decline in productivity (e.g. absenteeism) and high employee turnover.
One estimate is that the cost of replacing an employee is equivalent to 6-9 months’ salary.

Additionally, there are all sorts of negative consequences to hiring the wrong people. People who have had a bad candidate experience may actively discourage others from applying for work there. It may also impact your brand image if disgruntled ex-employees criticize your business or products.

Benefits of Good HR

The benefits of integrating a strategic HR set-up from the start of your business are the following, among others:

  • You as founders can fully focus on your business and what you do best
  • Increased productivity and efficiency
  • Long-term cost savings due to labor law compliance and skills fit
  • No need to ‘clean up the mess’ at some point in the future
  • Easier to scale up due to existing structures and processes

What it comes down to in the end is that it saves you money and time as well as a lot of headaches if we are being completely honest.

So, what do you need to do to set up an HR function at the beginning of a start-up? Here’s a reminder of the ‘Employee’s Journey’ from an HR perspective:

Recruit & hire Onboard → Engage → Develop → Progress → Exit

Each of these steps requires knowledge, skills, and expertise. As such, it is good advice to get an external expert to assist you from the outset. This does not need to be costly, and will always be less expensive than what it costs to ‘clean up the mess’ that can result from not doing each of these steps correctly.

First Steps

An HR expert will help you to:

  1. Develop a vision, mission, and values as a basis for your decision-making and hiring
  2. Advise on – or even conduct – a recruiting process, basic benefits & perks, and drafting employment contracts
  3. Draft a website that defines who you are in terms of points 1. and 2. above.
  4. Draft an onboarding process (sometimes called induction) including elements like job descriptions, policies & procedures, training & development, product knowledge, etc.
  5. Decide how your people are going to be developed to grow in their roles including a performance assessment process that looks forwardtowards personal development rather than back at where they have not performed well
  6. Define leadership and your company structure: top-down, bottom-upor laissez-faire, and when and how often to have meetings, etc.
  7. Decide on an offboarding process: exit interviews are a good way of receiving feedback on the company culture – why are people leaving? You want to create an atmosphere that welcomes people back should they want to. After all, you’ve invested time and money in them

At some point in your company’s growth, you’ll want to hire a ‘people person’ (or two) to take over these functions, including payroll management, leave rosters, and everything else that comes with HR management.

It’s important throughout to document processes and knowledge, and use tools and software available in the market to assist you with this and, again, save you time and money. This depends, of course, on how fast you’re growing, the types of roles you’re employing (e.g., technical, sales, finance), your location (country-specific labor laws apply), and your setup (e.g., whether you’re working from an office or remotely, whether your employees are full-time or contracted etc.).c

When looking for the right expert to assist you, you want someone who understands the challenges of entrepreneurship and start-ups, has seen processes and structures in a scale-up environment, possesses the wide range of HR skills required, and can network successfully for specialist knowledge and skills.

Culture

Rapid early growth of a start-up often results in a lack of attention to the people aspects of the business, giving rise to a ‘toxic’ working culture. This is especially true, for example, of a small business started by a group of friends who soon realise that working together is different from hanging out at the beach. Or a family-owned business that brings their relationships into the workplace, especially when it comes to performance management.

The goal is to create a culture that fosters entrepreneurship in addition to breaking down barriers and hurdles to growth. You do this by:

  • Workshopping the business’s vision, mission and values with your people
  • Getting the buy-in from the team
  • Visualising your common vision on the company’s website, intranet, office, etc.
  • Integrating your values into your day-to-day processes and structures
  • Regularly engaging in team building exercises, events, etc.

Attract, Recruit and Hire

The goal here is to attract and recruit people with the right cultural ‘fit’ and skill set. How?

  • Develop an employer brand (just as you would with your product brand) that fits your budget and target group, and which can be scaled once you have more budget
  • Develop a recruitment process that allows enough time to get to know candidates as well as for them to get to know you and is based on formal criteria (e.g., skills assessment) rather than gut feeling, so as to be transparent andfair, and to limit bias, – tThe process should be as automated as possible to save time and money, and to ensure transparency and fairness as well as a great candidate experience
  • Source legal advice on drafting employment contracts

Onboard

The goal is to integrate new employees into the start-up so that they have the information they need to add value and be productive as quickly as possible and start to feel part of the team. How?

  • Map out a detailed timeline of what they will do on the first day, first week, first three months and until the end of their probation period, as well as whom they can turn to for help at each stage
  • Create a knowledge base for all processes and structures
  • Possibly assign a buddy or mentor to focus on informal culture aspects and cross-collaboration

Benefits & Perks

These are necessary to attract and retain the right talent to your team, help define and reinforce your culture,while enhancing employee experience and feeling of belonging. How?

  • Start small and grow with your budget
  • Benchmark with your competition and ask team members
  • Make sure the scheme is flexible, appropriate to a remote/office environment, and perhaps focused on promoting work-life balance (e.g., gym membership)
  • Speak to your tax consultant about how to optimise benefits & perks

Sustainability

A discussion ensued about the increasing demand to recruit specialists in corporate ‘sustainability’, what it means to be a sustainable company, how recruiters are grappling with the understanding of this role and whether it ought to be a separate department.

The discussion reflected that responsibility for sustainability ought perhaps to be shared amongst various roles as it is with managers having responsibility for HR topics, such as recruiting new team members, onboarding them and developing them.

Work-Life Balance

Employees who struggle to create a balance between the demands of work and the need to spend time with family and friends are urged to be honest, with themselves and with the company. If the employee finds it difficult to discuss the situation directly with their line manager, they can approach HR directly for advice or mediate on their behalf. Ideally, approach management with a proposed solution to your problem.

Cases

Three cases were presented to help participants think about their responses to various HR scenarios.

Case A: Recruiting

You work in a start-up with 15 team members and the values eco-passionate entrepreneurship, teamwork, integrity and passion. You are looking to hire six people until the end of this year, but have to iterate the existing recruiting process because it is not suitable for selecting the right candidates.

Design a general recruiting process including steps and some questions or a case to check whether the candidate fits the company culture, so you will hire the right candidate according to your company culture and the skills it needs. Don’t forget that the candidates’ views on whether they are a fit are also important.

Case B: Onboarding

You work in a start-up that has 10 team members. As you are looking to hire 15 new team members until the end of 2023, you need to professionalize your onboarding process. Decide what elements should be part of your onboarding process, ideally in the form of a timeline and whether or not to get a tool.

Case C: Perks & Benefits

You work in a start-up that currently has 20 team members and you have to start thinking about which perks and benefits to offer as you will continue to grow by a minimum of 50% in the next three years. Create a perks and benefits package for every employee. Your annual budget for every employee is a maximum of €1000 per year.

Suggested responses to Case C:

Brainstorming Perks & Benefits with a max. €1000 budget per employee

→ Research team age, interests, needs, etc.

→ Team leader knows their people, ask them directly (survey for statistics and documentation)

  • Development budget
  • Childcare
  • Transport allowance
  • Gym
  • Fostering hybrid work
  • Restaurant tickets
  • Language courses
  • Time vs. financial perks
  • Health/dental insurance
  • Events

Some challenges/risks:

  • benchmark with your competitors
  • aligning benefits with the purpose of the brand
  • asking people raises expectations that what they suggest is what they will get
  • those who don’t get what they suggest may feel snubbed

1 “Why startups fail – a new roadmap for entrepreneurial success” – Tom Eisenmann

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