A Growing Startup needs HR

Published by MBA Skool Team, Published on February 02, 2017

For startup, the most important aspect is the team of people who are working. The most successful of startup ventures are those which have a good pool of talent and hence HR is extremely important aspect of a new company. Over the years, India has become a hub for new ventures which has been backed by a strong HR base and a highly motivated workforce.

India houses more than 4000 technology startups, a number higher than China. The number of unicorns (companies valued above $1bn) in India is next only to The United States and China. While this is the statistics that makes every budding entrepreneur in India dream big, there is also another side of the story, 90% of the startups fail. According to a Forbes study the answer to the question, why startups fail? is that “23% of the time they did not have the right team”.

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Startups start their journey with founder or a group of founders who work to offer a solution to a problem in an innovative way. Often the founders have to seek help of experts from different fields to work on it. This first few employees get the chance to work with the CEOs directly, which forms the first level in HR. They get to know the vision of the company more precisely and contribute towards framing it. With funding from investors, the company’s ability to produce solutions increases and from a set of 4-5 employees, its workforce expands to more than 30. This is the crucial time which decides whether the company will be in the 10% which appears in the success stories.

The first step towards a company’s growth is to bring in the right talent. Startups face a unique challenge in this area. During the initial stages of a startup the vision and mission are well defined, but the culture is something which is not defined properly. Even when the startups raise capital, it is difficult for them to pay compensation package at par with established companies. One way to solve this is to look for people who are attracted to ideas that can be a game changer. But making them believe in those ideas and attracting them for the game changing work is easier said than done. So, if a startup aims to make a strong team, it has to make its ideas worthwhile and something which people can believe in. To get in touch with the potential candidates, the best method is to use the founders’ networks as going the traditional way can be costly for most startups. One advantage startups have over large companies in recruiting is superior candidate experience. The candidates often get to interact with the top management of the company as the hierarchical level is less. If designed properly, this personal touch in selection process can be used to build relationship with people who can refer the perfect candidate.

Once a person is hired, the next challenge is to design a compensations package that meets their needs. While low levels of compensations can hinder a startup’s chances to attract quality people, high cash compensation can turn away investors and in the long term can have a negative impact on the cash flow statement of the company. Apart from cash compensation, stocks can also be offered to the employees. This provides an incentive to the employees to be a part of the company’s growth story and stay in long term. Although, founders must use their judgement to ensure that excessive ownership is not transferred to the employees. This might lead to long term problems of raising capital from venture capitalists who demand a large chunk of share in exchange of capital. Despite having these challenges, startups have some advantages of their small size. In absence of formal compensation policies, they can offer flexibility in compensation package to meet every individual’s need. An early investment in HR is required to administer this personalized compensation and benefits as the company starts to grow.

The real challenge startups face is often not making a strong team, but keeping the team ‘one’ team. A team full of superstars is not always the best team. In the initial stages of the company, the employees get the chance to work closely with founders, they can work on a shared goal and have a high level vision of it. This acts as a big motivation factor for the team. But as startups start scaling up, these extrinsic motivators often fail to address the employees’ needs. Problems like high turnover which was faced never before comes as a shock to the company. This is a point where HR can make a major difference.

HR intervention is required in the scale up stage to ensure that the channels of open communication with the top leadership is not closed down as the company grows. This can be ensured by making informal and regular feedback a part of the company culture. The employee goal setting should be in such a way that it is tied directly to business goals. The unique experience that differentiates a startup from large companies is the opportunities of personal growth. Enough flexibility and autonomy should be offered to the employees to enhance this experience.

In a growing startup, maintaining focus can be a major issue. With rapid growth in employee numbers, comes the need to put in more formal structures to ensure efficiency. But careful consideration is needed on how this structures are designed to ensure that innovative ideas do not get lost in bureaucracy. As more departments and teams are added to the organization, it often happens that their actions do not direct towards the same goal. To stop this from happening, organization structure should provide enough room for open communication amongst departments and people working in different teams. Traditional measures like outings can be equally effective in startups also, as teams working on different domains discuss and share their viewpoints informally, the sense of a shared goal is built which leads to more focused teams.

Although HR can play a major role in development of a startup, often companies recognize the need of HR too late, a lack of fund is often cited as the reason. But as more formal processes are put into the company, employees’ often find that their basic motivation to join a startup does not exist anymore. A focused HR can the right interventions in this situation and make the transition more soothing to the employee. Thus, the right strategy for a startup is to invest in HR as early as possible, that can be the differentiating factor among the ones becoming unicorns and the others which become part of the other 90%.

This article has been authored by Arnab Bhattacharya from IIM Ranchi


1. How to Keep Your Startup Vibe in A Rapidly Growing Company. (2014, August 27). Retrieved from http://www.forbes.com/sites/groupthink/2014/08/27/how-to-keep-a-startup-vibe-in-your-rapidly-growing-company/#3c22ca9d6476

2. 9 Reasons Why Most Startups Fail. (2015, October). Retrieved from https://www.entrepreneur.com/article/231129

3. Five Most Common HR Challenges Faced by a Startup. (2016, July 12). Retrieved from https://www.shrm.org/india/hr-topics-and-strategy/strategic-hrm/Pages/Five-Most-Common-HR-Challenges-Faced-by-a-Startup.aspx

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