Do start-ups need HR?

Start Ups
Illustration: Studio Fee Overbeeke

The typical evolution of HR

The typical evolution of HR in organisations used to be as follows.

In the first phase the founder or founders do everything themselves. After a while, when the organisation has 20-30 people a general assistant is hired. She or he does all kind of general tasks. Making sure there are enough desks and computers. Coordinating recruitment. Taking care someone cleans the office at the end of the day. Receive some customers. Around employee number 100 some more specialisation is required. A junior HR professional is hired. Or the general assistant is promoted into HR. As the organisation becomes bigger the characteristics of the pioneering phase are disappearing.

Slowly the organisation starts to copy the practices of established companies. Job grading. Salary scales. A performance management system with a four-page form. HR policies. HR politics. HR and IT build an in-house “HR information system”, to save some money. HR manager number one grows with the company until the issues seem to become too big and a more senior HR director is hired. Preferably someone with experience at an organisation with world-class HR (GE, Shell). With 500 employees or more the organisation has grown up. The HR team has grown to 10 people, with some specialised managers (recruitment, training, comp &ben) and some generalists (HR advisors).

This might have worked when growth was relatively slow. Successful start-ups grow fast, as they have developed a repeatable and scalable business model. The number of staff most of the times is growing, but at a slower rate than the revenues. HR (more fashionable: people operations) in fast growing start-ups seems to be lagging.

Some initial guidance for ambitious start-ups with regards to HR.

9 recommendations for start-ups

1. Think BIG

Ambitious start-ups deserve the best HR. Small in size and “small HR” do not have to go hand in hand. There are several ways to get around this. There are small consultancies that provide high HR services for (still) small organisation. You might be able to hire a seasoned mid-career HR professional, who has had enough of the predictable corporate life.

2. Keep it simple

Keep it simple from the start. Most HR processes are too complex. If you put your HR in the hands of a willing amateur, things can become messy. The HR practices taught today at schools and universities are the HR practices of the past. The scientific evidence that practices work and contribute to business success is often very thin. Focussing on the core HR processes (see 5), and designing these processes with simplicity in mind, can save you a lot of money. Be careful to trust your intuition though. Science and data are still undervalued in the HR arena (see 8 and 9).

3. Focus on recruitment and selection

Finding and selecting the first group of employees might be easy. The next phase is more difficult. If you are successful, people seem to be the limiting factor for growth. Your brand is not well known yet. You are competing with many other start-ups for the scarce entrepreneurial technical talent. The danger is that you lower your standards, and hire what is available.
The productivity of excellent people is factors higher than average. If you aim for the excellent candidates, you need to hire less people, and you need less time managing people. If you have a group of excellent people, word spreads around and other excellent people become also interested. It pays to focus on recruitment and selection from day 1. Invest in a good recruitment process and ask professionals to help you with selection.

4. Make a conscious decision on how you want to work

There are many ways to effectively structure an organisation. If you let it grow organically, you can end up with a structure you don not want. Default is often some kind of hierarchy. With good intentions you start flat, and before you realise it there are four/five layers. There are examples of successful organisations with self-managed teams. Some start-ups apply the cell principle: no unit can be bigger than 7-10 people, and if further growth is required a new cell has to be started. The cells are loosely coupled and not part of a hierarchical structure.

5. Outsource non-core

Some HR processes are core you probably want to keep them in-house. Recruitment, selection, talent development and performance management are core. Payroll and administrative processes are necessary, but others can do them a lot better than you do. Training is somewhere in the middle.

6. Keep the HR team small

Force the HR team to stay small. HR teams have a natural tendency to grow. You might need a top HR professional to lead the function (see 1). You might need some specialists (especially recruitment and selection, see 3). You probably do not need more HR generalists when you grow. If you invest in simple processes and systems, employees and managers themselves can do most HR work.

7. Do not necessarily copy the big companies

GE, Shell and Philips are all great companies. The HR practices in these big multinationals were often developed in the 20st century and are not always state-of-the-art. Big companies are trying to become more agile. Growing start-ups have the fantastic opportunity to be innovative and to reinvent HR. Without heritage this should be lot easier. Relying on the best practices of big companies can slow you down.

8. Capture data

When you are small, it is easy to track everything. When you grow it becomes messier. Capturing relevant people data from the start will help you a lot to develop world-class people processes going forward. If you collect the data from the start, you do not have to go back at a later stage, with more difficulty. Besides the basic people data (name, gender, age etc.), it is worthwhile to think about talent data (ratings during selection, core skills, career wishes, mobility) and performance data, to couple people data and business data (performance ratings, productivity).

9. Quickly start with people analytics

If you are capturing the data (see 8), you can start reporting and analysing.
You can learn a lot from simple analysis. How are the people movements from month to month? Where are the people who are developing fast? Who are the recruiters who bring in the best people? Which cells are able to retain the best talent? Do we live up to the high expectations of our people? What are the propositions valued most? Is the leader/worker ration still at the required level? Are you keeping overhead at a low level? If you are able to track and analyse right from the start, you are able to adapt the organisation and the people practices.
You do not need expensive systems for HR reporting and analysis. You can start with Excel and there are neat and simple solutions on the market that can help you to monitor your people dashboard.

Start-ups can benefit from good and adaptive HR. Even when you are still small it can pay off to lay a foundation that will enhance your exponential growth when you are no longer a real start-up.

From start-up to scale-up

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