When you start a business on your own or with a cofounder, people management is probably the farthest thing from your mind. But as your business and team grow, you need support handling employment legislation, talent acquisition, and, most importantly, keeping staff feeling valued and engaged. In short, your business needs HR, but when is the right time to do it?

Simya Solutions, the company behind language learning app Ling App, operates a hybrid and remote working model with a global team of developers and creators. When the team reached 20 people, the need for HR became clear.

Cofounder and CEO Simon Bacher says: “It became impossible for my co-founder and me to continue wearing so many hats, so we encouraged some team members to take on managerial roles, including HR.”

This approach worked well until the team grew to 50 people, and suddenly managers hadn’t enough time to complete their primary tasks and manage talent. Most had never had that responsibility before. It was time to invest in an HR specialist for the business.

“It’s been the best decision we made, and the 50-employee stage was the perfect time to do it,” adds Bacher. “Had we waited longer, employees would have felt overworked and less curious about learning new skills. There’s much more cohesion within the team, and our company culture is flourishing.”

Staff want to feel invested in

Hotel management system RoomRacoon employs 87 people and introduced its in-house HR function around the 40-employee stage.

Cofounder and CEO Tymen Van Dyl says: “With hindsight, I still believe that was the most beneficial time to implement HR, and the benefits and valuable processes that came with it were almost immediate. One of the biggest benefits is centralizing accountability for the employee experience and building an operational framework to meet human capital goals.”

Initially, the HR team worked across various functions, including talent acquisition. Now, recruitment is handled by a separate section, allowing HR to focus on employee experience, engagement and staff retention.

“Employees need to be valued and invested in for the long term, and with the expertise of our HR department, we’ve implemented several frameworks to facilitate this, including professional progression plans, weekly employee engagement surveys, and quarterly employee satisfaction surveys,” adds Van Dyl.

Some startups see the value of HR from day one, including social media app Frog, whose fast-growing global tech talent team includes some former employees of Snapchat and TikTok. Launched two years ago, the business found that using an outsourced HR service from an early stage assured that they were fully compliant with employment legislation. “It also meant we had an external professional HR specialist on hand to assist our staff and ensure that as an employer, we act responsibly,” says founder Anna Lee.

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Finding the right HR service provider to meet their needs was time-consuming. However, there were many providers on the market at reasonable prices for startups. “In the early stages especially, we’ve found an external HR service provider to be more cost-effective than recruiting for in-house HR positions,” adds Lee.

Digital HR

Still, many startups adopt a DIY approach to HR and people management for cost reasons. While HR is important for any business, cash is king for startups, and HR employees don’t directly contribute to revenue, as Josh Wood, founder of Bloc, points out.

He believes that founders and CEOs should wait until they have ten employees before hiring an HR employee in-house and make their 11th hire someone who can manage and grow the team. “Up until that point, the CEO and other team members should be able to handle all HR issues,” he says.

After five employees, he suggests that startups consider paying for monthly software to manage certain aspects of the business’s HR side, such as holidays and sick days. However, this is cash flow dependent as some of the best software solutions are expensive.

Many startup founders make the mistake of paying for fancy software and employees when it’s not necessary, and the next thing they know, they have run out of capital and need to either raise or find more funding. “Staying lean for as long as possible is how to survive and flourish as a startup,” adds Wood.

Boosting growth

Lucy Smith, founder and managing director of Inclusive Change, discovered that the DIY approach to HR was a false economy. The business, which runs a neurodiversity work experience program, was launched in March 2020 and Smith initially ran it with her husband, relying on volunteers to help out during lockdown. However, once the business began to grow and hire part-time staff, the HR responsibilities became more time-consuming, complex, and demanding. A year after launching the company, they turned to the HR app BreatheHR.

“It was very effective,” says Smith. “Before that, we’d been using spreadsheets and file management but had reached a point where we knew we needed a system that would keep our records secure, ensure GDPR compliance, and generally lower the risks for us as an organization.”

By the start of 2022, the business had outgrown this approach and invested in the services of an HR specialist to help them ensure policies and processes were legally compliant and find ways of investing in the team and becoming more efficient with the resource budget.

“Had we invested in HR earlier, we would have made fewer mistakes and better decisions that could have saved us money,” says Smith. “Doing it yourself is cheaper, but we have learned a lot. Once we invested in HR support, we started to gain control and feel more confident in making some difficult decisions around our HR. By demonstrating that we value our team, they feel more secure. In the long run, HR support will protect you as an employer and your staff. My advice is to do it as early as possible.”

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