How Early-Stage Founders Should Think About HR

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How should early-stage founders, especially those at the seed / pre-Series A phase think about Human Resources (HR)? It is common at this stage of the startup, to conflate HR or anything people-related with hiring or talent acquisition. However, as Manisha Kadagathur, a senior HR leader, management consultant and startup advisor details here, founders would do well to look at hiring as one element of a trifecta, comprising talent strategy, a coaching culture and finally the reward strategy. These three, executed well, help founders build up a great recruiting engine, one that supports and powers the startup’s growth ambitions.

This article provides a framework for founders of high growth early-stage startups to approach the topic of HR.

 I argue that all HR activities can be broadly classified under 6 main pillars –

  1. Talent strategy

  2. Coaching culture

  3. Reward strategy

  4. Talent acquisition (hiring, as normally understood)

  5. HR operations (payroll, documentation)

  6. Compliance (legal regulations)

(Indeed how HR is structured in most large companies too – only they put it under names such as L&D – Learning & Development, or Comp&Ben – Compensation & Benefits)

Given early-stage startups are focused on getting to product-market fit, and need to manage on a lean budget, it is best to outsource HR operations and compliance to external service providers, with well-defined service levels. Talent acquisition or recruiting is an important aspect, and whether to have an in-house recruiter or use an external agency is a question that a founder needs to address depending on the talent market dynamics of the geography that the startup is based. One option here is to engage a trusted external recruiter until the startup hits a critical funding milestone (series A or B), leaving 3 critical activities that are core, and thus demand complete attention of a founder – talent strategy, coaching culture, and reward strategy.

A simpler way to remember the 3 core areas might be purpose, performance, and rewards; purpose determining talent strategy and performance as what a terrific coaching culture leads to.

Let us address these one by one. 

Talent Strategy or Purpose

Anyone who has worked with startup recruiting teams knows how difficult it can be to find the right person for the job. Recruiting is intense and time consuming and unless there is a well-defined talent strategy with a clear workforce plan that mirrors critical business milestones, the startup will play catch up and struggle to hire as per plan. My estimate is approximately 70% of a founder’s time on people issues (roughly about 40-50% of her overall time) should go in to developing and executing a sound talent strategy with a robust resource plan. The talent strategy should address sub-strategies for each step of the recruiting process, or the recruiting funnel, such as sourcing, evaluating, closing, and on-boarding. Let us stick with the funnel analogy and look at how talent strategy applies at different parts of the funnel.

Top of the funnel: At the top of the recruitment funnel lies sourcing or attracting people to your startup. Effective sourcing comprises a bunch of allied activities including –

Building a brand: The stronger the startup or founder brand the easier recruitment is. At the heart of the brand is purpose, or the why of the startup? What inspired the founders to join hands and embark on this journey? What is the end goal? The stronger this is, and the better it is communicated through company rituals, blogs or tweets or podcasts, the easier it becomes to pull candidates towards the company.

Programming the culture and living it: A great culture not only attracts great talent to create great products or services for customers, but it is also the differentiator, the X factor.

There are no two ways about it – culture happens, whether you like it or not. Question is why not define it while you still can? 

Netflix and HubSpot’s culture documents are legendary in startup circles. Even if your culture manifesto is not as widely circulated, so long as you draw up a statement of purpose, list the values that are celebrated within the startup and key skills, knowledge, attributes, and goals that an ideal candidate will have and pursue with aligned rewards, you are more than covered. A caveat, a culture credo is not just something you put on a document and circulate. In the end, it has to be lived through the many decisions you make as a founder. Ben Horowitz’ recent book ‘What you do is who you are’ is a great read on this topic. 

Great founders understand this and work toward building a brand and embedding it with in the minds of all stakeholders – employees, customers, and investors.  The insight here is that all of the time spent in creating a great culture yields compounding returns on quality of hires and the quality of available talent pool. 

Mid funnel: Mid funnel activities include evaluating and selling the opportunity (including the actual interviews). So, in partnership with a recruiter (internal or external), the founder would focus on building a resource plan with timelines, skills required and tools for assessing potential hires. Simultaneously founders would also set budgets and specify hiring channels if any, to identify potential hires and develop a talent pipeline. This is also a good point to put in place systems (including software tools) such as an applicant tracking system to manage the talent pipeline better.

A sound workforce plan along with a favorable candidate experience helps build a reputation for hiring practices. This encompasses all the touch points between the candidate and the startup including how the final decision is communicated. Benefits manifest in positive Glassdoor reviews. Although a long tail strategy, it leads to higher stickiness than a paid for PR exercise. 

Bottom of the funnel: The last step involves making the offer and on–boarding new hires. Besides fielding questions on the pay details and pay composition, set aside time to reiterate expectations, goals, openly acknowledging challenges. All of this builds trust. A lot has been written about on-boarding and the Day 1-100 experience, so I will not dwell on it and in general, having no surprises is a good strategy while recruiting. In India, there is always a risk that the candidate who has accepted the offer may not eventually show up on Day 1. Anecdotally, if you receive 10 resumes, you will shortlist and interview 7 and make an offer to 3 before 1 candidate accepts the offer and joins. I am sure my recruiter friends have many more anecdotes to share. Here is a tweet thread on this issue with some ideas.

Coaching Culture or Performance

Now that you have got the recruiting machine all cranked up and attracting the right talent to your startup, what happens next?

Execute and deliver.

If only it were that simple. Setting expectations, agreeing on clear goals, spelling out all the activities that go into achieving goals, co-opting support from different teams who are critical to meeting targets and deadlines and conducting regular check-ins is estimated to take about 20% of a founder’s time on people issues, which is about 40-50% of overall time. 

Now this is a good time to consider, if people issues take up close to half of the founder’s time, fund raising probably takes another half, where is the time for the product? After all, it is the product that is going to hit the market and make the whole investment worthwhile. So, should the product not be the most important activity that a founder focuses on?

Well, if the purpose of the startup and goals are clear and key hires with the right skills and attitude are already in place, then it is best to leave them be and focus on creating the right environment. This is where the organization structure really starts to have an impact on the workflow. A hierarchical and matrixed organization structure will manifest in how product development proceeds. Teams that need to circle back regularly for approvals even within the contours of a project’s scope, will lead to a workflow that is cluttered, clunky and resembling a bowl of spaghetti. Work toward building a structure that is contextual and draws from your unique culture. To know more about the linkage of product development, communication, and organization structures and what is popularly known as Conway’s Law click here  – http://melconway.com/Home/Conways_Law.html

The best way to embed a coaching culture is through an agile performance process with regular check-ins: Huddle, Review, Sprint – the nomenclature varies but what is common is the ongoing constructive dialogue focused on delivering outcomes and removing blocks (structural, skill, or leadership). This is a departure from erstwhile performance systems that focused on KPIs and measurement at pre-defined intervals (bi-annual or annual) akin to the waterfall method of product development. Both have outlived their utility. 

Notice that there is no concession made for attitudes or personality issues. In a startup as in a large corporate, there should be no room for tolerating bad attitude and one-upmanship. When the blocks are caused by skill gaps, it is easier to plug them through skill development courses, masterclasses, borrowing  skills from other internal teams or engaging external consultants / gig workers, thereby, sowing the seeds of a coaching and learning culture. However, coaching may not always be a founder’s strong suite and depending on the founder’s comfort on assuming this role, engaging a professionally certified business coach might help in picking up the tools (processes, but also software tools like Lattice or Betterworks for performance management) required to conduct frequent and consistent check-ins. The beauty of working with tools and laying out a process is that it can be replicated and cascaded through the startup long after the business coach has left the building, to paraphrase Frasier.

Reward Strategy

Articulate your startup’s reward strategy by spelling out the outcomes expected and then choose the appropriate reward instrument. These could be short term incentives, annual performance bonuses, team rewards, stock options or non-cash benefits. Remember always, that reward instruments reinforce the behavior you wish to embody at your startup. A founder’s role is to lay out the plan and stick to the knitting, minimizing the exceptions to the plan. Doing so, should take up 10% of their time on people issues (again, about 40-50% of overall time). 

As an overall philosophy, reward strategy is a function of the purpose of the startup, individual employee behaviors and overall business outcomes in comparison with market comparators. Any reward should be meaningful and impactful for the employee if it is to drive any positive incentive.

Conclusion

To sum up, HR at the early stage is not just hiring. Yes, hiring is critical and hiring on time and hiring great talent at that is a terrific outcome. But for this outcome to be realized, it is important for the founders to focus on three critical areas – set in place a well-thought through talent strategy, create a consistent coaching and performance culture, and finally align rewards with purpose of the company and the outcomes. Time is the most precious asset for a startup. This is a winning HR framework for startup founders, one that approaches HR by considering impact, given limited founder time, rather than a predefined process and force fitting the founder’s time into it.

I invite your views about the framework and can be reached at [email protected].

About Manisha Kadagathur

Manisha is a senior HR professional and entrepreneur, and the Founder Director of the HR Consulting practice at Zephyr Consulting Services. She is the co-founder of two firms –a digital first, workwear brand in India and an HR technology company in the US. Her experience spans the US, The Netherlands, Middle East, and Asia in the financial services, professional services, manufacturing, and CPG industries having worked with GSK, AEGON Life, Axa and Aon besides consulting with numerous others. She holds a bachelor’s degree in Math and Computer Applications and MBA from XLRI, Jamshedpur. She is a certified trainer in Negotiation, Compensation and Organization Design. She is the host and producer of a business podcast, Tell it like it is’.

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