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HR’s Role in New Business Start-Ups

January 13, 2014

Article courtesy of SBAM Approved Partner ASE

By: Anthony Kaylin

Capitalism in its purest form, as in new business start-ups, is cold. The anticipation of big rewards later on lowers employees’ expectations for pay and benefits initially.  Conventional HR concerns are not really a consideration as new hires arrive and are sent packing before they can even figure out where the lunchroom is. At-will employment reigns supreme.

While an established organization can afford to give a new employee time to develop and grow to become a valuable member of the firm, start-ups do not have that luxury.  Success or failure depends on getting the right person the first time, and recognizing and culling as quickly as possible those who are not succeeding. The HR function in start-ups, such as it is, has a single, most basic mandate: Bring in the right people the first time. Hardly anything else matters.

According to the Bureau of Labor Statistics, new companies terminate around 25% of their employees in the first year.  By comparison, more established employers (greater than 18 years in existence) maintain an approximately 7% termination rate.

So why is this? Steve Roberson of job-search engine StartUpHire, who has co-founded three companies, put it this way: “Smart people can waste months building infrastructure that scales, only to find that  doesn’t matter because the market doesn’t care about the product.”

In other cases, time is against the startup. Ben Huh, the chief executive of online humor publisher Cheezburger, terminates employees whose jobs become obsolete as the company evolves.  Huh believes that even when the startup has grown to 50 employees it is still evolving, still identifying a strategy for sustainability. 

Sometimes founders, more concerned with strategy than administration, don’t hire the right people at the beginning. Instead of thinking in depth about who and what they need, they hire family or friends.  In one situation, Tim Wolters, CEO of HR software maker RoundPegg Inc., hired a friend and investor into the chief marketing role. But his friend was used to giving orders, not hustling; three months into the job Wolters had to fire the friend.

In other cases, founders just don’t know how to manage people. In one case, says Susan LaMotte of exaqueo, a consulting firm that specializes in startup hiring, a founder brought her in with these self-incriminating words: “I don’t understand what happened. I hired the best and the brightest, and now everybody hates each other.”

Other times, startups hire the wrong person by taking in corporate wonks who are not prepared to deal with the timelines they must support when the company is in an extreme entrepreneurial mode. For example, Plato is a company that sells ingredient kits for home-cooked meals. Co-founder Nick Taranto discusses how he hired (and not long after fired) one employee to pursue partnerships with apartment complexes, celebrity chefs and TV networks. The hapless newbie spent a month perfecting a PowerPoint presentation that looked very good but failed to get any traction with potential partners. “That sort of time frame just doesn’t work when you have only a matter of months” of capital on hand, Mr. Taranto said.

The start-up attitude has been influenced by Eric Ries in his 2011 book The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Mr. RIes, who is experienced in start-ups, urges new companies to stay unsentimentally focused on moving ahead, repeatedly releasing improved products and eliminating anything that doesn’t serve customers.  This philosophy also applies to the HR function, as limited as it is in startups. 

Larger and more established companies have not brought this philosophy in-house because of risk—lawsuits, EEOC charges, and the like. However, even large companies can learn from the start-up mentality; when competition becomes more hyperactive they need to give new employees shorter leases to prove themselves and develop the skills and attitudes they need to add value to the company.

So the landscape is changing for large, small, new and old organizations: HR more than ever needs to bring in the right people the first time so as to minimize population churn and the  costs that come with unavoidable instability.

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