Entrepreneurs that are just getting started face an assortment of challenges. Those are compounded by the size of the startup. If the company is big enough to have human resources specialists, their role is critical to place the right people in the right places.
O’Donnell is human resources manager at G&A Partners, a human resources and administrative outsourcing firm providing HR expertise and insights on company culture, workplace dynamics, and benefits.
Tornone is senior editor of HR Dive, which covers industry news and provides original analysis. Tulgan is the founder and CEO of Rainmaker Thinking, a management research, training and consulting firm and “the leading authority on generational issues in the workplace.”
Generally, HR needs in a startup differ from those in more established businesses. In a startup, the business relies more heavily on HR to navigate unfamiliar laws and regulations to make sure the company gets moving on the right foot.
“Early on, startups tend to view HR more as an afterthought, rather than a strategic business function,” O’Donnell said. “As the company grows, however, the need for a true HR strategy that addresses recruitment, retention, compliance and so on starts to become more apparent.”
Although the initial pace might be slow, the tempo can pick up quickly.
“Startups tend to have a small number of core employees and then staff up, first slowly and then rapidly,” Tulgan said. “They usually dedicate a lot of resources to hiring, but often have very few resources for other basics, such as ongoing employee training and risk management.”
Tornone cautioned against taking HR for granted.
“At the risk of stating the obvious, the companies are starting from scratch: no talent acquisition plan, no culture strategy,” she said. “Compliance is incredibly important, but someone needs to think about strategic issues, too.
“Having someone define and guide your culture early on will be so much easier than hiring them to correct a poor culture later,” Tornone said. “The same goes for defining the ‘why’ for employees. A founder may be focused on the bottom line, but employees need a higher purpose — and startups need someone who can help them communicate that.”
Bring on someone from the outside with HR expertise from the beginning. It’s dangerous and wasteful to try to wing it.
“The sooner the better,” Tulgan said. “The fundamental thing with startups is that everything is starting from scratch. That means you have an opportunity to get it right, but you are also very susceptible to neglecting a systematic best-practices approach to HR from the start.”
Bringing in outsiders can ease the organizational pressure.
“At some point, sources can be exhausted,” O’Donnell said. “It becomes necessary to find new talent outside of the entrepreneur’s personal sphere. They need to identify the work that needs to be done along with the skills, education, and experience required to do it.
“Then it’s time to get help from an expert recruiter to develop a sourcing strategy and establish a pipeline of candidates for the positions you need to fill,” he said.
“He said it also depends on growth and recruiting pace,” Tornone said. “If you’re always trying to hire five more people, you need someone to quarterback the process.”
Early hiring pitfalls stem from unclear vision, goals and job descriptions. HR professionals can step in to help form a more complete picture into which new hires can best support the corporate structure.
“I’ve seen startups flounder and even fail when they staffed at a level far above demand,” O’Donnell said. “After a forced layoff, it becomes much more difficult to retain top talent when they don’t feel things are stable. Strategic use of contingent workers may help with this.”
Ill-placed workers can backfire fast.
“Hiring people within your own network and force-fitting them into key roles — or moving existing employees into key positions, regardless of their actual skills and experience – are typical startup mistakes,” Tulgan said. “Beware of overpaying people who seem like ‘the answer to all of your problems.’
“If you don’t have a systematic approach to staffing strategy, onboarding and up-to-speed training, you are bound to stumble into many pitfalls,” he said. “Develop that systematic approach sooner rather than later.”
Tornone noted that bringing in contractors is enticing, but that opens companies to potential liability.
“I worry a lot about incorrect use of contractors,” she said. “If people work exclusively for you, you hold them out as co-representatives. Give that a second look.
“The contractor route may save money now, but back overtime and double damages can be brutal,” Tornone said.
Entrepreneurs should look for team members who have both skills and values that align with the startup’s needs. This is where trained, experienced HR professionals will provide their best service.
“The essence of any business is the work involved in creating the value,” Tulgan said. “The core skills are those required to reliably create the services or products you provide. Second is sales, marketing and public relations. Third is basic finance, accounting and budgeting. Fourth is information technology.
“Overall, when you are hiring for a startup, you are wise to hire for not just skills and experience, but also drive, endurance, risk-tolerance, creativity and attitude,” he said.
Don’t assume any hire will fit any position.
“Not everyone is cut out for working in a startup environment,” O’Donnell said. “Aside from the core competencies needed for the position, the top traits entrepreneurs should look for include drive, passion, flexibility, industry knowledge and culture fit.”
Consider all types of people.
“You need diverse skills,” Tornone said. “This means not hiring three really awesome tech people just because they’re available when what you really need is a tech person, a finance person and others.
“You also need people willing to be flexible,” she said. “This doesn’t mean chasing every trend, but if you want to remain agile, employees have to be willing to stay up to date on the latest tech, industry and other developments.”
Friends and family members do not automatically qualify as good or skilled employees — much as leaders are not born leaders. Nepotism can kill a startup.
“Sometimes the only people who will buy into your idea are your friends and families,” Tulgan said. “If they are, you should be grateful to have them. Of course, managing friends and family means managing through a lot of personal complications.
“You have to be careful to not damage personal relationships, but work sometimes does,” he said. “You have two choices: Hire someone you already know and trust and learn to work together. Or hire someone you don’t know, learn to work together, and find out if you trust them.”
When problems arise, family members can make the response complicated.
“With family members, consider in advance how disputes and disciplinary issues will be handled,” O’Donnell said. “By doing so, it won’t end up crippling a part of your business. Always consider how non-family employees will perceive what is happening.”
Citing Sean Griffey, Tornone said relatives may be the only ones who “believe in your crazy idea,” but the pitfalls likely outweigh the benefits of trust and financial savings.
“From an HR perspective, that makes sense,” Tornone said. “Will HR ever really feel empowered to hold family members accountable? Will you be able to conduct a good-faith investigation if they’re accused of sexual harassment?
“Finally, if friends or family come from a similar background, you’ll miss out on the innovation benefits that come with a diverse workforce,” she said.
Employee handbooks for startups — or any business — are ideal because it’s always better to have rules and regulations in writing.
“You can definitely survive without a handbook, but you should create one — at least an early basic version — as soon as its practical to hire an HR professional,” Tulgan said.
“Otherwise, you get to a point in the development of the business where you are going through successive waves of hiring,” he said. “Then you build HR in a crunch, and they will have to implement as many systems, practices and policies as they can as fast as they can.”
O’Donnell prefers to leave nothing to chance.
“Once employees join the business, there needs to be written policies about how to handle things like attendance, vacation, final paychecks and commissions,” he said. “Written policies make it much easier to hold people accountable and administer benefits like paid time off fairly.”
Tornone again took the legal perspective.
“I’m a fan of handbooks, if they’re done well,” she said. “This means bringing in an attorney so you don’t inadvertently create more problems than you solve.”
The most common area of HR compliance startups struggle with is wages and hours. The more you can spell them out, the better. This is probably the most sensitive employee issue. Startups must be certain to be clear and get this right.
“This may sound simple, but basically, do the math,” Tulgan said. “Take the time necessary to do thorough research on relevant employment laws and any resources available to small businesses in your area.
“Doing that now will prevent so many potential issues in the future,” he said.
Naturally, this area also is the most complicated.
“Understanding the nuances of overtime regulations, worker classification – exempt or non-exempt and employee-contractor – breaks and so on is complex, but essential,” O’Donnell said. “Get help from a trusted HR or legal resource to design compensation practices appropriately.”
This reinforces proper classification of employees and contractors.
“There’s also a lot of misclassification of non-exempt employees as exempt,” Tornone said. “If you have eager employees working crazy hours, there could be a lot of overtime liability there later if they’re improperly classified.”
Startups — especially small companies — can’t be expected to begin with internal expertise on orientation, training and other HR specialties. This makes the greatest case to bring in outside experts before the company opens for business.
“The most important thing about orientation is to understand it is much more than just some paperwork,” Tulgan said. “You have to do an onboarding process that creates a real connection to the mission, the organization, the people and the work itself.
“It’s really important to schedule every hour of a new employee’s first days and even weeks,” he said. “Have one-on-one meetings with all key counterparts, a schedule of meetings to observe and a schedule of specific activities — especially up-to-speed training.”
Limited dollars put a premium on other worker enhancements.
“As far as ongoing learning and development, with minimal resources, you have to target carefully,” Tulgan said. “Start with specific role-based training — teaching people the basic tools, techniques, and approach to accomplishing their basic tasks and projects.”
Realistically, startup owners should not expect to be full-service from the beginning.
“Startups usually aren’t equipped to provide a formal orientation, training or development program,” O’Donnell said. “They depend on employees to be entrepreneurial self-starters. As the startup grows, scaling the HR infrastructure at the right pace is essential.”
Tornone believes less formality is an advantage.
“Things that pair new employees with those who have been around for a while can help a lot if there’s little formal orientation — buddies, mentors, things like that,” she said.
“When it comes to training, seek out employee suggestions,” Tornone said. “They’ll tell you what they want and need — whether that’s leadership training, help with a technical skill or something else.”