Throughout BrightIron’s almost 10-year journey working with tech startups as a trusted provider of Bookkeeping, Controller, and Fractional CFO services, we have had the privilege of working with founders through the unique challenges and opportunities growth tech companies face on their journey to success.
As many of you know, in a resource constrained startup environment, the last place a company normally allocates funds are on the back-office and administrative side of the business, in other words Finance and HR. Investors will normally educate and guide their startup companies on the importance of a strong Finance function, however, the same emphasis is not always put on the People side of the business. As a result, HR in a startup environment is normally managed in a reactive fashion.
Neglect of the HR function in Startups
Many early-stage companies simply think of HR as hiring and firing team members, and as a result their HR function simply comprises of slapping together a job description, posting it on LinkedIn and sifting through hundreds of resumes with the hopes of finding the right candidate. Often managed by a team member with little to no HR expertise, the work is an afterthought because the individual has other primary responsibilities, such as operations or development. Given that up to 80% of a typical tech startups costs are compensation related, more focus and planning needs to go into HR. With that being said, I completely get it – there’s only so many dollars to go around, and the company needs to focus on product development and acquiring customers – but those activities only happen if you have the right people in place.
In my experience, I typically see startups raise a round of capital and then aggressively start hiring to hit their post raise targets. This rush to hire often causes issues at some point because the proper HR practices aren’t in place. Common issues such as job descriptions that are poorly written (or non-existent), the use of outdated and non-compliant employment agreements, managers not being trained on how to interview and hire team members, and mistakes surrounding pay equity at the time of hiring are the most prevalent. Once a person is hired, the onboarding process lacks any sort of consistency or fluidity and often just consists of ordering a laptop for the individual, which in some cases isn’t ready by their start date. These practices often catch up to startups as hiring increases and expectations rise.
Impact of Not Focussing on HR
I’ve seen this minimalistic approach to HR cause problems over-and-over again. For example, after raising a seed round of financing, one of our clients had planned to immediately grow their workforce by 125% within 6 months to execute on their product roadmap and sales targets. Their hiring initiatives simply consisted of posting their jobs on their careers page and on LinkedIn. The company was using anecdotal information to budget new hire salaries. The company received tonnes of resumes through LinkedIn but the team did not have the time to sort through them as they still had their day-to-day work to perform. When they finally reviewed the stack of resumes, normally at-night or on a weekend, they did not have the experience to quickly identify great candidates. This tedious work drew out the process resulting in weeks passing from the time the job was posted to when first interviews were scheduled. In some cases, candidates were no longer looking or interested and the ones who were still available took another 2-3 weeks to get through the interview process. The company lacked focus and urgency on hiring, despite the CEO’s push to hire quickly. Due to the challenges they were having with their direct hiring efforts, the Company increased its use of recruiters to fill roles. They were able to get good candidates quickly but at an amount significantly over-budget due to the increased recruiter fees. At the end of the day, the Company did not hit its 6-month hiring target and was over budget resulting in them revising their product roadmap timing and sales forecast. Many of the challenges they experienced could have been alleviated by employing some HR best practices.
In another instance, one of our clients had more conservative hiring targets and did not have the same challenges bringing people in, however, the company lacked proper employee retention programs to keep the people they had. They did not survey their team to see how the company could improve, they lacked performance development plans, there was no manager training, and compensation was not properly communicated and understood by the team. This ultimately resulted in the company experiencing high employee turnover. Since the company was repeatedly onboarding and training new employees, it was nearly impossible to execute on their strategic initiatives.
In yet another example, one of our clients had received a term sheet to be acquired and the HR section of the diligence checklist was extensive (as it normally is). The company had employment agreements for all employees, but they lacked proper file management and compliance. For example, some agreements were not signed, and some were no longer valid as employment laws had changed. Additionally, IP assignment agreements did not exist for all employees and contractors resulting in the company going back and trying to get those signatures or explaining the risk associated with not having them. The acquisition ultimately was completed but the HR issues did delay the acquisition and resulted in significant costs to the company which could have been avoided had things been done properly at the outset.
Startups Need a Proactive HR Team
Having been operators for several years, and after seeing firsthand the many HR challenges experienced by startups, BrightIron is excited to launch Fractional HR services. Given how competitive the labour market has become over the last several years, there needs to be more emphasis put on the entire employee lifecycle from recruiting, onboarding, and retention, to offboarding. Employees expect to have more than just compliance, they desire a smooth onboarding experience, competitive compensation, pay equity, modern practices, performance development plans, DEIB initiatives, and clear and consistent communication.
The decision to launch our Fractional HR Services is rooted in our commitment to providing comprehensive support to founders and the tech ecosystem. By offering Fractional HR Services, we bridge the gap for startups, providing them with expert HR guidance and support, precisely when they need it. We firmly believe that the key to a startup’s success lies in its people. By offering our Fractional HR Services, we aim to empower startups to overcome HR challenges, nurture a positive workplace culture, and attract, retain, and develop the talent needed for sustained growth.
We are excited to be your trusted partner in this essential aspect of your business, and we look forward to embarking on this journey with you. Get in touch with us to explore how our Fractional HR Services can free up your time and make a meaningful difference for your tech startup.