Startups

Scaling HR in Startups: What DIY Recruiting is Really Costing You

At some point, every growth tech startup needs to hire a team of talented individuals in order to grow. In the early days, founders and early-stage employees tend to wear multiple hats but it’s important to recognize when to hire help to turbo charge growth, and HR should be one of the first areas where a company invests. Having a strong HR function serves as a foundation to growing the company as it makes it easier to recruit and retain top talent.

The Hidden Costs of Using Internal Resources for Recruiting

Let’s look at recruitment. In my experience, first-time founders are often reluctant to bring in HR or hire recruiters, and understandably so, it’s a new overhead cost. All of the company’s resources in the early days need to be focussed on product development and sales. But what founders fail to consider are the soft costs of hiring. How much time are you or your other team members spending on recruiting activities, thereby taking away from valuable activities that the team is better suited to do. Don’t get me wrong, recruiting is important, but should you and your team be spending as much time on recruiting as they do? The short answer is a resounding no. Just as you wouldn’t ask your sales lead to write code, don’t sacrifice your team’s valuable time and energy into HR work, such as recruiting, that they aren’t equipped to do.

While it’s true that HR is an expense, having someone knowledgeable in this area can save you time, money, and protect your brand. Continuing with the recruitment theme, it is typical to see start-ups do the following: You are looking to bring on a new developer to join the team, so you ask one of your team members to help with the process. They help with writing the job posting, share it on their network and post on a few job boards. Great news, the resumes start to flow in. You ask this employee to review the resumes and reach out to the best ones. Now your employee is scheduling interviews, coming up with questions, and holding interviews. Following the interviews, your developer tells you who the best candidates are. They schedule the top 3 candidates to meet with you and potentially other team members. You finish the interviews, consult with the team, and decide who to proceed with. Someone needs to make the offer and write the employment agreement, options letter, etc. and due to confidentiality of information, that’s probably you, the founder. How do you know what salary to offer? Are your benefits package and perks competitive? How much equity do you offer (if at all)? Are you confident in the data you have access to that the offer you’re about to make is a competitive one? The risk of getting it wrong is high stakes, could set you back in time and money, and also frustrate the team member who has put their work aside to assist in the process.

Calculating the True Costs of Hiring

From a dollars and cents perspective, it’s tempting to use internal resources for recruitment, especially when you compare it to what you would be paying an agency, contract recruiter, or HR resource, but what is the true cost? Companies need to consider the soft costs of hiring. The company needs to add up the countless hours, and lost productivity, spent by a company’s internal team. The Society of Human Resources Management (“SHRM”) estimates that total cost of hiring a new employee is $4,700 and up to 60% of the total cost of hiring a new team member are soft costs (excluding lost productivity). That number goes up when factoring in productivity loss and when hiring more specialized positions such as developers or leaders. In our experience, an unqualified team member could spend as much as 30 hours for each open position. That is a significant amount of money and lost productivity which only multiplies as you hire more people.

Outside of the hard and soft costs associated with hiring yourself or a team member, companies need to factor in that this isn’t what you hired your team to do, and the work probably doesn’t fulfill them or you, and to be honest, in most cases, they aren’t good at it yet as they haven’t gone through enough interviews or training. As a result, the candidate experience is hampered. You might lose great candidates because your process took too long or lacked meaningful communication with prospective hires. And you might even get yourself into legal hot water by asking the wrong questions. Those candidates talk to their friends, who talk to their friends, and share their negative experience and now your reputation and brand are on the line. Your company’s brand awareness and reputation amongst the candidate pool matters.

The biggest risk, in my opinion, of you or a team member doing HR work, is the impact and cost to your business and products. Does it make sense for your team to be performing HR tasks versus working on your product roadmap? What is the opportunity cost of not getting to market sooner because your developers weren’t developing? If it’s you, the founder, doing the work, what is at stake? Does having you or your internal team perform the recruiting add more enterprise value to the company than performing your primary tasks?

Leverage Fractional HR to Grow your Startup

So now you might be thinking, what choice do I have if I don’t want to pay 15-25% contingency fees for recruiters? Enter fractional HR work. Here when you need it, on budget, and without a long-term commitment. Recruiters and agencies are focused on finding you the right candidate, but often lack the time to educate you on recruitment processes, supply templates, or create compensation plans. Not only can a fractional HR resource help you with your recruitment process and take the burden off you and your team, but we can also help determine compensation, ensure compliance, plan team building events, and support your organization with programs and resources to avoid costly employee attrition. A fractional HR partner can help you when and where you need it and alleviate the time you and your team are spending on people operations and strategy.

When faced with the question, when should I hire HR for my startup, you need to consider several variables. How many employees do you have? Is your startup growing rapidly? Are you compliant with local legislation? What HR challenges are you starting to encounter? And most importantly, are you giving your biggest asset, the people, the support they need, and what is that costing you? A fractional HR leader can help you identify where the gaps are, and build the HR foundation, without the need for a fulltime hire.

Do yourself and your team a favour and consider partnering with a fractional HR partner, such as BrightIron, so that you and your team can focus on product development and growing your business.