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Do startups need HR? And what for exactly? There are many misconceptions and myths about HR in startups.
As of 2023, 65% of startups have no dedicated HR support, primarily due to limited resources. This contrasts with Fortune 100 enterprises, where HR is a standard department for 100% of top companies.
In this article, you’ll learn about:
- The 3 myths about the role of HR in startups (vs. reality)
- When you should hire an HR person (HR team) and how to plan your HR budget
- Plenty of not-so-obvious expert advice on real-life problems (that not everybody wants to talk about)
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Click the links below to go directly to the topic of your interest*:
Do startups need HR?
#1 HR myth: Startups should focus on product innovation only
#2 HR myth: HR doesn’t need to do that much in the beginning
#3 HR myth: HR is an unnecessary cost
When should you hire an HR person (HR team)?
What if you can’t afford a full-time HR manager/specialist?
Planning your HR budget
Communicating difficult truths and advocating transparency
*The information, data, and guidance provided in this guide is for general information purposes only and does not constitute professional or legal advice.
Do startups need HR?
Let’s start with the 3 basic myths about the role of HR in startups:
- HR myth #1: Startups should focus on product innovation only.
- HR myth #2: HR doesn’t need to do that much in the beginning.
- HR myth #3: HR is an unnecessary cost that doesn’t contribute immediately to the company’s revenue.
The top priorities of startups and growing businesses usually push HR issues to the back seat. However, for growth-minded organizations, having a high-performing workforce driven by purpose is a must. It’s also crucial when you need to cut costs, especially in the economic recession.
According to a study by CB Insight:
Businesses fail 23% of the time due to the lack of the right people working on their team.
Compared to established companies, startups:
- Need employees capable of multi-tasking and getting the work done in an agile work culture.
- Avoid getting dragged down by bureaucracy, too many rules, and anything that can slow down innovation.
Startups often plan short-term, but failing to get the basics right may result in, as the saying goes, “short-term gain, long-term pain”.
That said, HR may be the most process-driven team, but it also solves numerous internal problems and contributes to business profits by maximizing the value of each employee.
Establishing an HR department early on is vital for:
- Attracting and retaining the right talent
- Sorting out documentation and HR policies to help you comply with employment laws, prepare you for potential audits, and protect your business from liability
- Building a good organization with a positive culture
- Handling legal and ethical challenges
- Scaling your business effectively
HR performs a variety of tasks in growing companies. Therefore, HR for startups shouldn’t be non-existent or messy.
So yes, startups need HR.
Let’s discuss the 3 myths about HR in startups.
HR myth #1: Startups should focus on product innovation only
While startups focus on product innovation, it is their employees that fuel success. Business growth depends on a highly engaged and productive team. So it’s in your interest that your employees are satisfied and happy with their workplace. HR can help you with that.
The reality is that ignoring the importance of HR is a major undoing of startups. You risk allowing negativity and toxic work habits, reduced employee morale, and low employee retention.
For this reason, HR serves a much broader organizational purpose: it goes beyond hiring, firing, or following rules and regulations. HR is essential for maximizing the use and potential of your people and creating a thriving work environment. All this impacts key business metrics.
The role of modern HR is changing and becoming more and more employee-centered and innovative.
So put people first. Employees who feel valued and cared for are more productive, creative, and motivated. This improves your key metrics but also your reputation as an employer.
Modern HR is not only about numbers and charts for the top management. Above all, it’s about human beings working with other human beings towards a common goal. Every number, chart, and financial success has a human behind it. HR understands this relationship well.
Kasia Gorska, Head of People & Culture at Symmetrical
Avoid workplace toxicity in your startup: experts insights from Symmetrical
Hiring a competent HR expert in the beginning helps startups minimize the risk of building a toxic work environment, according to Kasia Gorska, Head of People & Culture at Symmetrical.
As CEOs and founders focus on the company’s mission, vision, and product, they may overlook a number of red flags, especially when candidates oversell themselves. This may be a real issue when their incompetence comes to light later.
Such people may also be very demanding and have unrealistic expectations regarding employee benefits.
There’s more. If incompetent leaders happen to manage competent employees, the latter will likely lose motivation and possibly quit. Incompetent managers may also introduce bad work ethics and habits, which can create a toxic environment that is difficult to fix.
Competent HR experts are essential in such cases, especially when employee retention is at stake.
Don’t risk losing your “good employees” by hiring incompetent leaders and other staff members. Experienced HR and recruitment specialists will help you spot red flags so you start creating a healthy work environment right from the start.
Kasia Gorska, Head of People & Culture at Symmetrical
Of course, you can never be 100% sure you’re hiring a perfect employee. Actions speak louder than words, and evaluating the quality of someone’s work takes time. However, using qualified people to assess candidates will radically reduce the risk of costly hiring mistakes.
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HR myth #2: HR doesn’t need to do that much in the beginning
What does HR do in startups? Here’s the quickest answer: a lot!
HR creates plans, company policies, systems, and processes to handle immediate business needs, such as payroll management and hiring new employees. At the same time, it mitigates long-term risks and improves employee engagement and the overall employee experience, thus reducing retention.
That said, it’s not about advertising the significance of HR for the sake of it. It’s about showing the actual role of HR in tackling real business problems, minimizing legal risks, and helping companies grow.
Now: what is the HR strategy for a startup in a nutshell?
A functioning HR strategy establishes important procedures, policies, and perspectives. It also helps to build a solid team of happy and engaged employees. As a result, HR improves productivity, which impacts the company’s profitability.
Startups need HR. Employing an HR specialist in the beginning can move your company in a completely different direction compared to hiring an HR expert only after you encounter severe problems and can’t wait any longer to fix them. In matters of company health, prevention is better than cure (or surgery)!
Kasia Gorska, Head of People & Culture at Symmetrical
What does HR do in startups? [List]
A dedicated HR department helps to:
- Establish official company documentation and processes
- Ensure employer compliance
- Set up and drive your organizational structure
- Create HR plans, policies, and processes that take care of short-term needs and budgets, and reduce long-term risks
- Navigate policy changes
- Attract and hire the right people for your team
- Classify personnel into proper categories, e.g. employees, contractors, full-time, part-time, exempt, non-exempt, etc.
- Maximize available talent in a startup environment
- Manage employee record
- Handle compensation and benefits administration
- Create a company handbook
- Ensure ethical behavior and employee trust
- Build a unique company culture
- Manage employee engagement, satisfaction, and retention
- Manage employee training and performance
- Manage employee surveys and feedback
- Address employee complaints, questions, and recommendations
- Give your employees a better experience
- Improve your employer branding
- Plan future HR plans and (growth) goals
- Manage uncomfortable and challenging situations, such as layoffs, organizational restructuring, or closing a company
Additional comments:
- Every company has specific HR needs.
- The order of the actions mentioned above may vary, depending on individual organizations.
- HR functions, such as payroll administration, are often outsourced to third-party vendors.
Check out our articles with the latest employment statistics:
HR myth #3: HR is an unnecessary cost that doesn’t contribute immediately to the company’s revenue
When startups focus on product, innovation, sales, and marketing, a solid HR strategy and critical HR-related topics take a back seat. Given other priorities, HR functions may be seen as unnecessary costs that don’t contribute immediately to the company’s revenue.
Additionally, there’s often a common misconception that HR in startups is “too small to matter”. As a result, HR professionals need to explain why they’re valuable to management (and/or company goals) and establish a solid plan backed by data.
Yet the reality is that innovation-driven companies need a People Team and documentation from the get-go. HR impacts recruitment success, employee retention, and profitability. And of course: a happier workforce means quicker growth.
People are the lifeblood of every company, especially when you’re a small team.
To turn your vision into reality, you need top talent and a thriving and productive work environment that gets the best out of each employee. For this, you need HR expertise and HR strategy.
That said, what each company needs from its HR department may change depending on the company’s growth stage, the type of business, the number of employees, and so on.
Either way, think about HR processes early on. Take time to forecast your team’s growth, budget for compensation, and lay the foundation for your company culture.
HR for startups: when should you hire an HR person (HR team)?
The right time to hire a dedicated HR person (or create an HR team) depends on your financial resources and growth rate.
At the start of your business journey, you probably don’t need an entire department of HR specialists, but having at least one HR expert is almost always essential. This will be a strategic leader who will ensure compliance and establish company policies.
With time, you’ll likely need more people and more specific expertise.
The sweet spot for bringing an HR expert onboard is when you’ve grown to around 20-30 people. [But] earlier may be appropriate if you plan to scale quickly.
Kate Kandefer, Co-Founder of SEOwind
Similarly, according to Renee Mars (YC), hiring a dedicated HR person makes sense if you have around 20-30 employees or after a Series A round. Sometimes you can do it earlier, for example if you intend to scale your workforce quickly.
Without a dedicated HR specialist, you still need a “people person” (that is not a founder) that employees can come to and voice their concerns. Their job is to receive feedback from your team and keep an eye on cultural issues. They should be intuitive and have good judgment.
Of course, employees should be encouraged to speak with founders, but there should be another outlet if they’re uncomfortable voicing their concerns. This may help resolve problems faster and promote a culture of transparency and open feedback.
Hiring the first HR person in startups: expert insights from Symmetrical
CEOs and other C-level executives should focus on the company’s vision, mission, product innovation, etc. For this reason, company processes, policies, people, and HR-related matters should be HR’s job so C-level executives are not distracted from their primary focus.
From my experience, startups should hire an HR expert around the same time as when they recruit C-level executives. It’s essential to identify missing skill sets and processes and predict future needs. It will also help avoid numerous HR-related mistakes, risks, and unnecessary costs before the company grows.
Kasia Gorska, Head of People & Culture at Symmetrical
According to Kasia, employing an HR specialist with around 20-30 employees makes sense. However, it also depends on individual companies and their profiles. But in general, employing an HR person early on will help startups avoid costly mistakes.
Kasia also stresses the importance of choosing the right person for the HR job at a startup. Setting clear expectations is critical.
Your first HR employee should have a strong skill set and a sense of ownership. It’s absolutely necessary when you build HR processes and people strategy from scratch. But they also need to feel comfortable doing “the dirty work” and numerous tedious tasks. Operational work is part of the package, even if you’re an experienced senior employee.
Kasia Gorska, Head of People & Culture at Symmetrical
HR for startups: what if you can’t afford a full-time HR manager/specialist?
Consider hiring a consultant to help you build a basic hiring strategy and ensure compliance.
Startups may not be able to employ a dedicated HR team (or even a single HR person) due to financial constraints. However, as you grow, you’ll probably need to hire, train, and onboard new people. You will need an employee engagement and retention strategy.
For this you will need a dedicated HR person (HR team), so plan ahead for this.
Hiring an HR consultant may be a good move, but be careful. Choosing this solution may be more expensive long term than having an in-house HR person. Additionally, an external consultant is unlikely to understand your company’s vision, personality, and culture the way an in-house employee will. Therefore, consider both pros and cons.
Kasia Gorska, Head of People & Culture at Symmetrical
According to Kasia, building an HR and people strategy may not be a good idea if you can’t afford an in-house HR expert. Instead, it may make more sense if you focus on other goals first, e.g. increasing a customer base or growing sales.
In such cases, employing a recruitment agency should be enough for a start. This way, you’ll be able to hire the right talent to get your business off the ground. But as your company grows, don’t see HR as an unnecessary expense. It’s a short-sighted approach that will likely backfire.
HR for startups: planning your HR budget
Planning your HR budget will help you avoid overhiring/understaffing, issues with attracting the right talent, high employee turnover due to insufficient compensation, etc.
Creating your HR budget, consider:
- Recruitment costs, including spending on sponsored job postings, hiring tools and external agencies, employee referral budget, assessment costs, etc.
- Training and onboarding costs, including budgeting for video tutorials, training seminars, education classes, workshops, online certification programs, etc.
- Employee compensation costs, including employee salaries, health insurance coverage, travel allowances, work-from-home equipment, etc.
The first HR budget for a startup must have projections and estimates due to the lack of a comparable financial document from the past.
It includes estimates for the number of people employed, expenses, benefits, anticipated turnover, recruitment and training needs, etc. Revise it ideally every quarter.
Aligning your HR budget with the company’s strategic objectives is essential.
Some CEOs may think that creating an HR budget doesn’t make much sense when a company is young. From my experience, it does! Doing this right off the bat will save you hours of work when your company grows to tens or hundreds of employees.
Kasia Gorska, Head of People & Culture at Symmetrical
HR for startups: communicating difficult truths and advocating transparency
HR shouldn’t be afraid to highlight problems that founders and CEOs may not want to hear about. Denying the issue exists can have disastrous consequences. The role of HR is to fix problems before it’s too late and, ideally, prevent them in the first place.
Additionally, HR should be impartial, treating founders/C-level executives and employees on equal terms. Nobody is infallible, and companies advocating fair treatment in the workplace are likely to see lower employee turnover.
HR represents the voice of employees in demanding business environments. At the same time, HR explains certain business decisions to employees so they stay motivated and understand why some actions may be necessary.
That said, HR must also turn employee feedback into action or explain why specific issues can’t be addressed at this moment and what can be done instead. It’s essential not to lose employee trust and respect by making false promises.
Successful companies don’t pretend that problems don’t exist. Successful companies can identify their issues and solve them. Human-related problems are some of the most challenging ones, and this is where HR can, and should, help.
Kasia Gorska, Head of People & Culture at Symmetrical
HR for startups: conclusion
Startups need HR. HR provides a strong, clear organizational foundation that supports your business growth, facilitates scaling both people-wise and market-wise, and strengthens your reputation as an employer.
So first, don’t underestimate the role of HR in your growing organization. Second, don’t wait to establish HR and payroll processes that can start working for you from the get-go.
Symmetrical is a better way to run payroll and HR admin. We enable fast-paced companies to onboard at scale and run their payroll invisibly. To run your payroll hassle-free and on autopilot, contact our experts to learn more!
Sources
A Step-By-Step HR Checklist for Startups
HR Checklist for Startups
HR Challenges For Startups
5 HR Challenges For Startups
8 Pivotal HR challenges faced by startups
Startup HR checklist: Building your HR department
HR for Startups
The complete HR checklist for startups
10 HR challenges in fast-growing companies
HR Checklist for Startups
The Ultimate HR Checklist for Startups
HR for Startups: Top 10 Challenges
Startup HR: What’s Important?
