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How do you know when it’s time to invest in HR?

by Ana Lopez
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When starting a business alone or with a co-founder, people management is probably the furthest thing you think about. But as your business and team grow, you need support in dealing with employment regulations, recruiting talent and, most importantly, making your workforce feel valued and engaged. In short, your company needs HR, but when is the right time to do it?

Simya Solutions, the company behind the language learning app Ling app, employs a hybrid and remote working model with a global team of developers and makers. When the team reached 20 people, the need for HR became apparent.

Co-founder and CEO Simon Bacher says, “It became impossible for my co-founder and I to keep wearing so many hats, so we encouraged some team members to take on leadership roles, including HR.”

This approach worked well until the team grew to 50 people and managers suddenly didn’t have enough time to perform their primary tasks and manage talent. Most had never had that responsibility. It was time to invest in an HR specialist for the business.

“It’s the best decision we’ve made, and the 50-employee phase was the perfect time to do it,” Bacher added. “Had we waited longer, employees would have felt overworked and less curious about learning new skills. There is much more cohesion within the team and our company culture is thriving.”

Employees want to feel involved

Hotel management system RoomRacoon employs 87 people and introduced its internal HR function around the 40 employee phase.

Co-founder and CEO Tymen Van Dyl says, “In hindsight, I still believe it was the most auspicious time to implement HR, and the benefits and valuable processes that came with it were almost immediate. One of the biggest benefits is centralizing responsibility for the employee experience and building an operational framework to meet human capital goals.”

Initially, the HR team worked in a variety of functions, including talent acquisition. Now recruitment is handled by a separate section, allowing HR to focus on employee experience, engagement and retention.

“Employees should be valued and invested in for the long term, and with the expertise of our HR department, we have implemented several frameworks to facilitate this, including professional progression plans, weekly employee engagement surveys and quarterly employee satisfaction surveys.” adds Van Dyl.

Some startups see the value of HR from day one, including the social media app Frog, whose burgeoning global tech talent team includes some former Snapchat and TikTok employees. Launched two years ago, the company found that using an outsourced HR service from an early stage ensured they were fully compliant with labor laws. “It also meant that we had an outside professional HR specialist on hand to assist our staff and ensure we act responsibly as an employer,” says founder Anna Lee.

Finding the right HR service provider to meet their needs took a lot of time. However, there were many providers on the market at reasonable prices for startups. “Particularly in the early stages, we have found that an external HR service provider is more cost-effective than recruiting for internal HR functions,” added Lee.

Digital HR

Yet many startups are taking a do-it-yourself approach to HR and workforce management for cost reasons. While HR is important to any business, cash is king for startups and HR employees don’t directly contribute to revenue, as Josh Wood, founder of Blockpoints out.

He believes founders and CEOs should wait until they have 10 employees before hiring an HR rep and hiring their 11th someone to lead and grow the team. “Until then, the CEO and other team members should be able to handle all HR issues,” he says.

After five employees, he suggests startups consider paying for monthly software to manage certain aspects of the HR side of the business, such as vacations and sick days. However, this depends on cash flow as some of the best software solutions are expensive. There are, of course, free tools that can assist you with your HR struggles. For instance, this free W-4 calculator, along with free online collaboration and communication software rank amongst the most popular tools.

Many startup founders make the mistake of paying for fancy software and employees when they don’t need to, and before they know it, they’re out of capital and need to raise or find money. “Staying lean as long as possible is the way to survive and thrive as a startup,” adds Wood.

Stimulate growth

Lucy Smith, founder and director of Including change, found that the do-it-yourself approach to HR was a false economy. The company, which runs a neurodiversity work experience program, launched in March 2020 and Smith initially ran it with her husband, relying on volunteers to help during the lockdown. However, as the company began to grow and take on part-time staff, HR responsibilities became more time-consuming, complex and demanding. A year after the company launched, they turned to the HR app BreatheHR.

“It was very effective,” says Smith. “Before, we used spreadsheets and file management, but we had reached a point where we knew we needed a system that would keep our data secure, ensure GDPR compliance, and generally reduce risk for us as an organization. ”

By early 2022, the company had outgrown this approach and invested in the services of an HR specialist to help them ensure policies and processes were in line with the law and find ways to invest in the team and more efficient use of the resource budget.

“If we had invested in HR sooner, we would have made fewer mistakes and made better decisions that could have saved us money,” says Smith. “Doing it yourself is cheaper, but we learned a lot. Once we invested in HR support, we began to gain control and confidence in making difficult HR decisions. Showing that we value our team makes them feel more confident. In the long term, HR support will protect you as an employer and your staff. My advice is to do it as early as possible.”

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