Startup HR doesn’t have to be a bureaucratic millstone around a founder’s neck, but should be a nimble, strategic partner that actively powers company growth, dovetailing with other business functions
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This article was authored by Tim Rath, Chief People Officer at Lazada, and René Janssen, Executive Vice President at Lazada
It’s long been a truism that startups don’t invest much in HR. HR means formalized processes, paperwork, and bureaucracy—all things to which most entrepreneurs are allergic. But this year, scandals at high-profile startups over everything from sexual harassment to maternity leave have many startup founders reconsidering. (“Uber is Finally Realizing HR Isn’t Just for Recruiting,” reads one headline.) Maybe all that red tape is worth it, if only to stave off a public relations crisis.
Luckily, startup HR doesn’t have to be a bureaucratic millstone around a founder’s neck. It can and should be a nimble, strategic partner that actively powers company growth, dovetailing with other business functions. This is one of the first lessons we learned last April, when we were called in to field a team to reshape the existing HR function of our fast-growing e-commerce company.
Coming from the business side, we had few assumptions about what would work and what wouldn’t—and in the end, we think that worked out in our favor. Here are five ways we learned that startup founders can ensure that HR is a strategic partner from the beginning to drive value.
1. Take a strategic approach to recruiting.
In other words, look before you leap—or better yet, think about what you’re looking for before you leap. A careful, strategic approach to hiring and recruitment has helped guide some of today’s biggest companies from startup to giant: for example, before Facebook created a compensation system, it created a compensation philosophy that still guides the creation of its wage packages today. And it’s important not to listen to those who might be urging you to fill your rented co-working space with bright young minds fast. In 2002 Google was criticized for hiring too slowly thanks to founder Larry Page’s insistence on hiring exactly the right people for his teams. And things at Google are just fine today.
2. Make the Chief Human Resources Officer (CHRO) a real member of the C-suite.
In a recent article in Harvard Business Review, management experts Ram Charan, Dominic Barton, and Dennis Carey argue that a “G3” of the CEO, CFO, and CHRO should meet to make the major strategic decisions for a company. “It is the G3 that makes the connection between the organization and business results,” they write. They point out that a CFO and CHRO working together can solve many problems more efficiently, for instance, by identifying which human capital issues are actually affecting business performance, and which are simply a headache for HR.
3. Understand that HR doesn’t just perform functions, but anticipates business needs.
Startup HR’s strategic bent shouldn’t stop at the CHRO level: staff need to be able to think strategically, too. That means making HR decisions in a way that take actual business needs into consideration. Netflix is well-known for its revolutionary HR policies, including unlimited time off. But these policies weren’t developed in a vacuum: they were based on a careful consideration of the company’s business needs.
For instance, Netflix former Chief Talent Officer Patty McCord explained in HBR that her company doesn’t do improvement plans because when a necessary termination gets dragged out, she doesn’t see “how Netflix benefits.” To McCord, an HR policy is only justified when there’s a business case for it. Otherwise, it’s irrelevant bureaucracy.
4. Hire from outside of traditional HR.
Google’s SVP for People Operations, Laszlo Bock, has also spoken widely about his company’s application of the so-called “three-thirds” rule for HR hiring: one-third of his staff come from traditional HR backgrounds, one-third from strategy consulting and business functions, and one-third from academic disciplines from physics to organizational psychology.
It has also been our experience that a mix of traditional HR professionals and ‘outsiders’ from disciplines such as consulting, marketing, and banking works best for HR with a strategic slant. At Lazada, we also embed HR staff for each department inside the department they’re serving, further tying HR roles to business functions, no matter what their original background.
5. Set clear, concrete KPIs—and establish analytics to support them.
In PriceWaterhouseCoopers’s 2016 report on HR effectiveness, they noted that though HR departments often say they want to be strategic, when they self-assess they tend to ask themselves only cost-efficiency questions (e.g. “is our budget right?”). The authors argue that HR departments need to think bigger and measure not just budget but metrics like labor costs vs. revenue, employee engagement, and the rate of employees quitting.
Also read: We recently implemented OKRs at e27; This is why every startup should do the same
A strong analytics program can help turn this information into action. For instance, after analyzing data about which types of employees most often left the company and why, analysts at McKinsey found that the biggest risk factor for attrition was not low compensation or bad performance reviews but a lack of “affiliation” with people of similar interests. By targeting vulnerable employees with mentoring and coaching programs, they were able to lower “flight risk” by as much as 20-40%. By making KPIs an important part of HR culture, a young startup is better equipped to marry day-to-day operations to an overall business strategy.
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