The most important thing for a startup is its team. Startups that have a large pool of talent are more likely to succeed. Therefore, HR is an important part of any new venture. European countries have been hubs of new ventures over the years. This has been due to a strong HR base, and a motivated workforce.
More than 4000 technology startups are located in Europe, which is more than China. The European continent has the second highest number of unicorns, companies valued at more than $1bn. This statistic is enough to make every budding entrepreneur dream big in Europe, but there’s another side to the story: 90% of startups fail. Forbes research reveals the reason why 90% of startups fail.
According to a Forbes study, 23% of startups failed because they didn’t have the right team.
A founder or group of founders is what starts a startup’s journey. They work together to solve a problem in a new way. Sometimes, founders need to consult experts in different fields to help them. These first employees have the opportunity to interact with the CEOs, and this is the first level of HR. They are able to get to know the vision and help in framing it. The company’s ability and potential to solve problems increases with funding from investors. It started out with 4-5 employees but now has more than 30. This is when the company’s success stories are made.
The first step to a company’s success is to attract the right talent. This is a difficult area for startups. While the startup’s vision and mission is clearly defined in the beginning, the culture is often not. Startups often struggle to pay the same compensation packages as established companies, even when they raise capital. This can be solved by looking for people who are interested in ideas that could change the world. It is not easy to convince people that these ideas are worth their time and attract them to the game-changing work.
How can a startup build such a team?
If a startup wants to build a strong team, its ideas must be compelling and believed in by people. It is best to contact potential candidates through the networks of founders, as it can prove costly for startups to go the traditional route. Startups have a better candidate experience than large companies when it comes to recruiting. Because the hierarchy is lower, candidates are often able to meet the top managers of the company. This personal touch can be used to establish relationships with people who are able to refer the ideal candidate if it is done well.
After a person has been hired, the next step is to create a compensation package that suits their needs. Low levels of compensation can hurt a startup’s ability to attract top talent. However, high cash compensation can make investors turn away and can negatively impact the cash flow statement. Stocks, in addition to cash compensation, can be offered to employees. This gives employees an incentive to stay with the company long-term and be part of its growth story.
The key to a good HR department
However, the founders should exercise their judgment to make sure that employees don’t get too much ownership. Venture capitalists may demand large shares in return for capital. This could cause long-term problems when raising capital. Startups have many advantages despite these difficulties. Startups do not have to follow formal compensation policies. They can provide flexibility in the compensation package that meets every individual’s needs. This personalized compensation and benefits should be administered as the company grows.
Startups face the real challenge of not creating a strong team but maintaining a cohesive team. It is difficult to have a team of superstars. The founders can allow employees to collaborate with them in the early stages of the company. They can share a common goal and have a high-level vision. This is a huge motivator for the team. These extrinsic motivators are often not effective in meeting the needs of employees as startups scale up. High turnover is a problem that can be a surprise to companies. This is where HR can really make a difference.
In order to keep the lines of communication open with top leaders as the company grows, HR intervention is necessary. It is possible to ensure this by making regular and informal feedback an integral part of the company culture. Employee goals should be tied to the business goals. Personal growth is what makes a startup different from large corporations. This experience should be enhanced by giving employees enough autonomy and flexibility.
It can be difficult to keep your focus in a startup. To ensure efficiency, formal structures are necessary to accommodate the rapid growth of employee numbers. It is important to carefully consider how these structures are constructed so that new ideas don’t get lost in bureaucracy. It is common for departments and teams to not all work together towards the same goal as one another. Organization structure must allow for communication between departments and individuals working in different teams to prevent this from happening. Outings, which are traditional measures, can also be effective in startups. Teams working in different areas discuss and share their views informally. This creates a sense of shared purpose, which in turn leads to more focused teams.
While HR can play an important role in the development of a startup’s venture, companies often recognize the need for HR too late. This is often due to a lack fund. As more formal processes are implemented in the company, employees often discover that their motivation to join a startup has diminished. Focused HR can make this transition easier for employees and provide the necessary interventions. The best strategy for startups is to invest as soon as possible in human resources. This can make a difference between the unicorns and those who are part of the remaining 90%.