The most relevant statistic about startups is 9 in 10 will fail in their first 5 years. Those at the helm of startups face low odds of success yet 1 in 10 will succeed spectacularly. Nearly everything the founders of successful startups dreamt of before they started their venture will materialize. SMEs face similar odds of success. Growing a startup and SME is crucial to their success, startups have to grow to prove they have a sustainable product while SMEs must grow to earn higher revenues and remain competitive. Those who bear some of the responsibility for growing startups and SMEs work in human resources departments. To ensure their organisation's success they can do the following.
• Hire the right people at right time. Organisations need to hire people who can fulfil short term needs first. Globally it is estimated that 19 per cent of small businesses, which includes startups and SMEs, fail because they can’t compete. They’re unable to compete because they don’t have qualified talent in important roles. HR departments in such organizations need to hire people who understand how to leverage technology, new age solutions. Mediocre engineers will never make a great product.
• The founders of a startup or SME aren’t immune to making HR mistakes. Ideally, the founders of a company should have the right mix of talent. For instance, a founder with a sound grounding in technology should work with others who understand other domains. Ideally, the founder's mix of talents should span technology, finance, marketing, and sales. HR departments must ensure they have the right mix of talent in the upper echelons of a startup or SMEs. Three things which founders must keep in mind while hiring. First, they don’t mind hanging out socially with the employees they hire. Second, on any given day they don’t mind working under them, third they don’t mind giving respect to employees. These factors will help in finding the right set of people as per their needs.
• Globally, 23 per cent of SMEs fail because they don’t have the right team. In India, this is especially a challenge because several SMEs are family owned. In family-owned businesses nepotism runs deep and family members are likely to be promoted to senior positions despite not being the best qualified for such roles. An HR department in such companies needs to balance the interests of the family with those of the business. While in family-owned business this may prove especially challenging, in the hands of a skilled HR department it is possible.
• A majority of startups fail because they run out of cash. While managing finance isn’t the human resources purview, managing the expenses of company employees is. HR may need to oversee how much the cost of keeping employees onboard is compared to how much such employees cost the startup or SME. Costs including expenses for employee insurance or timeshares in holiday resorts need to be evaluated in the context of whether such expenses justify an employee's contribution to the company.
• 42 per cent of startups fail because there is no demand for their products. Once again HRs role in developing the right product is limited, yet it plays a role in hiring leaders who aren’t afraid to tell top management the company isn’t succeeding because there is no demand for its products. A growing startups HR should not only hire leaders who are willing to be candid but also who have the wisdom to take the necessary steps to alter the course of a startup if needed.
• A growing SME and startup are still at risk of failing if business dries up. Globally nearly 82 per cent of startups and SMEs fail because sales dry up. An HR department can help minimize the risk of such failure by monitoring the progress of the individual employees. Software that helps keep track of employees is commonplace and must be used to keep track of individual performance and expenses incurred by individuals.
• HR software is essential for nearly every startup and SME. Such software can be elaborate and allow HR departments to record and manage employee performance and leaves. They can also be used to assign duties and provide training. Software used by HR departments in growing SMEs and startups can also help recruit the right people more effectively. HR software has reached a level of sophistication where it can evaluate how successful a particular employee will be in his or her role. There is a need for such software among HR departments while departments that already have them are at a clear advantage.
Creating the right metrics: Over the years organisations and employees have seen their HR department evolve. A major part of that has been the way employers judge employees in terms of work, productivity, influence in the organisation. Organisations have moved from 360 degrees appraisal to more focused and sophisticated systems like OKRs. However, for organisations who are less than 5 years will find it to be difficult to implement such systems. In order to overcome this, organisations must focus on something which is basic yet effective. A simple way will be setting metrics and linking them to Returns which the employee can bring and effectively communicating with them.
By Sumit Kumar, Director, Headsup Corporation