If start-ups want to scale fast, reduce HR debt
Updated: Jul 9, 2021
Previously on Scaling Start-Ups...
We discovered that HR debt has the potential to slow down business growth. In this episode, we’ll explore how to reduce HR debt by investing early and flipping everything you thought you knew about HR on its head.
As your start-up gains momentum, the last thing you want is to be burdened with HR debt. HR debt is the compromise you accept for a temporary increase in velocity when building your people practices. The decrease in long-term velocity due to these compromises become bumps that slow you down in the future - this is the interest you pay on your HR debt.
Before you continue reading, it is best to say this up front: there is no solution to 'avoid' HR debt 🤯. But we can avoid accruing too much debt by being cognisant that any decisions taken are as future-proof as possible because the speed at which start-up scales leaves us no time to slow down for massive refactoring.
Start by understanding HR’s role, priorities and where the most effort is allocated
What do start-ups need from an HR function? Run, drive, grow and scale the business through the lens of people and culture.
HR Hierarchy of Needs
1. RUN day-to-day HR
A big part of an HR function is administratively heavy. We ensure our people and business are operating within employment regulations (e.g. clear documentation, record-keeping or policy creation). We support employees by answering queries, providing reference letters, updating systems or dealing with grievances. Recruiting talent or training employees also encompasses elements of administration, such as scheduling interviews, booking training rooms or registering training participants. These operational HR activities form the first layer of the HR Hierarchy of Needs. We are the first point of contact for all our employees’ needs.
2. DRIVE delivery on business strategy
Next, HR functions are needed to deliver on the business strategy through our people agenda. We do this by partnering closely with the business to ensure:
We have no difficulties attracting and hiring talent
We set new joiners up for success quickly
We have the right people in the right place at the right time
We help our people grow key capabilities and deliver great results
We are not losing people to our competitors
3. GROW business to be faster, better and happier
For future thinking start-ups, they invest very early on the third layer of the pyramid - the need for an HR function that builds customised people solutions to enable the business to be faster, better and happier. For example, building career paths for talent development and mobility to ensure the business retains its best talent through career development. Or, developing end-to-end onboarding experience to increase speed to productivity and a sense of belonging.
4. SCALE business to grow exponentially
Many start-ups want to, but only a handful of start-ups truly invest in the need for an HR function that can enable the business as a whole to grow greater than the sum of its parts. This is what I like to call the big bet in HR that can 10x the impact on the business growth through employee experience. For example, investment in people data and AI to understand our people better, make faster decisions or better personalise our employees' experience.
HR priority starts from the first layer because it is the most urgent need
The pyramid illustrates the needs of the business and employees in order of priority, starting from the day-to-day running of HR. The shape of the pyramid reflects the proportion of effort (and time) spent in meeting those needs.
When the needs in a layer are not met, the HR function will need to resolve these needs first and this will take precedence to needs in the next level and so on - especially when there are limited resources!
If all hell breaks loose in payroll this week, all efforts will be channelled to making sure employees are paid on time and any plans for designing those bespoke career paths will be parked until the HR function has the capacity to look at this again. If the right to work is not documented properly in the business, all effort will be channeled to ensure this is compliant and any focus on redesigning a performance review experience will be parked. Hygiene factors need to be resolved first.
As the business grows so does the base of the pyramid (i.e. the volume of day-to-day HR workload that comes with it)
A strong HR function will be able to help run, drive, grow and scale the business simultaneously, but a drowning HR function will be focusing on keeping the lights on first.
It might feel natural to want to invest in headcount to ensure your HR team isn’t drowning or even treading water, but swimming strongly. The reality is, hiring more people just means you are borrowing more instead of resolving the root causes of the HR debt.
There are 7 common causes of HR debt:
Lack of planning to incorporate business growth needs
Lack of understanding of long-term consequences
Lack of skill or experience
Tight budget or lack of investment in HR
Lack of HR infrastructure (e.g. process, systems, policies) design
Delay in streamlining HR infrastructure
That might seem like a lot to tackle all at once. Where do you even start?
Fear not, the first step is to look to the future and what you want to do is….flip the pyramid on its head!
HR Hierarchy of Needs
While the order of priority for the HR function will remain the same, you want the distribution of effort of your HR folks to be on the top of the pyramid instead of at the bottom layer. The work in each layer still needs to be done, it does not change and the volume will continue to increase as your business grows.
But, when you flip the pyramid, inevitably it changes the way you work towards the future.
With the vision of the inverted pyramid, you will approach your HR strategy and day-to-day decision with a different mindset.
1️⃣ You will make decisions for the long term win
When looking to solve your current challenges, you’ll proactively consider what needs are coming around the corner and take steps to avoid having to overhaul today’s work in the future because it no longer serves its purpose, or worse, becomes a blocker to growth.
2️⃣ You will adopt iterative improvement
If you factor in a small chunk of time weekly to make improvements now, it is less likely to become a bigger problem, as you won’t accumulate a backlog of work and time.
3️⃣ You will automate and streamline
Instead of hiring more headcounts to do the work in each layer of the pyramid, you’ll look for ways to reduce steps in processes or leverage technology to automate the work. This means you can dive into any layer of the pyramid to solve the relevant challenges for your business, as and when it is needed without HR debt holding you back.
Although I said there is no solution to avoid HR debt earlier on, it doesn't mean you cannot reduce the debt you accrue and build in ways of working to manage it effectively. Take the first step today by flipping the pyramid on its head.
In the next episode...
We can reduce HR debt by flipping the HR Hierarchy of Needs pyramid and along with it, the mindset and the way we work towards the future. Next, what are the steps to build a future-proof HR function that can focus on solving wider business challenges rather than just keeping the lights on? Stay tuned to find out the 6 Foundations to help you do this.