Startup: Human Resource Issues

July 19, 2011 in Entrepreneurship, Starting up by Nicolas Rouhana

In businesses today; whether established or startups, small or large, human resources are the major capital and competitive tool. Human resource management is thus a central issue for all businesses. For a startup, one staff member typically represents 20 to 50% of the human resource base, making proper human resource management an even more critical issue than for established businesses.

1.    Characteristics of Startup Staff

Startups are at a disadvantage in recruiting the best available resources in the market as a result of unattractiveness due to inherent instability, lack of name recognition, small size, and inability to compete financially.  Startup should avoid the 3 S’s:

–               “Stability seekers” – as startup has no stability to offer

–               “Sprinters” – rapidly run out of steam

–               “Stars” – limited capability to contribute within a team context

On the other hand, startups may attract quality individuals with entrepreneurial traits who would rather be “significant” members of a small fast growing team.  Entrepreneurial traits providing value to a startup include, long term ambition, harder workers, problem solving skills, results oriented, and willingness to take a chance on themselves (as each represents 20 to 50% of startup team). (read also http://trak.in/tags/business/2007/12/24/why-to-work-for-a-startup-company/)

2.    Continuous Transformation within Team

Difficulties facing startups are numerous many of which are obvious, resulting in the high rate of company failures. Less evident but equally important is the failure to realize and manage the ongoing transformation within the human resource base during the startup phase. Any business entity whether small or big, new or established will always require a “Work Surplus” to compete in the global market. The difference with a startup is that less Herculean surplus is required for the established company.

Survival of a startup depends to a large extent on ability of team members in general and founders in particular to forfeit short term returns for long term benefits. The significant “Operational Deficits” facing a startup, can only be counterbalanced by the “Work Surplus” of the team. As longs as “Work Surplus” exceeds “Operational Deficits” the startup will survive and grow. As the startup grows, “Operational Deficits” are gradually reduced; in parallel and independently, “Work Surplus” drops over time as team members, including managing partners run out of steam.

Human resource situation in a startup is like a marathon.

–           A lot will start; few will have endurance to complete the race

–           Significant variability in speed will exist between runners

–           Variability in pace of individual runners will exist during race

3.    Resilience of Startup

When 20% to 50% of staff leaves any company, significant damage to external commitments of the business will result. Company’s production capacity, fulfillment of current commitments to clients, and customer support services will be severely affected; (the latter is of special significance for durable goods sector), this may result in failure of the startup. Significant internal damage will also result; since this significant loss is an indication of instability and will negatively impact remaining staff. Internal damage can lead to near or medium term failure, as remaining staff search for personal stability. A strategic plan that does not take into account possibility of key human resource turnover, is better characterized as wishful thinking, suitable for “dot-coms & dot-poofs” but definitely not suited for survival in the real world. The above must not be construed that loss of key resources will doom a startup, one example of a startup losing 50% of its staff, and key staff for that, yet continuing on to be the most successful company to date is Microsoft, as shown in following chronology:

–                1/1/1975 The MITS Altair 8800 appears on the cover of Popular Electronics, inspiring Paul Allen and Bill Gates to develop a BASIC language for the Altair.

–                2/1/1975 Bill Gates and Paul Allen sell BASIC, the first computer language program for a personal computer, to Microsoft’s first customer, MITS of Albuquerque, New Mexico.

–                3/1/1975 Paul Allen joins MITS as director of software.

–                11/1/1976  Paul Allen resigns from MITS to join Microsoft full time.

–                11/26/1976 The trade name “Microsoft” is registered with the Office of the Secretary of the State of New Mexico. Microsoft has 4 employees.

–                1978 Dec.: Microsoft employs 13 individuals and has annual sales of $1 million.