I’ve been asked this question often and I am sure it sneaks up on many companies. At first, a startup grows through the social network of its founders. The company operates just fine. Any number of companies provide HR-related services, such as recruiting, benefits, payroll, perks (just to name a few). It is easy for founders to relegate all HR activities to a second job under one person that coordinates services that are primarily outsourced.

But as the company grows, so does the complexity related to hiring, developing and retaining employees. Once the team starts growing, it is important to build and reinforce equity within the company to keep a sense of fairness among employees. How will you make sure you hire and promote your employees fairly? How will you develop a payroll scale according to the role and responsibilities? (And not based on how desperate the hiring manager is to hire a specific individual, how good a candidate’s negotiation skills from the candidate are, or the bias everyone brings when making decisions). Focusing on equity early is a smart investment as it avoids having to confront challenges related to employee equity that are not only uncomfortable but can also bring legal problems.

It is remarkably common for founders to wait far too long to build an HR team (or People team).  Perhaps when funding is tight, founders and executives feel that every possible dollar should go into the product, and not “support” functions. Or maybe it is the willingness to act fresh, or a desire to avoid “bureaucracy”, and that so far not having HR has “worked well enough” for the company. Or perhaps with so many demands on founders’ time, they simply don’t get around to it. I understand this attitude. But as a seasoned HR professional focused on diversity, equity and inclusion, it is very hard to understand how a company can operate without a team that is focused on the talent asset.

Shortly after I relocated to Silicon Valley, I met the CEO of a global start-up with 300 employees. He was proud that his company didn’t have an HR team. His justification? “We don’t need one.”

At the surface, the organization seemed to be doing just fine. The leadership certainly seemed comfortable with the status quo, but I was intrigued by it. I interviewed several employees, and warning signs began to emerge. Numerous employees expressed that they were dissatisfied. The short-term complaints surfaced first. There were no clear career paths or professional development. They complained about seemingly unfair promotions. Many didn’t even understand their benefits package.

There were also deeper problems. Some employees didn’t understand their role at the company or how they were performing.  This was compounded by inexperienced management, which led to individual contributors who felt they received little feedback for their work.

It was clear that this organization wasn’t healthy. And it was obvious to me that they would benefit tremendously if they had an HR team helping to set up and manage systems, policies, and processes in place that would help the company stay healthy as it grew.

After this encounter, I have learned of many start-ups with similar stories. Companies with up to a couple of hundreds of employees and no HR. – usually, the person who coordinates the HR vendors is the executive assistant, the office manager, someone from accounting, someone willing to take part in the responsibility to hire but they don’t have the right background and time to handle this coordination correctly. The new employees often complain they didn’t have onboarding, they don’t know how to navigate benefits and other company policies -or the absence of policies make it hard to know what to do. In extreme cases, HR-starved startups may even unknowingly fail to comply with labor laws, creating legal risks and more headaches.

I have come to believe that one of the reasons that tech start-ups have such high turnover (between 13% and 25% and it increases as the company ages) is not because the employees want higher salaries, bigger opportunities or more perks. But because they don’t feel a sense that they belong within their company and its culture. If they don’t see a path to develop and grow or have trouble navigating the evolving organization, then they will naturally view their career path outside the company.

A culture is created when smart-minded leaders weave a diverse array of individuals into a single mission. Employees contribute to their unique backgrounds, where they can keep developing and growing within the company. A strong, healthy culture can boost innovation, productivity, and reach better and faster results. But it also can create liability, dissatisfaction, and failure, if addressed incorrectly.

So, when is the right time to build an HR team or have an in house HR professional? In short: as early as you can possibly afford to.

I want to hear from you. Drop me a message if you want to know more about how I could support you and your organization in your efforts to foster a high performing culture!