Overcoming people challenges at start-ups

What do top firms like Apple, Google and Hewlett-Packard have in common? Aside from a net worth amounting to billions of dollars, these tech giants all had humble beginnings as lowly start-up companies that ran on limited resources and manpower.

In fact, many of their now-famous founders started operations in their very own garage where they toiled away as virtual unknowns before achieving any success.

Start-ups these days still do not have a glamourous reputation as a workplace – people associate working at start-ups with being a long, hard slog with uncertain payoffs.

It is only when a start-up achieves phenomenal success or gets bought over for an enormous amount of money that people take notice of it.

One example would be the photo-sharing start-up Instagram which was recently bought over by Facebook for a whopping US$1 billion. Instagram never made a penny in its two years of operations prior to the sale. But the 13 members of the team behind it are probably now laughing all the way to the bank.

However, this is not a true reflection of reality. According to author of High Tech Start Up, John L. Nesheim, fewer than six out of one million business plans submitted to venture capital firms ever reach the initial public offering (IPO) stage.

With such dismal statistics and poor reputation, start-ups face an ocean of challenges that can cause them to either sink or swim.

Why HR

If start-ups are hard-pressed for capital, is HR necessary for them to function? After all, start-ups have a lot of other matters to deal with, especially in small teams where one person may be doing the job of several people.

According to Jonathan Davis, executive vice-president of US-based firm Acadia HR, the answer is a resounding ‘yes’.

“Regrettably, HR has the ability to sink a small business faster than virtually anything else for reasons like wrongful termination, violation of payday laws, harassment and discrimination,” he points out.

Legal ramifications aside, HR is vital to any start-up because the only real resource start-up founders have (unless they have very deep pockets) is their human capital.

Almost all founders of start-ups which made it big credit their people for the crucial role in their success.

“This [Apple] is not a one-man show… There’s a lot of really talented people in this company,” the late Steve Jobs told BusinessWeek.

Likewise, HP founders Bill Hewlett and David Packard believed that a company that was truly great was one that valued its employees.

“The best possible company management is one that combines a sense of corporate greatness and destiny, with empathy for, and fidelity to, the average employee,” said the duo in the book Bill & Dave by author Michael Malone.

However, many start-ups still fail to take note of the importance of HR by placing it on the backburner.

“I notice that many start-ups lack proper HR management,” observes Smith Leong, founder of Waddup Events. “Most of them have little or no knowledge on HR, and do not realise the need for certain HR practices.”

Recruitment woes

With the lack of awareness of HR practices, it can be even more difficult for start-ups to deal with their HR-related woes. For example, one of the biggest HR issues that start-ups have to face would be attracting talent.

When it comes down to recruitment, start-up founders and HR personnel say they are disadvantaged compared to multi-national corporations (MNCs).

“Start-ups don’t have the employer branding that MNCs do,” explains Michelle Alphonso, Chief Operations Officer of digital agency PointStar Group.

“Some perceive start-ups as unstable which may result in job instability. Start-ups are also unable to pay high salaries and bonuses compared to MNCs,” she adds.

Mohan Belani, Director of e27, echoes this sentiment.

“The biggest hindrance for startups is the cost factor – expenses in terms of hiring people,” he said. “You have to pay good money to get good talent.”

For Simon Kemp, Managing Director of social media agency We Are Social, family disapproval may be a factor that stops fresh graduates.

“For some, their families may be more traditional,” notes Kemp. “Start-ups may not have a track record and this sparks a fear of the unknown,” says Kemp.

However, start-up founders do not always play the blame game.

“Some local start-ups don’t have enough vision and lack clarity in their business plan,” says Belani. “This makes it hard to convince talented people to join.”

Leong also added that despite the difficulty in recruitment for start-ups, recruiting real talent is an issue faced by all companies.

“It may be easier to hire in an MNC, but whether that person is a talent or not, is another story altogether,” says Leong.

Keeping them in

Hiring excellent employees is one hurdle cleared, but companies need to retain their employees for an extended period in order to reap the benefits. A high turnover rate will only milk start-ups of their precious time and money.

“Working in a start-up is not easy as it can involve long hours and no obvious career path,” explains Alphonso.

More often than not, it is the mismatch of expectations that causes many fresh hires to quit.

“People come with expectations of what it’s like to work at a start-up and often, these expectations do not match reality,” says Kemp.

“They think start-ups is about a funky work environment that is exciting, and new products will be pushed out every few months or so, but this is often not the case,” he adds.

Many employees tend to leave due to the multi-tasking nature of work at start-ups.

“Things are changing all the time, so it’s a given that the role might change,” says Belani. “Employees who cannot adapt fast enough or are not flexible enough are likely to throw in the towel.”

In addition, poaching by other firms also contributes to a high turnover rate.

“Juggling so many skills makes these employees very valuable to MNCs as they learn a lot on the job,” explains Kemp. “They are often made offers by large firms who value them for the agility and their ability to deal with other parts of the business.”

He also noted that sometimes employees jump ship to their clients.

“We had an employee who switched over to Skype, who is one of our clients,” says Kemp.

“New hires choose to leave for so many reasons, such as being put off by hard work and the unwillingness to step out of their comfort zones,” he adds.

Recruitment and rewards

With so many challenges in their way, the question is: how do start-ups manage to attract and retain the talent that they need to grow?

One way to get the right talent is for companies to pay close attention to the hiring process.

“The recruitment process is the key to getting talented employees,” stresses Belani. “The person must be the right fit, with both personality and drive.”

Kemp agrees on this, saying that workers with the right cultural fit and similar values are more likely to stay on in the company.

“Values such as enthusiasm and passion are important,” he says. “We want someone who is already doing something similar back home because he loves to do it. We want to pay someone to do a job they love.”

He added that qualities like motivation, initiative and a belief in the company are important factors to consider.

As many start-ups are unable to pay their employees as well as MNCs, they offer their staff stock options as an alternative form of compensation.

“Stock options can be a solution to retain staff,” says Leong. “It is one of the approaches that I take with my staff who show potential in the business. It will give them a sense of achievement as well as belonging and willingness to fight harder since it’s their ‘own’ business.”

According to Belani, savvy employees understand the importance of profit sharing and stock options.

“However, it has no real value unless the product is sold and the founder has a solid track record,” he cautions.

Besides rewards based on monetary value, it is important for leaders to reward employees with other means as well.

“The smallest gesture from a boss can mean a lot to an employee,” says Leong.

“Like on occasions such as birthdays, successful projects closed, meeting targets, client’s positive feedback and so on. It all adds up by making employees feel good about themselves and what they are doing. Sometimes these small gestures can beat a pay raise.”

Engaging employees

Aside from monetary gains, staff in start-ups tend to stay on in their companies because of two other main factors: career development and employee engagement.

“For start-ups, it is more about the hands-on learning and development that you receive rather than compensation per se,” says Kemp.

He explains that as employees get a sense of ownership in the business as they have a say in the way things are run, and this helps them to grow more.

Likewise, Belani says that the intangibles are more significant.

“We try to create a work environment where employees are free to pursue their interest and passion,” he says. “As management, we try to inspire them to build something of value not just to the company, but also to themselves.”

He adds that in such a work space, there is no top-down, hard-handed approach where employees have to take instructions from the boss. Employees are free to take the reins and be creative with their ideas.

“We hired one guy to be in charge of events,” says Belani. “Because he was so good, the role soon morphed into business development entirely on his own initiative.”

“Employees have the freedom to be engaged in projects that they are interested in, and they value that,” he adds. “The intangibles are more valuable than the tangibles, such as money.”

The journey ahead

Even with the lack of resources, start-ups are still finding ways to recruit, retain and reward talented employees so that their business remains vibrant and thriving. While the road ahead is often paved with uncertainty and difficulty, the start-up community in Singapore has only gone from strength to strength.

“Give employees the trust and flexibility for them to do what they enjoy,” advises Leong. “This business is not just mine, but everyone in the team’s. I’m not just a boss, but a team member as well.”