Startups are getting ‘People’ wrong, and it will cost them

In June, my firm launched a survey with the goal of understanding the structure and makeup of the People function in startups.

For the purposes of our research, we defined the People function as the umbrella term for all the activities relating to employing people in your company. These include, among other things, recruitment, onboarding, training, compensation, performance management, and employee engagement.

The research is ongoing, but some interesting insights have emerged from the 60 startups we have studied so far.

We found 120+ job titles for roles in the People function

There is a fair amount of confusion about titles and scope of responsibilities of the People function. We see this reflected in our data, with over 120 distinct job titles for roles in the People team.

This function could no doubt benefit from some standardization in titles. This would not only lessen the confusion around the scope of various roles but would also make it easier to benchmark compensation. For instance, we looked at “Head of People” salaries at 17 European startups, and the range was between $60,000 to $230,000.

In Europe, Series A companies are more pre-hire focused

For this analysis, we divided the People function responsibilities into two parts: pre-hire and post-hire. Pre-hire is everything that goes into finding and converting candidates into employees — employer branding, planning, recruiting, interviewing, etc. Post-hire is everything that comes after that — onboarding, talent development, employee engagement, performance management, and so on.

Looking at the time and budget allocations, early indications are that European startups are more focused on pre-hire compared to their U.S. counterparts. In our view, these two parts are equally important. As the company scales past 50 people, neglecting post-hire needs will have a direct impact on the bottom line in the form of lost productivity and attrition.

In a 2016 survey, Gallup found that business units with higher employee engagement scores had 10 percent higher customer loyalty, were 21 percent more profitable, and produced 20 percent more than those with less engagement employees.

Cultivating productive, engaged teams requires a balanced investment of time and resources into the full employee lifecycle.

Size of the People team is disproportionate

Our data showed that People teams tended to stay small in proportion to the organization as a whole. Combine this with the fact that most of the People teams we interviewed were severely understaffed and overworked, and we begin to see a problem. From what we know of the People team’s responsibilities, it is easy to see that a team of three will be overwhelmed taking care of 150+ employees in hypergrowth.

We looked at People teams overall as well as the number of recruiters specifically.

The assumption here is that recruiters are mostly focused on pre-hire, although some may have post-hire responsibilities.

In our quest to understand why the People team is not thriving, we have uncovered three underlying challenges:

1. Underinvestment. The People function is often viewed as transactional and administrative as opposed to transformational and additive. Viewing the function as such has led companies to strive to minimize its cost instead of maximizing its impact.

This underinvestment in the People function translates into under-resourced teams, leading to slower hiring and lower productivity. These poor outcomes make it difficult to justify bigger budgets, and the vicious cycle continues.

2. Misaligned expectations. People teams are often victims of misaligned expectations and lofty goals. In a recent article, Chief People Officer of Couchbase, Jessica Yuen, wrote, “The expectation for a CPO needs to be reframed to focus on what’s realistic for one person to achieve within the context of the team and budget. If not, the People leader ends up busy with tactical issues, and strategy is deprioritized. The consequence? The CEO isn’t getting the value from their senior leader, and the senior leader is dissatisfied because they anticipated a strategic role.”

This misalignment at the top trickles down to the team. Combined with budget constraints, it makes for a tough environment to succeed in.

3. Uninviting career path. The factors I’ve discussed so far have led to a more systemic problem: talent scarcity.

In Europe and even in some U.S. hubs, startups have a hard time hiring great people into their People teams. There simply aren’t enough exceptional recruiters, HR specialists, and People leaders with startup DNA and scale-up experience.

This is not an easy problem to solve. The scarcity is partly due to the negative perception of HR and the low salaries, which are deterrents for high caliber talent. Moreover, the low barrier to entry into the field, inflated titles, and ambiguous roles have created a gap between perceived skills and actual ability.

In other words, when we bestow a “Head of People” title on a recent grad with two years of experience as an office manager, we devalue the expertise required to earn a “Head of” role and widen the compensation band. This is bad for everyone, especially the people pursuing a career in this field.

These challenges will not go away overnight. But as a starting point, it is worth considering the vital role your People function plays in building an exceptional team of highly motivated, engaged employees. With that new perspective, we can begin to raise the bar and compensation levels to make the roles more attractive to a wider talent pool.

Why does this all matter?

Of the million things that founders have to worry about, why should they care about the People function? Because getting the best people to do their best work for you is vital to success.

Note that there are two parts to this: Hiring the best people, and enabling them to do their best work. Doing this requires deliberate attention and expertise. As the company grows, the founders are less likely to have the expertise or the attention required.

Organizations need to be just as carefully engineered as products. You cannot build a great product with a poorly resourced engineering team. So why expect to scale a world-class organization without a well-resourced People team?

Kiana Sharifi is head of talent at Balderton Capital.