India’s tryst with the start-up universe began in 1998 when the Sabeer Bhatia-led Hotmail was acquired by Microsoft for an estimated $400 million. Since then, we have seen a number of instances of Indian start-ups becoming global giants, especially in the field of IT/Technology. India is today home to 21 unicorns as per the Hurun Global Unicorn List, 2020, which are collectively valued at $73.2 billion. These success stories, as well as a push from the government, have encouraged young Indians across the spectrum to walk the path of entrepreneurship.
While every entrepreneur is ambitious about fulfilling their business’ potential and emerging into a unicorn/global giant, it is noticed that despite predilection for growth, 90% of the start-ups fail, under 50% make it to the fifth year and only 30% get past ten years! This is a harsh reality which all potential entrepreneurs should judiciously take note of. Statistics like these are intended to encourage entrepreneurs to learn from others’ mistakes and adapt accordingly.
Reasons for failure are aplenty, and I do not intend to list all of them. As a company grows, the entrepreneur is charged with plenty to look out for simultaneously. This includes pressure to provide superior quality products, better experience for the customers, business expansion, revenues, profitability from VC’s/investors as well as the pressure of complying with the laws of the land. Concurrently, there is, amongst others, pressure internally to attract and retain top talent, and create a culture that fosters both organizational and internal growth.
In Dealing with Darwin, Geoffrey Moore articulated the Core/Context Matrix, which guides organizations to deal with Core and Context in fundamentally different ways — core is what accords the company a competitive advantage and competence, while context contains everything else. Separating core from the context is critical to the success and growth of any company. This becomes even more critical for a start-up that is on the ascendancy. It would be very wise of the entrepreneur to extract resources from context and invest in the core. A smart way of going about this would be to outsource some of the context. One of the obvious contenders for outsourcing is the HR function.
In our collective experience of over a hundred years at ErgoTalent, we have seen that the entrepreneur, typically, is the expert around whom the organization’s core competence gets constructed. But on the other hand, the entrepreneur also is at best a novice when it comes to people practices and compliances, barring the exceptions to the rule! Today, the talent marketplace is on par, if not more competitive, than technology — the war for top talent is brutal — whereby attraction and retention of critical talent is the utmost concern for organizations. Similarly, it is imperative to inculcate the right culture. To quote Peter Drucker, “Culture eats strategy for breakfast”; culture is the cornerstone on which an organization is built. Many a time, poor culture is what leads to an early demise of organizations. Hence, Human Resource Management has become extremely critical to a business’ future.
Being competitive in this area is not easy for an expanding start-up. A growing start-up may not be able to hire an experienced HR leader, for reasons of both cost to company and unwillingness on an HR leader’s part to join a start-up. So, invariably, the entrepreneur goes for the next best option – someone with reasonable years of experience, and one who does not pinch their pockets. Inversely, the person coming on board would have in most instances one-dimensional experience, primarily of hiring. Consequently, they would neither have access to the global best practices nor will they have the wherewithal to align HR goals with organizational goals. Additionally, HR issues might get delicate at times, requiring an expert’s assured hand to manage the situation. If you take Core/Context Matrix into account, hiring such an HR professional may not be the best allocation of financial resources. A start-up taking flight requires HR to not just take care of operational requirements, but also provide guidance and value in strategic initiatives. This can only be provided by professionals who have navigated through similar or worse.
So how does outsourcing HR help a growing start-up?
To begin with, outsourcing is a cost-effective option. More often than not, it is a cheaper option than hiring an internal HR team. In addition, you get the brains and experience of a team whose core is Human Resources. The HRO partner brings to the table a multi-faceted team with decades, if not hundreds of years, of experience. This ensures that the business gets the best, customized, and strategic solution. More importantly, it takes pressure off the entrepreneur and organizational core team. This allows them to direct their energies, attention, and resources on matters of running and growing the business, while being in sync with the HR strategy.
It is imperative for a growing start-up to define their culture/DNA. The right organizational culture aids the business’ growth. Over a period of a time, it shapes the foundation of the employer brand. For example, what comes to mind when you think of the Tata Group? Most would say trust or integrity — something that the Tata’s have built over the years. The HRO partner can help you define the culture that aligns with the entrepreneur and the core team’s beliefs, while resonating with the employees. To ensure that it becomes a part of the organizational DNA, the HRO partner will help design congruent initiatives, practices, and policies. A positive culture results in an engaged and happy workforce, in turn bolstering productivity. An engaged workforce is 12% more productive and studies show that such ventures outperform competition by 20%, and earn 1.2 to 1.7 times more
Every employee would like to know how s/he contributes towards the organization, where the organization is heading, and how it aligns with their own aspirations. The HRO partner is meant to help you define the organization’s vision and mission, and diffuse it to everyone in the team. To elucidate the importance of mission, I’d like to share an anecdote of John Fitzgerald Kennedy (JFK). It is said that when JFK visited the NASA Space Center, he saw a janitor carrying a broom and walked over and asked him what he was doing. The janitor responded, “Mr. President, I’m helping put a man on the moon.” Presumably, the janitor may have been in the lowest rung in the org chart at NASA, if there at all, and yet he was invested and beaming at the common purpose he shared with the first men to eventually walk the moon. Such is the power of vision and how essential it is for everyone in the organization to believe in that mission. The HRO partner helps you firm up the organizational goals, while creating a culture of accountability and performance, which then cascades down to each of the organization’s employee. This enables the business to control performance better, while at the same time allowing each employee to discern their contribution to the business.
Additionally, an HRO partner enables you to design practices and policies that are benchmarked against global best practices while at the same time tailored for your business, thereby streamlining HR operations and increasing its efficiency. It aids the organization in supporting its employees’ growth and aspirations. Every employee today is looking to grow – it could be financial, functional, professional, or personal. The HRO partner helps diagnose the learning need of not just the organization but also the needs of each individual in the organization, based on which programs get designed to upscale development at the organizational and individual level. This further reduces the burden on the entrepreneur and the core team in terms of building capabilities internally.
Outsourcing HR also ensures that the business has no legal/statutory exposure. In most cases, the entrepreneur and the core team are not aware of the various compliances and laws that need to be observed. Correspondingly, laws get updated regularly, even differing from state to state, and it can become quite a hassle for the core team to be mindful of all these. The HRO partner keeps themselves abreast with laws, amendments, and practices.
It also encourages a better employer–employee relationship. Since the HRO partner understands both sides of the coin, it fosters trust, enhances employer–employee communication, and fosters loyalty and an enduring relationship. Additionally, since the HRO partner works with several organizations and is aware of contemporary practices, the organization can create a world-class experience for the employees, thus resulting in a better employer brand that attracts and retains the best talent.
A professional HR set-up is also something that VC’s and investors expect today. Investors today are interested in the more nebulous aspects of human resources because it is material to the business, its valuation, and their investment. They believe that HR adds value and results in a better performing company.
Take a step towards building a great place to work and a successful business by outsourcing your HR function to the experts!