India has emerged as the 3rd largest start-up ecosystem globally with over 59,000 start-ups across 634 districts [1] as of 24th November 2021, on the back of strong government policies to encourage entrepreneurship & innovation and significant growth funding from premier venture capital and private equity firms.
As per a report published by Inc24, by 2025, India is estimated to have 100k+[2] start-ups, which may create 3.25+ million jobs. This in itself is a massive opportunity for businesses to tap.
While most studies and media focus remain on start-up successes, nobody speaks about the percentage of start-up failures.
Let’s take a look at the statistics
· 9 out of 10 start-ups fail.
· 20% of start-ups fall apart after a year.
· 30% of start-ups close within two years.
· 50% of start-ups shut their doors within five years.
· 70% of start-ups dissolve within ten years. [3]
There are numerous reasons why a start-up can fail, and though we won’t detail every one of them, not having a strategic HR function can and does cause serious challenges. Good management of HR function provides a significant competitive advantage for a growing business. When handled effectively early, efficient HR practices set the stage for growth and a high-functioning workplace.
Start-ups and small businesses outsource several functions; legal services, IT functions, and accounting are typical examples, generally recognized as outside their core expertise. For human resources (HR) management and operations (outside of payroll, of course), founders have difficulty grasping how outsourcing this function can help their businesses succeed.
There are multiple reasons founders and business owners don’t understand HR. First, HR is rarely a founder’s area of expertise, so they are not familiar with its role and importance in their organization.
Additionally, HR is harder to quantify and calculate as it encompasses regular administrative and quantifiable functions like payroll, compliance, and benefits administration. However, it also touches non-quantifiable areas like company policy, hiring processes, risk management, employee satisfaction, retention, and career progression. These areas are relatively unnoticed and work in the background until a problem arises. When it does, it’s often disruptive to the workplace, and the leadership has to step in to resolve the issues.
Most start-ups are bootstrapped or working with minimum resources, and employees have multiple roles. The initial team is mainly formed from the founder’s network or connections with similar views. Start-ups have a vibe that draws from their founders’ passion and inspires employees while promoting a sense of belonging and purpose. It is reflected in a fast-paced culture with fewer employees, less hierarchy, and a relatively flat organization with most employees fulfilling multiple roles. The emphasis on company culture and loyalty is increasingly under scrutiny and, the part of human resources management and the types of benefits a company offers is becoming increasingly important for a business’s future.
On this note, here are the advantages of outsourcing HR that a growing business can gain.
Advantages of Human Resource Outsourcing:
- The Infrastructure to Scale: It takes time, energy, and money to figure out how to scale your business and sustain growth. As the business grows, needs change – often faster than expected. Outsourcing HR enables founders to ensure that essential tasks get done the right way the first time, creating more time to focus on vital and strategic functions.
- Ability to Attract and Retain Talent: Most start-ups face a talent crunch. Attracting and retaining talent is essential for success. Everything from the job description to the initial interview and onboarding process should be top-notch to attract the best talent. When it comes to employee benefits, an HR outsourcing partner will craft a total rewards strategy that can be benchmarked to the markets, helping you retain good talent. All of this forms a good base for the growth of the company.
- Risk Management: For companies that are laser-focused on product and growth, it’s easy to let HR-related responsibilities get ignored. The result can lead to a less-than-desirable employee experience and potentially expensive fines from the government. Outsourcing HR operations, support, and administration help companies avoid standard HR management and employment-related mistakes. For companies that have raised outside capital, there is an additional responsibility towards investors to ensure efficient growth. To this end, your outsourced HR partner will efficiently manage essential but non-core activities like payroll reporting, hiring and termination advising, legal compliance, workplace compliance, developing an employee handbook, and creating business-aligned HR practices. Additionally, all HR-related paperwork and record-keeping are compliant with all due diligence for future investments, mergers, or acquisitions. Therefore, most investors often recommend that their portfolio companies consider working with a trusted Human Resource Service provider for their HR needs.
- A Trusted Go-To Expert: The value of the relationship with your HR expert manifests itself in several ways. From employees to founders, everyone can use a specialized HR service provider’s expertise. This leads to employees’ needs being taken care of, while founders can use their advice on strategic HR requirements.
- Stability in a Rapidly Changing Environment: Most start-ups that are scaling their businesses see many changes; sometimes, they need to pivot to stay relevant completely. But too many changes may leave your employees confused and directionless. A well-managed HR goes a long way to balance all the fluctuations in a growing start-up.
Outsourcing HR may not be a solution for all businesses, but we believe it’s something every business leader should be aware of and consider. If things go well and the company grows, your requirements will change, and so will the nature of the outsourcing partnership that helped you grow from a few to a few thousand employees.
No matter the organization’s size, when leaders put people first, you create a motivated task force that better serves your business needs. It is here that Strategic HR becomes vital and can be that difference between success and failure when aligned with business goals.
For queries related to how to offer benefits, when to outsource, whom to outsource to – or if you have an HR-related issue you need to deal with, feel free to contact us!
References:
[1] Indian Unicorn Landscape – Start-ups, Growth, FDI, Investors. https://www.investindia.gov.in/indian-unicorn-landscape
[2] India As A Start-up Hub | IBEF. https://www.ibef.org/blogs/india-as-a-startup-hub