Sunday, April 02, 2017

Why startups should hire an HR person sooner rather than later

At the excellent SaaStr Annual 2016 conference about a year ago, a very experienced SaaS CEO said on stage that an internal recruiter can be a startup CEO’s secret superpower. I couldn’t agree more, and I think startups should make that hire sooner rather than later.

If you can hire only one or two handful of people with your seed round, hiring anybody who doesn’t either code or sell is hard to justify. Being willing to invest in an internal recruiter or talent manager (or more broadly, an HR person) early on requires pretty big balls a lot of confidence. The right time for making that hire obviously depends on a variety of factors, but I would argue that most startups should hire an HR person sooner than they think.

Here’s why.

1) A great HR person can free up a lot of your time

Anybody who ever hired people knows that it’s extremely time-consuming. Let’s say you want to hire 10 people in the next 12 months. That means that you’ll have to:

  • screen around 500-1000 CVs
  • interview around 100 people
  • do 2nd and 3rd interviews with around 20-50 people
  • do a few dozen reference calls
  • negotiate compensation and an employment contract with 10 people

The numbers can obviously vary greatly, but you get the idea. It’s a lot of work, and if you have only developers and sales/marketing people in your company you’ll have to do the bulk of it yourself. An HR person can take over a significant chunk of that work for you.

2) A great HR person can help you make better hires

An experienced HR person will help you get more candidates, better candidates, and will help you get better at picking the right ones. As a result, he or she will increase the quality of your hires – which is obviously hugely valuable – and reduce the number of costly mis-hires. A great HR person will also help you to build a network of high-quality candidates early on – people who might not be a fit at the current stage but could become a great fit at a later stage.

3) A great HR person will run the process and help you build an employer brand

A great HR person will not only make sure that you have a great shot at hiring your favorite candidates, he or she will also run the entire hiring process for you and will ensure that you leave a great impression with the many candidates that you will not hire – which is important for your reputation. He or she will also help you to start building an employer brand and to become known as a great place to work.

4) A great HR person will save you money

Having an inhouse recruiter lets you save on fees for external recruiters. Since external recruiters usually charge 25-33% of the candidate’s annual salary for a successful placement, it’s well possible that your internal HR person will pay for him or herself by reducing the need to work with external search firms.

5) A great HR person will make your employees more effective

Guess what, adding 10 new people to your team not only means 100s of interviews, it also means setting up payroll for 10 people, onboarding 10 people, providing continuous training and support to 10 more people, and much more. All of this costs a lot of time which you probably don’t have. An internal HR person can greatly help you to take much better care of your team, thereby making your employees both happier and more productive.

Because of all of these factors, an HR person is one of the highest-leverage hires that you can make. Nevertheless, unless you’ve raised a lot of capital, bringing on an HR person instead of, say, another engineer, is still a difficult trade-off. So when is the right time? I don’t have a scientific answer, but I’d say that by the time you plan to hire 10 people in the next 12 months you should hire an HR person. This point in time will usually coincide with having found a decent level of Product/Market Fit and having raised a larger seed round.

As another rule of thumb, your HR person should probably come in somewhere between employee #10 and #20 at the latest. As an example, Front hired an internal recruiter as employee #19 – and it sounds like it was not a minute too soon!

Thanks to Jenny – our very own HR lady! - for reviewing an earlier version of this post and providing valuable feedback.