Here’s why your startup needs an HR function

A startup needs to be agile, innovative and quick-moving so we often see them shy away from anything that feels overly bureaucratic or stifling – and both of these are common misconceptions of a HR function.

It’s a commonly citied statistic that 1 in 5 startups fail in the first year and over 50% will fail before year 5.

A startup needs to be agile, innovative and quick-moving so we often see them shy away from anything that feels overly bureaucratic or stifling – and both of these are common misconceptions of a HR function.

However shifting perceptions and priorities in the workplace have led to a move towards a more people-centric attitude; founders and leaders are realising that if ‘people are your biggest asset’ (and nowhere is this more true than in a startup) then a strong HR function from the get-go is vital.

According to research by, there are 5 key reasons why businesses fail. We examine these reasons with a HR lens to see how a strong people-focused team can improve the chances of success for a startup.

Almost a quarter of small businesses fail because they don't have the right team

There’s a pretty straight-forward connection to HR and how having a strong people function can help here. But it goes beyond getting the right ‘bums on seats’.

Having the right team in place takes more than just getting talented people in the door. Two areas of focus here, both equally key to any startups success, are:

Productivity & skills

According to Talentculture, “small businesses can also have a ‘family’ atmosphere which means relationships are formed and its harder to make decisions based on a person’s ability to get their job done. A strategic HR advisor can be the neutral third party who makes recommendations based less on relationships and more about a small business’s strategic business goals.”

Culture building

Historically HR would only become a consideration for many businesses when something (which it inevitably would) went wrong – a toxic culture developed, a serious HR issue arose or they couldn’t attract the right people to grow.

However many modern businesses have realized that people & HR has become a “big-ticket” aspiration that they want to get right as soon as possible.

As Twitter VP EMEA Bruce Daisley notably said, “people are recognising that culture isn’t something you can come to fix in year six”.

82% of small businesses fail because of cash flow problems

Furthermore, 29% of small businesses fail because they run out of cash.

Employees are one of the top 3 biggest expenses for any business. On top of this, the cost of recruitment, especially when unmanaged, can be crippling for a startup in both cash and time.

Working out the cost of recruitment, retention schemes on top of general people costs is a difficult task and one many startups struggle with. Without a HR function to advise you, it’s very likely you are paying too much and/or missing out on strategic savings that could be the difference between the business succeeding in the long run.

19% of small businesses fail because they are outcompeted

To maintain a competitive edge you need people who can make quick, smart decisions; who are talented, qualified and bought-into the business goals.

A HR Strategist is vital to building the environment for these people to thrive; we’ve already discussed the importance of culture-building, but learning & development go hand-in-hand with this and HR are the experts here.

Identify skills gaps and develop employees

HR and Learning & Development (L&D) are the new power couple. Having a solid HR function means you can build a development strategy from day 1, maintaining the edge over competitors, ensuring your staff are the best they can be.

Every edge is important in the startup world. When you need the right skills a strategic HR advisor can identify skills gaps within your organisation and set growth goals for your people or suggest new hires that need to come in and breathe life into your organisation.”

Training and developing people not only helps you beat your competition, it is also vital in retaining employees.

0 %
of employers with less than 10 employees said that keeping good workers is a business-critical problem
0 %
of employees said they would stay longer at a business if there were skill-building opportunities

How does HR drive value for start ups?

Create the right culture from day one

Perhaps the biggest contribution HR can make is to shape the organizational culture itself. The purpose, values and behaviours which define a work environment.

This is something which must be considered early – increasingly founders of successful startups are realizing they want and have to get the culture right before scaling and bringing people in, not after.

Cost management

Recruitment and employee costs are some of the highest a business faces. In the competitive world of startups, a solid HR strategy function will manage, advise on and ultimately cut these costs. Having an internal function or partner curbs the needs for expensive agencies early on. Having HR as part of the screening and interviewing process ensures not only are technical competencies screened for, but cultural fit too, improving interview-to-hire ratios and retention, increasing ROI.

Employee development and retention

Employees that remain engaged, happy and productive are the driving force as a startup moves through growth. HR are the key partner in identifying development opportunities, creating succession plans and ensuring your employees are trained and upskilled to be the best they can.

Not only does this build and maintain productivity, it fosters a strong sense affinity or loyalty to the organisation.

What are the key responsibilities of HR in a startup business?

Bamboo HR defines some of the main roles of HR to keep a startup running smoothly:

Legal protection

One of the primary roles of HR is to make sure your startup is complying with laws and regulations so you’re protected from potential lawsuits.

Talent acquisition

A good HR department helps you hire the right employees and ensure there are structured onboarding procedures in place.

Policy creation

HR policies provide employees with a structured work environment. This can include policies on benefits, employee evaluations, discipline, internet policies, holiday leave, and more.

Culture building

One of the roles of HR in a startup is to make sure the company lives up to its values by hiring people that align with the company’s vision.

Record keeping

HR departments are responsible for keeping business records, resumes, sensitive information, and performance evaluations; for tracking sick time, vacation time, and workplace accidents; and for keeping other records.

Employee training

Training new employees not only helps you beat your competition, it is also a major factor in employee retention. According to LinkedIn’s 2018 Workplace Learning Report, a full 94 percent of employees would stay with an employer longer if they invested more in career development.

Cara Goodier-Dodson

Cara Goodier-Dodson

This blog was written and researched by Cara Goodier-Dodson, Caraffi’s Research Consultant.

Caraffi's Internal Mobility Whitepaper

Combining data from LinkedIn’s 2020 Talent Trends report with our own research, this whitepaper delves into the realm of internal mobility.

The whitepaper will help you to understand:

  • Why internal mobility is important
  • The common barriers to mobility within organisations
  • Actionable steps to help you overcome these barriers
  • Expert advice for your mobility strategy
  • A case study showcasing how AI can facilitate internal mobility

More like this:

More like this: