As a startup launches off the ground, it’s common for the founders to wear multiple hats. Common roles, like human resources, tech support and office administrator, are either overlooked or given to someone as a side project. This strategy isn’t necessarily a problem in a company’s early days, when cash is tight and the mission is still developing. But when is it time to start hiring an expert to take over these roles?
Knowing when to hire an HR professional can be especially tricky, as at times it may seem as though HR doesn’t directly impact the bottom line. But as the company grows, hiring an HR pro can be vital to ensuring the company’s long-term success.
When a business is just getting started, it’s probably not in the budget to bring an HR expert onboard—and the good news is that it’s not always necessary. But when should a startup begin building its HR department?
While there’s no hard and fast rule to follow when bringing in an HR director, there are a few general benchmarks to follow. The first is employee numbers. A small company with around 10 employees can most likely manage basic HR tasks—like new-hire paperwork—without hiring professional HR assistance, says Ryan Nelson, Utah president of the Mountain States Employers Council.
“Smaller companies are thinking of what they need accomplish today. They’re pushing paper, checking boxes, managing finite items. They need to ask themselves a practical question: At what point does it become worth it to outsource or hire for that type of admin work?”
For some organizations, the threshold might be 10 employees. For other organizations, it might be 25. It all depends on what the founders can manage, says Nelson.
It also depends on how quickly the company is growing. “If the company is experiencing slow, consistent year-over-year progress, then it makes more sense to work with a consultant or part-time individual,” says Nelson.
Elisa Garn, Society for Human Resource Management president, adds that having someone, like an office manager, oversee simple HR duties isn’t always a bad idea. “A blended role often works well and isn’t a negative until you’re expecting someone to be an expert without the training and resources. That’s when you should work with a broker or hire [an HR director],” she says.
Nelson and Garn agree that by the time an organization reaches around 25 employees, it’s time to get serious about either hiring an HR director or hiring someone to handle basic HR tasks in conjunction with a consultant that can manage the more complex issues. And as the company grows to include more employees, the need for an HR director becomes greater.
“With the complexity in today’s world with payroll, compliance, legislation and all of the work around benefits, payroll, etc., once you hit 50 people, there are requirements that you need to abide by. At that point, you need to have some HR expertise,” says Cathy Donahoe, vice president of human resources at Domo. “Once you hit 100 people, you better have an HR [director]. The last thing you want to do is be in a situation where people aren’t being enrolled in their benefits correctly, or you’re not in compliance with FMLA or ADA regulations.”
While a general administrative employee can manage basic HR work in the beginning, there comes a time when a company needs to bring a big-picture HR expert into the fold—someone to oversee compliance issues, guide company culture and help reach big goals. Unfortunately, there’s no magic formula to determine the right time to add this person to the executive team—it’s more of a feeling, says Nelson.
“When there’s a disconnect starting to occur between employees and the executives, it might be time to bring a strategic HR executive to the table,” he says. “You want someone who understands the strategic plans and the ‘why we’re doing this and how we get there,’ but also has personal skills to forecast and look beyond day-to-day.”
While it makes sense for many startups to wait until they’ve reached a certain threshold of employees before starting an HR department, for fast-growing startups, it makes sense to bring in the HR pro from the beginning. When Domo was in its earliest days, CEO Josh James decided to bring in Donahoe to direct the HR department from the get-go. She was Domo’s fourth employee.
“Coming to Domo from the very beginning made such a difference in knowing what Josh wanted,” says Donahoe. “I knew what was important to him from day one. It made a difference in how we on-boarded people. It made the entire HR process easier—everything was very organized and integrated. It was very tactical work at the early stages of our development, but we were starting to curate the culture. When new employees came in, even when we had only 50 employees, they could tell we had our act together. We set the standard with how they’re going to work early.”
Nelson agrees, adding that any company experiencing rapid growth should consider bringing in an HR pro earlier than later. “Giving an HR executive a seat at that table is critical because it can be a challenge as they bring dozens onboard,” he says. “Having that dedicated HR person could be very important to help people understand the vision and how to accomplish it.”
Another consideration to think about when weighing whether the time is right to bring in an HR director is the company’s industry. “If a new company is in a highly regulated industry like medical, manufacturing or food, it’s a good idea to bring in HR in sooner than later, even if it’s just to help create the SOP. Having this in place before growth is an important step,” says Garn.
The HR hire
When the decision to hire an HR executive is made, the next step is bringing this person into the fold. But how do you hire this type of role, when the task at hand would typically be managed by the person you’re about to hire? It’s a problematic issue that companies face all the time, says Garn.
“People either over hire or under hire, so there’s a lot of frustration that builds up,” she says. “The first thing you need to think about is how do you view this role and what do you want this person to accomplish. Then you connect with your resources and look at your industry to get a good handle on the market. When you’re getting foundational HR, it’s important to get someone that’s not over the top with too much experience. You want someone that can grow organically. If you are going to promote somebody from within, make sure they have the right resources. Invest in their networking and encourage them to go to conferences.”
Donahoe agrees that finding the right balance of HR experience can be difficult. “You’ve got to have somebody who may not have done everything, but has done enough of it. And not just payroll or benefits—it’s got to be someone who understands the HR function. It’s a profile of someone who’s had some big company experience and smaller company experience or a division within a larger company.”
Garn says the HR director should be considered like the city planner, not the city cop. “They think very long term, not just, ‘let’s throw in a stop sign,’ but ‘how will that stop sign impact the community over the years.’ They’re thinking much broader and outside of their HR function. They have to know how to run an analysis, head count, attrition, overhead and benefits.”
“There’s no HR person who’s going to know it all, but you have to know enough to know that you don’t know it all,” says Donahoe. “HR as a profession has grown up over the last 20 years. You must flex between being analytical to managing people to deploying new programs. You’ve got to be a problem solver and a consultant. If the organization is using me, that’s my measure of success.”
“The more that a company invests in HR, the more they can get out of that person,” adds Garn. “As companies do it the right way, it’s very self-serving for them. And it’s important to do it correctly from the forefront.”