Member Article

When is the right time to make your first HR hire?

By Chris Priebe, Founder and CEO of Zelt

As a startup, you want to grow. It’s pretty simple. But while there is a laundry list of milestones to hit to achieve scale, Human Resources often slips through the cracks as a less glamorous one to check off. However, beyond managing people, HR plays a pivotal role in driving growth, enhancing operational performance, and cultivating company culture.

At Zelt, we are closely aligned with the HR sector, and have examined HR hiring in startups, exploring the timing, headcount, and trends based on comprehensive data from 973 UK startups. Having raised between £6m to £60m in the last 30 months, they provide a pretty insightful blueprint for when and how to make that crucial first HR investment.

Average timing for startups’ first HR hire

It’s a pretty critical leap, shifting from a small team towards a structured organisation. This timing will of course vary across companies due to differing strategies, resources, and growth paths. But on average, startups onboard their first HR talent when they reach 40 to 50 employees. With a headcount of 100, nearly every startup boasts at least one dedicated HR full-time equivalent (FTE). So, when and why should a startup make its first HR hire? Understanding the HR ratio is one way to get more context on this pivotal decision.

Understanding the HR Ratio

Let’s get a little technical here. The HR ratio, representing the number of HR Full-Time Equivalents (FTEs) per 100 employees, offers great insight into a startup’s growth strategies and resource distribution. This valuable metric assists early-stage organisations predicting future HR needs for strategic growth plans. For more established startups (100+ employees), it’s a benchmark tool, comparing their HR investment with their peers to ensure optimal allocation.

This ratio gauges HR effectiveness, correlating it with performance metrics to evaluate HR strategies and identify areas for enhancement. A high HR ratio with substantial productivity denotes a solid HR investment, while the same ratio with low productivity suggests a need to revisit HR practices and broader aspects such as training or automation. Fluctuations in the HR ratio offer additional insights. A surging HR ratio could indicate high turnover, requiring focus on areas like culture, compensation, or job satisfaction.

Navigating HR resource allocation

Throughout the growth journey, HR management comes with its own unique challenges in staffing and resource allocation. Subscale startups (those with fewer than 50 employees) often struggle with the dilemma of underinvesting or overinvesting in HR resources. Dedicating a full role to HR often seems impractical, especially when the Full-Time Equivalent (FTE) calculation falls below one.

Even at a modest headcount of 30, startups are typically saddled with 28 hours of HR-related work each week, of which up to 11 hours could potentially be automated. Those with dedicated HR staff often face underutilisation issues, leading to wasted resources better channelled into sales or product development. And teams without a dedicated HR team can find founders or senior leadership shouldering HR tasks, a time-consuming endeavour for an already stretched team.

This precarious balancing act of HR resource allocation often poses a tricky paradox. Underinvestment burdens the founders with additional duties, whereas overinvestment funnels critical resources away from essential sectors. The solution lies in automating as many HR tasks as possible and judiciously hiring part-time specialists, an approach that optimises resources and helps founders concentrate on the task of growing the business.

So, what do we do we need to consider?

It’s important to acknowledge the influence of growth speed on HR resource allocation. Rapid growth can significantly skew HR benchmarks, an aspect not considered in our current study. Fast-growing companies may encounter unique HR challenges, including brisk hiring pace, swift onboarding, and management of a rapidly expanding team.

Achieving lasting success in the startup game goes beyond rapid growth and industry firsts though; it also demands adept HR management that nurtures these innovative concepts and turns them into reality. For founders, managing your human resources shouldn’t be seen as another admin task, but a key to successful growth: the challenge will be to find the right balance between investment in HR and a freedom-filled workspace where great ideas can take flight. They you can do this by choosing HR systems that use technology to make tasks easier - or consider outsourcing some HR tasks or hiring part-time HR help. These steps not only make the work easier, but they also help manage the team better and improve the company’s performance.

In the end, success really will be about how well the people who make ideas happen are managed.

This was posted in Bdaily's Members' News section by Zelt .