3 HR mistakes that ruin tech companies
Your company is an overwhelming success. Congratulations. You'll be doubling your employees this year. And doubling again next year. That's good news.
The bad news: you may not make it unless you excel at HR and people management.
HR success is arguably the most important factor for fast-growing, high-tech companies. "It's about the team that grows with the company," writes Ron Miller. "If that's not right, the nascent company probably won't succeed."
Indeed, it is about the team, but it is also about more than that. With such rapid growth, the team's constitution and makeup will change quickly and considerably.
Successful scaling requires proper building and management of that team through rapid growth stages. Mastering these three processes will determine the company's eventual success, while not doing so can hurt and even permanently damage the entire business:
1. Failing at values-driven recruiting
Recruiting is important. In fact, it's a cliché: Great recruiting is key to a company's success.
What is less obvious is that scaling recruitment will be either one of the easiest or hardest things a fast-growing company will do. This ease or difficulty will depend on how well the company has defined its mission and values. It will also depend on how well the company has woven these in to its recruiting.
Formally defining the purpose and values of the company — so they can be communicated as part of the recruiting process — is critical. There's been plenty written about both the market and non-market value of purpose-driven companies.
"For a company to thrive, it needs to infuse its purpose in all that it does," argues Sherry Hakimi, CEO of Sparktures. "It's an unseen-yet-ever-present element that drives an organization."
There are key steps to developing a successful purpose-driven recruiting process, starting with defining the company values. A one-size-fits-all approach will not work well, so be creative and inclusive in working to define what it really means to work at your company.
This mission will help differentiate your company and fuel your recruiting efforts. But it should also be both communicated and integrated effectively in the recruiting process — with an emphasis on both.
'Part artist and part scientist'
"One of the core qualities that we look for in founders is his ability to articulate and communicate a vision for the company well," says VC Uwe Horstmann, co-founder and managing director at Project A Ventures.
During the scaling process, Horstmann's point about communication applies equally for the founders, for the early employees and for the recruiting team. There's a mix of hard and soft skills expertise that is key to a successful company-wide recruiting process.
"To be a great recruiter today, you have to be part artist and part scientist," says LinkedIn marketing exec Lydia Abbott.
She's right. Much has been written about the more scientific aspects of recruiting, including all the state-of-the-art analytical tools, services and filters that streamline the process of finding highly-qualified candidates. The artistry kicks in when it comes to incorporating everything you know about your company's purpose and values in to recruiting and hiring.
"When businesses begin growing at a rapid pace, it's easy to justify hiring candidates with impressive resumes or recommendations without first considering cultural fit," writes Marty Fukuda, COO of N2 Publishing. "Even in a time crunch, cultural fit should never become an optional component."
2. Failing to build and maintain a strong culture with managerial decisions
One mistake companies make is confusing organizational culture with the publicized benefits or perks they are offering (e.g., office games, fancy meals, elaborate events). Those are nice — but they are not the same as company culture.
"Organizational culture consists of shared beliefs and values established by the organization's leaders and then communicated and reinforced through various methods," writes the Society for Human Resource Management (SHRM).
But what exactly does this mean?
"Simply speaking, a company's structure and design can be viewed as its body, and its culture as its soul," SHRM states.
Quality vs. quantity.
Action-oriented vs. carefully-planned.
Top-down vs. consensus-based decision-making.
Each of these measure different company culture characteristics. While culture evolves as your company grows, it is vitally important that it evolves the way you and management want.
"Many companies with a strong culture also tend to produce superior results," writes Luke Arthur. "When a culture is strong, it leads to happy employees and happy managers."
The reason for this is simple: strong culture companies tend to have better communication as well as a clearer understanding of goals and decision-making steps required to meet these goals. This clarity leads to better identification with the company, less turnover and more satisfied long-term employees.
Growing from 5 to 50 to 500
But it's not enough to work hard to maintain a strong culture during periods of rapid growth.
Don't underestimate just how important managerial skills and decisions are during rapid scaling periods, in which teams may grow from 5 to 50 to 500 people. One growth company mistake we've seen is promoting not-quite-ready managers into management positions. The challenge here is knowing when to hire from the outside and when to promote internally. Making a mistake on this aspect can really jeopardize a company and its culture by steering it in the wrong direction and losing valuable credibility with other employees.
With internal promotions and the hiring of all managers, your goal should be to offer (and demand) participation in three key areas: (1) leadership and management development, (2) effective communication practices, and (3) the basics and logistics of being a people manager.
Also, while cultural fit is critical, what you really want from your managers is their ability to enhance your culture. Promoting and hiring skilled managers with this ideal cultural fit can reap huge benefits in pushing the company forward with the right performance and organizational trajectory.
3. Getting stuck in silos
As companies grow and start adding employees and bureaucracy, they develop departmental silos. This problem exists at large, mid-sized and even emerging growth companies.
"Departmental silos are seen as a growing pain for most organizations of all sizes," write Brent Gleeson and Megan Rozo. "It is the duty of the executive leaders and management to prepare and equip their teams with the proper mind-set to break down this destructive organizational barrier."
So, how do you eliminate silos in fast-growing companies that are forced to add organizational structure? The standard answers include enhanced interdepartmental communication as well as more effective cross-functional meetings and groups.
These steps will help. But another key is having your HR team recruit, hire, and train executives with the clear goal of instilling a nuts-and-bolts understanding of how the business is working.
The great people management challenge
By "nuts-and-bolts understanding," we mean going beyond helping employees understand the essential aspects of the company and their own work. They should fully understand all relevant details of how their company makes money as well as the key aspects of the company's competitive advantage and strategy.
"Be sure you and everyone in your company can articulate what you do, your value propositions and your target segments clearly and concisely," state Ladin and Levinson.
Ensuring that everyone in your company can do this on an ongoing basis is the great people management challenge.
"But that seems like a lot of extra work," you may say.
Yes, this requires an investment in HR time and effort. The steps required to maintain this level of understanding might seemingly slow things down when speed is so important. But achieving this will pay large dividends in the quality of decision-making. There should also be a longer-term boost in efficiency because team decisions will be more closely aligned with overall company objectives, with fewer interdepartmental hiccups.
With your company ramping quickly through different growth stages, your HR management function will change perhaps more than any other. Your other duties — as recruiter, hirer, trainer, manager — will shift rapidly and considerably. But your role as an investor will not change. Invest in ensuring that the company-wide values, enhanced culture, and nuts-and-bolts understanding of the business move forward the way you and management really want.
Philip Levinson is a vice president at Sapphire Ventures and was previously the first VP of sales at WaterSmart Software. His recent articles for Business Insider include pieces on Uber, Cloudflare, and Nike. You can follow him on Twitter here.
Lorna Hagen is the SVP of people operations at OnDeck, the leading online lender to small businesses and a multiple winner of Best Workplaces awards by Fortune, Crain’s, and Selling Power. You can follow her on Twitter and LinkedIn.
Nothing presented herein is intended to constitute investment advice and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Sapphire Ventures. Sapphire Ventures does not solicit or make its services available to the public and none of the funds are currently open to new investors. The investments identified above do not necessarily represent all of the investments made or recommended by Sapphire Ventures, and were not selected based on the return on Sapphire Ventures’ investment in them. It should not be assumed that any current or future investments were or will be profitable. Past performance is not indicative of future performance.