At first glance, it would seem that success for a startup business would not have any negatives. Since all businesses need to be more or less successful to continue operating, they must establish some track record of meeting their goals and objectives. It’s not only critical to survival, but also future growth.
However, the idea that if some growth is good, a lot of growth is awesome is a flawed one. Many startups have failed because of premature scaling; they grew too fast in the early stages and could not handle the growing complexity of the business. One of the best ways startups can avoid falling into the trap of premature scaling is to better manage the hiring process.
Hiring too many employees during a startup’s growth cycle runs the risk of having labor costs spiral out of control. If revenue does not keep up with hiring spikes, businesses are forced into layoffs and possibly closing their doors.
Hiring Employees without HR Expertise
For successful startups that began with only one person or a few people at the controls, the growth of the business creates the need to hire. Since most startups in this position do not have human resources expertise or a department to serve that function, adding employees is not a process that these companies should do by themselves.
One way to deal with such a challenge is to consult a staffing solutions company. These businesses have a lot of experience evaluating candidates and working with employers to determine job requirements and help them find the people who are the best fit for a job. Outsourcing the staffing process to companies that specialize in that area allows startups to focus on their core business and reduce spending time and effort in areas that are not their strengths.
When starting a company and thinking beyond just your role within the company, you should also consider the following:
- Temporary Staffing
- Direct Hire Solutions
- On-Site Management
- Payroll Services
- Contingent Labor Program Management
Obligations after Hiring an Employee
Once a company hires its first employee, a whole myriad of laws from local, state, and federal levels come into play. Startups should also have an employment contract for new hires. Although some startups have lucked out in this area, it’s a risky practice.
Ensuring compliance with employment laws and drawing up employment contracts are both areas where it is best to consult an attorney. Failing to do either one properly can leave a business wide open to litigation and punishment from government regulators.
All the money and effort that goes into finding an employee will be wasted if the turnover rate is high. Although the national turnover rate is at 15.7 percent for all jobs, it can cost as much as $1.5 million to replace 12 jobs in a company, according to ZenSource.
Some referenced and often ignored costs of retaining and acquiring employees can be seen as the following:
- It’s going to cost your company $72,000 to replace the six entry level employees.
- It’s going to cost your company $96,000 to replace your four mid-level employees.
- It’s going to cost your company $72,000 to replace the two senior employees.
This data was based on a mix of entry to upper-level employees and a replacement cost of 40 percent of salary for an entry level worker; 150 percent of salary for a mid-level employee; and 400 percent of salary for those in upper-level positions. A radically conservative estimate, where the replacement cost is 30 percent for these positions, would still cost the company $250,000.
Avoiding the cost of high turnover means making the effort to ensure good employees find their job rewarding. Onboarding new employees by helping them understand the company culture and internal processes, evaluating progress, accepting feedback from employees, and contributing to their personal growth will reduce turnover dramatically.
Success and growth for a startup are not bad things in and of themselves, as long as they both are manageable. Having a well-defined hiring process goes a long way towards managing growth properly and avoiding many of the pitfalls that put startups out of business.