Case Analysis 1

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Start-Up Blues

Managing human resources remains a major and under-appreciated challenge for most start-ups. In the early days most start-up founders spend time trying to articulate what the company does and whom it does it for, besides trying to answer the question why the company is in that business. These are priorities of immerse proportions. As it happens many times, all this leaves little or no time for typical "HR issues". And even when they take up HR-related tasks, start-up founders are often caught up in "typical" problems instead of "strategic" ones. Net net, they gloss over challenges that should command significant attention. The thing is: the survival of a start-up depends to a large extend on the ability of team members in general and the founders in particular to forfeit short-term returns for long-term benefits. "The first thing a start-up boss ought to do is separate the strategic issues from the tactical," says the co-founder of an e-commerce company that was struggling to find good people until about two years ago. "The problem is simple: when we talk about the core HR challenges in start-ups, more often we talk about recruiting, retention and project management. These are tactical issues, and start at companies irrespective of their stage of evolution. Getting people, keeping them back and getting a piece of work done efficiently is as much a challenge for me as it is for a 75-year-old company." So, what are the typical human resources challenges facing start-ups and how can they get past these challenges? "In a start-up more than anywhere else, the HR team has to work as business partner," says Ajay Nair, chief human resource officer, Housing.com. "HR needs to understand the business, the ingredients and skills the business requires and make sure the right people join the organization." Indeed, the onus of building the corporate culture lies squarely at the door of HR. In the absence of a strong organizational culture, which is to an extend a factor of vintage, attracting talent becomes a serious issue with start-ups. "Only 40% of the students one interviews on campus would be willing to work in a start-up environment. The challenge is to identify people who are passionate and are willing to take up challenges," says Kapil Mehta, executive director, Secure Now Insurance, which started operations in 2012. "Being a technology company, we had to hire people with rich experience and it proved to be a challenge convincing people about the company's sustainability and funding," adds Sumit Gupta, co-founder and CEO, GrownOut. Not many people are willing to take the risk or deal with the strains that come with the pressures of scaling up fast is a given. "What you should look at first, therefore, is build a culture that encourages transparency and ensures growth. Once that is in place many other things fall in place," says an independent HR consultant, who has cut her teeth in a technology start-up. Most start-ups woo young people because getting experienced hands becomes either difficult or unaffordable. Take Jabong, which consider itself a "young" organization not only in the number of years it has been in business but also in terms of the average age of its employees. With the average age of the employees in the organization at 29, the HR policies have to be tuned to deal with the specific needs and aspirations of the youth. "You not only have to emplower the employees but work relentlessly to keep them engaged and efficient," says Ashu Malhotra, HR head, Jabong. Coming back to Housing.com, the average age of employees at the company is 25 and they are typically fresh graduates or with a couple of years, experience. The big challenge with such a young and dynamic workforce is that they expect to see an accelerated vertical career growth. To address this issue, Housing.com has charted out a "snake path" of career competency. This takes them laterally across functions, so they move up gradually. This ensures they are exposed to cross-functional skills that are of relevance and as they pick up these skills they move up the ladder. "They are looking for a workplace to exhibit their skills, work as entrepreneurs of sorts. So, we allow them to take full ownership of their functions," says Nair. Before joining the auto classifieds portal CarDekho as assistant general manager, HR, Jaya Pareek Kapoor worked in the banking sector. She says, "I chose to join Car Dekho last year for its lack of bureaucracy and a dynamic work environment." When hiring employees for the company, Kapoor looks for the right mix of skills and attitude. The company's HR team has 12 employees who handle compliance and talent management. The second challenge is to create an environment that is conducive for the young workforce to give their best. We don't work with rules and regulations - we only have broad guidelines," adds Nair. "The day we put rules and regulation in a start-up environment, it is no longer a start-up. We need to offer a framework within which employees can ideate, create and work." If identifying and wooing talent is the primary task for a start-up HR, retention and career growth planning becomes key as the employee grows with the company. "We have a flat structure and the rules and regulations are designed to encourage innovation and flexibility and enable employees to work across profiles. We not only encourage innovation but also incentivize people for them," says Malhotra of Jabong. A good way to retain people is to focus on training and by training we do not mean conducting "fun at work" sessions or "gamification". It is also important to understand that long work hours at start-ups can lead to fatigue. Says Gurprriet Siingh, country head, YSC India, "In such a situation an informal conversation or some career guidance is all a diligent employee needs. This may sound idealistic, but works mostly." Agrees Nilay Khandelwal, regional director, Michael Page India, "In such a situation an informal conversation or some career guidance is all a diligent employee needs. This may sound idealistic, but works mostly." Agrees Nilay Khandelwal, regional director, Michael Page India, "We have observed that in early days, start-up see a churn when there is a communication gap between promoters and employees." The retention strategy must keep in mind the fact that the demands for rapid growth might create an environment of volatility and uncertainty within the organization. Hence, founders have to actively involved with employees to allay fears and have to come across as serious and committed to their businesses. It makes a big difference to the employees looking to build a career in a start-up. "In many start-ups the variable pay component is larger than the fixed component; but often it doesn't work. It is better to offer fixed pay and make sure that you pay on time," says Kapil Mehta of SecureNow Insurance. This also ensures that the employer brand becomes strong and gets respected. Working in a start-up has its own advantages in terms of the exposure the employees get - they get the opportunity to work with the founders and learn the ropes of the business in a flexible environment. This is something start-ups need to drive home when they go out to recruit. "The focus of the start-ups is to get started and most organizations are in a hurry to grow; so there is a lot of ambiguity in the roles employees are expected to play," says Shanthi Naresh, India business leader, talent consulting and information solutions, Mercer. This is an issue that needs to be addressed at the earliest if a company hopes to scale up fast. So the HR needs to put in place a career framework for employees - such as, what are the key result areas and the key performance indicators of the employees, how a person can move from one role to another and so on. "If it is not clear, it might lead to high attrition, low productivity and therefore higher people cost for the start-up," adds Naresh. Also, as the company grows it is also necessary to strengthen the bench so that there is no crisis when an employee leaves. One might have to take some hard decisions along the way. Maintaining and improving the working environment in a small team is crucial and managers should make the hard decision to let go of people who negatively affect the team morale or the evolving company culture. Since most start-ups in their early stages are formed by a team of acquaintances, the decision to let go of people is harder but as they say, one has to what one has to do. In the real world, no matter how aligned an employee's intentions are to the overall vision of the company, once she feels she is no longer growing in the organization, chances are she will jump ship. This is part of the growth story of an organization and managers should not take it personally or take it against an employee who has made up her mind to the leave the company. It is better to allow a pleasant and gracious exit than a morale damaging and public wrangling that continues to fester even after the employee has left. Such conflicts do not go down well with people who are left behind. Evidently, for a start-up building a brand is not a day's job. That said, good people and great planning can go a long way in separating the men from the boys. Source: Ankita Rai, Sonali Chowdhury, and Rohit Nautiyal, "Start-Up Blues," Business Standard, May 4, 2015.

Question 1

summary of the article

Question 2

Do you agree with the assertion that startups should not have employee compensation system in which the variable pay component is larger that the fixed component? Why or why not? Be specific and justify your answers.

Question 3

Design a compensation system for a startup in such a way that its employees can see the link between their contributions to the startup's success( bearing in mind the risk of startup failure) and the rewards they receive in return. if the contributions and rewards ( and the risk of business failure) vary across the life cycle of the startup, specify the time frames or the life stages in which the reward are applicable. Be specific and justify your answers.