HR as the Ultimate Weapon

By Mahesh Murthy

Some of you may know that I help run an early-stage venture capital fund. And that I have been investing in start-ups in India for more than a decade now— individually, at first, and now, as a part of a larger, more organised and better-capitalised team.

I certainly knew a lot less in 1998—when I wrote my first cheque. But, there remains a lot more to learn even after some 25 start-ups, 12 years and two downturns.

For me, learning happens after seeing patterns. It is easier to see patterns in markets and products, than in the up-close behaviour of human beings. While these lessons are difficult to glean, in many ways, they are the easiest to implement since they deal with the most important resource of all in any business—people.

We have just had an annual get-together of our start-ups at Seedfund. A part of the wonder was realising that each company had unique issues—only to comprehend that the same things cropped up in other firms, too, in a slightly different manner.

Among the many things we talked about was what is commonly referred to as “Human Resources”. (As an aside, one of our start-up CEOs said that he didn’t understand what non-human resources were in his company. So, he renamed the function the talent department. Nice. Of course, I had to ask him what in his company was not about talent. That, momentarily, stumped him.) Anyway, back to the folks most employees love to hate: the HR team. Here’s what I have learnt over time.

A rather obvious point, but in a start-up, you will never be able to pay market salaries. Get used to it. You won’t—not until you get bought, or go public. (And, if you are getting paid market salaries from day one, there’s something wrong— you will probably fail.) So, salary can never be what attracts people to you. Hence, the people you hire will also not be the run-of-the-mill, I-want-20-per-cent-more mercenaries. They will come for your vision, your dream and your potential. They will work with you for a discount, because they stand to gain something more than money—a chance to change the world, or a shot at greatness. Maybe, eventually, even some reasonable- sounding pot of gold.

Now, you can personally communicate this to the first 10, or even 20, hires. But, what about the next 80? If you can’t, does your HR person speak of the same things you do, the same way you do? Does his, or her, hit rate with recruiting employees match yours?

Prepare for the three stages of start-up life. I understand that various philosophies—from Hinduism to Kierkegaard’s—say that you can divide human life into three phases. I think you can do the same with life in a start-up. I call it my own Rule of Threes. It is, perhaps, convenient and somewhat over-simplified, but it seems to work. And, it shows the changing role for HR, as your firm grows.

It starts with a Stage 0. This is when you’re barely a company. There are two, or three, of you. And all of you are doing everything. Soon, you add one or two people, here or there. Before you know it, you have a true start-up, with six to nine people. You probably don’t have a HR specialist here.

Now comes Stage 1. When you go from those nine people (or thereabouts) to 27 folks. (Notice how I’m forcing the factor of three?) This is when each of you in the core team has around five to eight people reporting to you. Some specialisation happens. Energy is high and you begin to taste your first success. Reporting is easy. The top team gels together and everyone is aligned with where you say you want to go. Maybe revenues start coming in. Now you need to start building out the team. You have to start to change the way you think. It isn’t just YOUR company any more. Perhaps, you hire someone to do the payroll.

Then you get into Stage 2. This is when you go past the 25 mark. Suddenly, you discover you can’t manage everybody yourself and that you need a layer of management in the middle. Processes begin to be put in place. You actually have the payroll taken care off. Attendance is kept. And, once-freshers are suddenly asked to become managers. This is also about when a dedicated HR is needed—if not earlier. But more on that later. As an entrepreneur, you don’t run everything now and there is another layer. You learn to start delegating more, or need to.

And, then you grow into Phase 3. That is past the 81-person mark. Which, for the mathematical-minded among you, is 34. This is when you need the third layer of management. Your managers need managers. And once again, your new hires go even further away from you in terms of gaining-vision-by-osmosis. This is where the role of HR becomes even more important. And your role changes from Mr Do-It-Yourself to Mr Mentor-And-Guide. It’s not just your company that is growing; you will need to as well—from Hitler to “benign dictator”.

Beyond 81 times 3, or 243 people (that’s 35) you are no longer a start-up. Things will probably change again. Perhaps, that’s another column.

First, HR is not about payroll. Typically, HR, or whatever you call it, should do at least five widely different functions.

The first is operations—making sure leaves are tabulated, appointment letters are given out, payroll advice goes out and t’s are crossed and i’s are dotted. It’s the basic stuff, but important. A lot of employee comfort comes from seeing this department exist and function. Then again, it’s one of those things that you don’t notice when it functions well, but everybody screams, if there’s even a single screw-up.

The second is recruitment. Every start-up will have a hunger for good people. A hunger complicated by the fact that you can’t pay as much as bigger firms. So, you have to be creative not only in finding the right people, but also in getting them to join you for less. A good internal recruiter will keep a track of the who’s who in all your rival firms, know the five questions to ask a candidate in an interview to make sure they’re right for you, have a deep industry database, know outside recruiter strengths and weaknesses, and can tell you who is moving from where and for how much.

The third function is training and continuing education. People are coming to you for less because they want to learn. But, are you teaching them? Having a resource here makes sure that you don’t just have another formal training calendar—but that there’s a system, so that lessons within the company are shared on a regular basis and not just stored in the cerebellums of the founders.

The fourth function, for want of a better word, is cultural. Your people spend more than 60 per cent of their waking lives (assuming they’re awake at work) in your office. What kind of a place is it? What’s the mood in the tech department? What’s the latest gossip from the sales team? This is one of the more overlooked functions. A good person here can give you, the founders, not just a taste of what’s happening, or going to happen, but also be the one that spreads the goodwill, cheer, motivation and smile at the end of a hard day. Making the place one they like to come back to every day.

Somewhere, above all this, is a strategic umbrella. If you’re going to grow to another city, where will you find people? What’s the current salary-and-commission structure at your competitor? How do you sneak away people from Day Zero at an IIM? Which colleges should you cultivate to find good people before they get expensive? What’s the right sort of written test you should administer to find people who are right for you? A partner-level HR person can arm you with insights here that will be a real competitive advantage.

I now pay more heed to this than to some technical edge. Because I know that competition can catch up with, or obsolete, my technological edge. But, if I can have a well-managed team of people, I can live to see another day.

All of our investee companies survived the recession. They did so not by dint of more funding, but because they were able to marshal their precious resources—their people—well, and get more productivity for less, at a time when clients weren’t buying, or when they were, they weren’t paying on time.

Give another thought to this. How much time do you spend thinking about your people? Whatever your answer is, you probably need to spend even more time doing so.

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