How start-ups should hire good staff and persuade them to stay

Young businesses need to retain their culture and compete for good people

When Richard White began to recruit employees to Goodlord, an online property rental platform, he and his co-founder hired cheaply and informally from a range of interns, family members and existing contacts.

“Originally, our hiring process was to sit [potential candidates] down, have a chat for about 10 minutes . . . and then we took them out for a beer,” Mr White says. “A lot of the times, without even having a conversation away from the candidate, we would tell them they got the job.”

A year later, in 2016, the company was nearing 20 staff and had raised £2m in funding but urgently needed more experienced employees to guide it through its next stage of growth. At this point, Mr White introduced a “head of people” role and developed a more structured recruitment process to include CV screenings, phone-based and face-to-face interviews and in-depth, role-related tests. “We now track everything so that it’s easy to look back and measure the success of our hiring,” he says.

Today, Goodlord employs nearly 80 staff. As Mr White will attest, for those building a workforce from scratch, the necessary shift from being an entrepreneur with little HR experience to an owner-manager requires decision-making, careful planning and resources. It can also be fraught with operational — and personal — challenges.

Beyond introducing formal recruitment procedures, entrepreneurs need to accept that their own role will change as the start-up grows, says Oliver Mallett, co-author of Managing Human Resources in Small and Medium-sized Enterprises and senior lecturer in organisational behaviour at Newcastle University. “[Many] are coming off the buzz of starting up a business,” he says. “It can take some relinquishing of control — but it’s important because first hires can set the tone for the rest of the company.”

For Dave Elkington, founder and chief executive of US business InsideSales.com, which runs a platform to support sales representatives, retaining the underlying culture of his organisation as it grew to more than 420 people over 13 years was vital. “It’s about finding the balance of enabling these people that you hire but still having a very tight hand on the thing that makes you magic,” he says. “Culture matters universally.”

The question of when to step up recruitment will vary depending on the organisation and demand for its product. The resources available will dictate parts of an entrepreneur’s strategy in this respect: whether to explore alternatives such as outsourcing, for example, or employ an internal or external recruiter for assistance.

For start-ups with tight budgets, much of the current literature advises keeping costs down by making use of employee referrals and building up networks of contacts from day one. This can be achieved through use of social media, local chambers of commerce or networking events aimed at the start-up world.

A fast-growing small business will also need to fashion its own distinctive “employer brand”, consultants say, promoting its values and working environment to entice potential candidates. If it is working in the new technology space, that company will also need to head off competition from large companies such as Google and Facebook that can offer higher salaries.

“Flexible working — offering a good working environment along with a good work-life balance — plays a huge role in attracting the best talent,” says Richard Heggie, who heads the Barclays unit that supports businesses from start-up to IPO. “Ownership perks can also set your business apart from others: shared ownership and the opportunity to turn hard work into shares certainly turn heads in the entrepreneur community.”

However, offering an ownership stake in return for lower pay can be a tough sell. Research by recruitment platform RiseHigh shows that half of start-up workers in the general business sector in London would settle for a lower salary with equity or shares. For those in the engineering start-up sector, that proportion sinks to a third.

Still, one of the biggest pitfalls an entrepreneur can make is to “over-commit [in terms of compensation] to someone who they think will be outstanding”, says Jon Eckhardt, an entrepreneurship professor at Wisconsin School of Business and the co-founder of gener8tor, a US business accelerator. Staggering access to equity via a “vesting schedule” is wiser than offering a full equity package upfront for example, he says. More broadly, making the wrong hire can be costly, legally tricky to handle and difficult to unwind — so probationary periods are recommended.

“Getting good investors on your board that have operational experience can really address a lot of these HR problems or give the CEO a path to address them,” Mr Eckhardt adds. “Find funds which have experience in helping scale.”

Retaining and managing staff as change occurs is also important, argues Tom Adeyoola, founder and chief executive of UK-based retail tech company Metail. “At the beginning [your structure] is very flat and everyone reports to the CEO,” he says. But with a larger workforce, the gap between senior management and other layers in the company begins to widen.

“People can feel like they are gradually getting demoted . . . Managing people’s expectations of that is the bit which is difficult,” he says, adding that Metail offers its employees £1,000 a year each for training — and they decide how that money is allocated.

“Don’t let the honeymoon period die — it is important to reward and recognise your employees,” says Barclays’ Mr Heggie. “While new starters bring enthusiasm, small acts of kindness such as a ‘thank you’ can go a long way to maintaining and improving employee satisfaction.”

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