5 key HR questions every small business should ask
As a start-up, it can be difficult to balance the day-to-day operations of running your business. Discover why it’s essential to not sideline HR…
With all the challenges facing start-up companies, most thoughts towards human resources are sidelined.
It’s understandable; balancing company registration, taxation issues, marketing and day-to-day operations can be overwhelming enough and many start-ups only have a small staff – just two partners in a lot of cases. So what’s all the fuss about?
It is only fairly recently that the importance of human resource management (HRM) has started to gain the recognition within the corporate hierarchy – strange considering how often people are cited as the most valuable resource of a firm. The point to remember is that staffing issues affect all businesses – big and small, from two-partner run local firms to the largest multinationals.
HRM will shape the culture of your business and will be the deciding factor in how your customers perceive you. And if you are a small business, detaching yourself from the situation to consider how a human resource specialist would see you can prove invaluable later.
In order to clarify things, consider the following questions:
1. What are the roles and responsibilities of each partner?
As basic as it sounds, defining the roles and responsibilities of partners is essential. It is often the case among small business owners that both believe the other knows clearly what they are doing. It is only when the company is half a year into operations that it becomes obvious the responsibilities were not as well defined as previously thought.
Having a conversation to set out roles is an important investment into the company, and committing those roles to paper can help in future conflict avoidance. It’s important for partners to identify their individual strengths.
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Ideally partners’ professional skills should also complement one another, but not overlap too much. This understanding will inform the vision and expectations of the company and give a better idea of how to attract funding. At this stage it will also become clear what skills are lacking. This can be remedied through the team which will come at a later stage.
2. What should you pay yourselves and is there a way out?
Because business partners tend to know each other before starting a new company and feel that there is a certain bond, they are often reluctant to hash out written agreements. Big mistake. The written agreement should not only include roles and responsibilities, as discussed in part one, but also compensation structures and exit clauses.
As already mentioned, partners can clash over countless things, including conflicting work ethics and goals, roles in the business, leadership styles, and of course money. Compensation structures for partners can be a touchy subject, especially in a new business and for many small business owners the last people to get paid are typically themselves. In deciding how much to pay yourself, you should assess both the business and your role in it, and benchmark it against industry standards.
Build flexibility into the contract; compensation can be adjusted as the business grows, for example once a target is reached payment begins or increases. Exit strategies are more complicated and partners should discuss this in detail and have it well researched.
3. When should you decide to take on employees?
Employing people for the first time is a huge decision for any small business owner. The government can provide lots of practical advice on employing staff, including minimum wage considerations, legal status of employees, employee rights and insurance issues. Before taking on a full time position, think about trying to work with a freelancer.
Websites such as Elance.com allow you access to multiple specialists such as programmers, mobile developers, designers, writers and marketing professionals. This will give you a flavor of how you work with people and what is really needed in the company.
Interns can also be a good step for first-time employers. Look to recruit in local universities. Finally if the need in terms of workload is still there and you have the financial resources available to pay salary and cover administration, then you can start to recruit.
4. What kind of team do you want?
Try to delegate HR to one of the partners. Consider who has the best people skills and remember that a successful manager is a good leader who creates a work climate that encourages productivity. Employees in smaller companies take on larger roles than their counterparts in larger companies, so your staff needs to be flexible. New employees should also fit into the culture of your company – try to think about your customers. What are their defining characteristics and who are the people that they trust? That should serve as the blueprint for your new team.
5. How will you pay your team?
Motivation and incentivisation are key to keeping talented people who will drive your company forward. Small businesses rarely have the resources to offer the same compensation as more established players, but they can offer something more valuable. Being part of something new and giving employees the opportunity to learn and advance quicker than in more established companies will be what attracts top talent.
Typically in internet start-ups, compensation packages for new employees consist of a low base salary with a low performance related bonus. A higher share of stock options and shares is commonly used as the major draw and while some entrepreneurs try to keep 100% of the equity in their own hands, giving 15-20% to the management team will encourage loyalty and will motivate through tough times.
If the company is more traditional, consider the role of performance appraisal, reward systems and employee development and training. Performance appraisal is the practice of assessing employee job performance and providing feedback to those employees about both positive and negative aspects of their performance. It can act as a motivator for employees but can also protect you in the case of dismissal, as critical incidents will be well documented. Well run and clear reward systems and employee development and training also improve productivity and overall morale of staff.