The HR Challenges Of High Growth Firms, And Why Planning For Them Early Is Key
The rapid growth of tech companies – and the growth of technology use inside of more traditional companies – will have a tremendous impact on the future of HR worldwide.
In New Zealand, the technology industry is the third largest contributor to our GDP. For context, dairy is first at just over $40 billion a year, tourism is second at around $35 billion, and tech is third at around $30 billion. Everything else – meat, wool, wine, forestry, fishing, you name it – is a long way down the list. Right now, we have more tech companies in high-growth mode than probably ever before.
Rapid growth can make or break a company. It’s stressful on the culture, management skills and financial wellbeing of a firm, and therefore it’s critical that the right attention is given to HR.
HIGH GROWTH REQUIRES GOOD PLANNING
‘High growth’ means a rapidly expanding company that meets a couple of commonly-used metrics. One is that it’s generating a return on equity of more than 15%; the other is that staff numbers are increasing by 50% per year. A simple example would be staff numbers growing from 20 to 30 then growing to 45, and so on over a couple of years.
Recruitment will come thick and fast – there isn’t a high-growth firm I know of that isn’t hiring or at least on the lookout for good talent all the time.
The internal turmoil of a firm that is rapidly hiring can have a major impact in several key areas:
1. Needing to hire quickly and in high numbers can mean that decision-making suffers and staff are pushed to their limits to achieve results. This situation often results in staff burnout and haphazard planning by management. Build a good relationship with a recruiter early on who can start looking for permanent talent for you proactively, or look at bringing in talent for short duration to help ease the growth pains and allow them to train up incoming permanent staff when you find the ones you want.
2. The informal structure of the company is always affected by rapid growth, with new people constantly being brought in to the fold and other staff always in ‘train the new person’ mode. This often affects the productivity of the whole team. Often, managers familiar with managing three people are required to manage ten, fifteen or more in a short space of time. Fundamentally different skills are required, and time to acquire these is a luxury. Be sure to hire some mid-tier managers in the early days who are familiar with running large teams, as they’ll be able to coach others in the business and be comfortable with the complexity.
3. An instant increase in size can frequently lead to employees feeling left out or excluded – the ‘cool kids’ situation. There’s a line between staff that have the longevity and closeness to the founders, and the new hires. The new systems and processes can make the older staff feel disaffected towards the firm and a sense of ‘it doesn’t apply to me’ can fracture the company.
Knowing these and planning for the culture change and leadership required is key to making it through this critical time in a company’s evolution.
CASH FLOW WORRIES
Underscoring most high growth companies is the reality that the resources needed yesterday can’t be paid for till tomorrow. Using the new Employee Share Option Plan (ESOP) laws that recently came into being for New Zealand makes it much easier to offer equity as a substitute for cash. A common ceiling for companies is a maximum of 15% that is allocated for ESOP plans. Be sure not to blow it all in the first few hires!
Many high growth companies hire too late, mostly because they can’t align their cash flow to the pay checks that are required. And the talent they are searching for is generally hard to find, so it’s expensive.
This means that you will face a lot of ambiguity and challenge in managing stakeholder expectations. The firm sees HR as a transformational element of the business, but the reality is that it will be largely transactional, due to the scale and pace of hiring required.
MANAGING CULTURE IN A CHANGING OFFICE
You’ll need to bring in ‘big company’ processes that supplement – not overtake – the existing approaches to the business. It’s not about adding complexity or taking away the culture of the business, but giving structure and the ability to grow into a bigger company’s capability more easily.
Some important points:
1. Make sure that there aren’t hierarchies for hierarchy sake – high growth necessitates rapid communication across the business.
2. Giving employees some ‘skin in the game’ to keep engaged and stay focused on the future is important, and often an expectation when working for a high growth company.
3. The founder or CEO should use future language and goal setting – he or she sees the company in the future very clearly, and can articulate the vision.
SOME CHECKLISTS TO HELP YOU DESIGN YOUR HR PLAN
When looking for the best you can find for your business:
1. Be clear on the company’s mission and paint a compelling vision to inspire candidates
2. Look to large firms to find people who can bring some structure and vision to the company through their experience
3. My favourite – get to know the right university deans to get a handle on great talent about to hit the job market.
Training and up-skilling staff is vital to keep pace with the changing nature of the firm. Some good things to put in place early:
1. Use mentoring systems and buddy groups to help coach new staff and get them up to speed fast.
2. Get management talking – in weekly stand-up meetings for the whole team, or in brief weekly or bi-weekly email updates to educate and inform across the business.
3. Identify your leadership material early, and work to develop and retain them through personalised incentive plans.
With incentives, it’s vital to understand how each area of the business best operates and innovates:
1. Having employee share option plans in place ensures your top talent is tied to the success or failure of the business.
2. Technical people operate well in a peer review situation. There is much more respect for managers who also do excellent technical work. Develop your promising tech staff to take on management roles in the future.
3. A plan that Google put in place many years ago, and other tech companies have emulated successfully, is the ‘work on whatever you want’ time. This is usually a half-day, once a week where the team can innovate and use their imagination to create something really special.
Having a plan and being active in the growth of the company’s talent is imperative. Be ahead of the eight ball as best as you can and plan for growth, not stagnation. Many companies grow faster than they expected, and wish they had a secondary ‘high growth’ plan to overlay their standard business plan.
Running a high growth company can feel like being on a roller coaster at warp speed. It’s not easy, but it’s a heck of a ride and awfully fun and addictive when things are going right! Put a high growth HR plan in place early on and you’re much more likely to see your business heading in the right direction.