If factories and warehouses were the major assets of old economy companies, for new-age tech companies, it is human capital. So much so that venture capital firms are now creating in-house capabilities to look after human capital at their investee companies. “We’ve not frequently seen VCs bring a strong HR person on board for their investee companies, they will bring in someone from a commercial, financial or business background, but not usually HR,” says Yogesh Sood, CMD, BYLD Group, an HR consultancy. Preetam Salian, founder, HiringMonk, echoes this. “VCs don’t usually recommend people for HR. Founders don’t have enough bandwidth as a company grows to more than 50 people, so they eventually hire someone to do the job for them,” he says.
Conventionally, VCs provided start-ups access to their network and assisted them in top-level hires, but with the increase in portfolio size and start-ups’ rapid-growth trajectory, this is changing. They are now creating a separate human capital vertical in their organisational structure. Accel Partners hired Narayan Thammaiah as their chief people officer in March 2015; Matrix Partners hired Alexander Peter as their human capital lead in October 2015, whereas SAIF Partners is on the lookout for someone full-time to manage HR at their portfolio companies. “The environment has now changed from fund raising to building a business. So one key area of investment for us is in building of teams,” says Tarun Davda, managing director, Matrix Partners.
HR interventions, though, are dependent on what stage the start-up is at. “During ideation and conceptualisation, the focus is more on operational issues. Once the organisation moves to validation, role of HR becomes tactical and strategic. I think once the entrepreneur starts spending more than 20-30% of time on task or transactions, we recommend hiring a HR,” says Thammaiah.
The HR interventions performed by Accel include creating a platform and vendor ecosystem for portfolio companies to attract talent. These include hackathons, return to India and campus-connect programs. They have also helped portfolio companies define their organisational design and structure.
Davda of Matrix says, “In the case of our larger companies, there is lesser involvement from our side. They have a head of HR and fully functioning recruitment team, so they tend to do more of the heavy lifting. However, they do come to us when they are considering hiring someone and ask us for help in performing a reference check and benchmarking the candidate with others in our portfolio companies. So our involvement gradually changes from ‘help me run this process’ to ‘I found this candidate...’.”
But where foreign VCs in India are warming up to the idea of a separate HR function at the fund level in the last couple of years, it’s a different story with homegrown VCs. “Typical VCs are mercenaries and don’t have much exposure of interpersonal experience, they’re essentially from a finance or investment banking background,” says Suresh Rao, chairperson, centre for entrepreneurship, SPJIMR. However, angel investors and homegrown VC founders, who have previous entrepreneurial experience, are more sensitive towards human capital issues, he adds.
In the Indian context, one of the pioneers in providing holistic portfolio services has been Helion Venture Partners. Helion has had an HR director on board since January 2008. It has also recommended a senior HR person, TN Hari, to lead the people function at three of its investee companies: Amba Research, TaxiForSure and Bigbasket.
Sanjeev Aggarwal, co-founder, Helion Venture Partners says, “I think I owe this approach to my own years of entrepreneurship. Prior to founding Helion, I started a BPO firm called Daksh which grew to 20,000 people in six years. There, I learnt that the focus on human capital really generates great return, especially in terms of the ability to scale the business.”
“The organisational structure is a very important component of the HR program. Typically, when companies are in a start-up phase, they need to be organised by functional areas, but when you are in a scale-up phase, then that arrangement may not work — a more business unit type structure allows start-ups to be more fleet footed and responsive,” he adds.
Aggarwal’s concept of business units revolves around the idea of creating smaller companies within the company. Bigbasket, one of Helion’s investee companies, follows an Uber-like organisational structure. “At Bigbasket, we think of all our cities as a company in itself, whereas the city manager is seen as the CEO of a particular area,” says Aggarwal.
Google, which is known for its innovative data-driven people practices and continues to be adjudged one of the best workplaces globally, has a similar philosophy. Jayashri Ramamurti, people operations, Google India, says, “Google believes in working in small teams. Irrespective of the size of the company, we continue to work in small teams. This helps create a collaborative environment, which is what works well since small teams can come up with new ideas, pick up from there and then move on to the next project.”
This is one way of retaining the attractiveness of start-ups, which can otherwise disappear in the scale-up phase. “Organisational structure change is very important. When a company scales, employees tend to get distanced from the top management. The way out of that is that you make sure there are multiple companies within the company so there is still some nimbleness. As a default, the fun in the start-up is going to go away, unless you make an effort to retain the original elements,” says Aggarwal.
Dhruv Prakash, who was HR director at Helion from 2008 to 2010 and rejoined it in 2012 as in-house HR advisor says, “When a start-up sets up shop, the founders work directly with a lot of people, who are much junior to them. As the organisation grows, the gap is filled with new people. The old people who were used to working with the founders find they are reporting to a second or third layer. That is the layer to worry about.”
How do you tackle this? “Companies can create a feedback mechanism where issues like this can come up in a structured manner. Otherwise, these things start as whispers and affect the morale adversely. Secondly, companies can create a founder contact system by which employees continue to be engaged while still working with people they need to work with,” adds Prakash.
Both of Prakash’s recommendations are best exemplified by Google. Inspite of becoming a global behemoth with 60,000+ employees worldwide, founders Sergey Brin and Larry Page continue to hold their weekly ‘Thank God It’s Friday’ (TGIF) meetings with employees worldwide. In these meetings, Brin and Page share the latest updates on what Google’s working on, and take moderated questions. This holds important lessons in openness and transparency for growing start-ups, says Ramamurti. “Founders assume since they know and it’s a small start-up, people will also know. However, what they hear from grapevine tends to be very different. Hence, it is important to be open and transparent in communication, it clears a lot of misunderstanding and things happen much more smoothly,” she says.
Also, Google uses Geist, an annual survey-based employee feedback mechanism, as a way to have its finger on the pulse of its employees. According to Ramamurti, it has brought “fundamental changes to Google’s system”. “For instance, we took a relook at our performance management system based on the feedback. We changed it from a quarterly cycle to a six-month cycle after many people said that three months was just not enough for them to showcase their work,” she says.
Paytm, an Indian unicorn, is clearly following some of Google’s best practices. “We undertake perception feedback surveys regularly. We also heed reaction from our informal open sessions on the floors,” says Amit Sinha, vice president, Paytm.
The very nature of a start-up changes once it has its business model in place and starts recruiting people actively. Hari at Bigbasket, compares it with war. “The German military believed that all generals can be classified on two parameters – smart or stupid, and hardworking or lazy. The best commander according to them was smart and lazy, metaphorically speaking.
Lazy meant that the general would have a razor sharp focus on three to four things and be personally involved in executing them. The rest of the stuff, he would just ignore or delegate. Scaling up is a warlike situation,” he says.
And start-ups are taking stock. “Our HR function has mirrored the growth of the company. We have scaled up our hiring team to be able to recruit at our pace. Then, to manage the growth and our people, we also strengthened our HR operations team. Further, to handle this sea change, we have automated many of our systems and most processes,” says Sinha of Paytm.
However, cost rationalisation also becomes important once the company settles into the business model. Hari says that in a scale-up phase, team structure automatically tends to become top-heavy. “Applying the pyramid concept in the context of a tech team, you have an engineering manager followed by bunch of tech leads with junior programmers below them. This needs to be optimised,” he says. Making a team top-heavy is the easy way out since it just requires the company to hire experienced programmers at a higher pay scale. The difficult thing is to hire more juniors and train them properly within the pyramid structure.
But as e-commerce companies begin to focus on cost rationalisation, they are going to be optimising the pyramid. Hari says, “E-commerce companies tend to build heavy technology teams, hiring very high-cost people during the growth phase. They need to rationalise that since corporate costs are an important component. The focus now is on making technology pyramids bottom-heavy.” Already, they are checking people whose salary is above a certain grade to see if they are dispensable, he says.
Bigbasket is focusing on cutting employee costs using a mixture of analytics and common sense. For their call center operations, the metric used to track employee costs is cost per call. Hari Menon, founder, Bigbasket says, “Data plays a big role in all our functions now. Right now, we’re doing a large project around how employee costs can be optimised by using part-timers.” The idea is to have a base staffing of full-time employees, who are supplemented by part-timers, who come in only during the peak time such as mornings and evenings.
Another area where senior HR counsel can aid start-ups is moulding an organisation’s culture. According to Hari, culture is something that flows from the top to the bottom. “The thoughts and beliefs the founders stand for become the culture over time. My view is that the top 10-20 people should understand culture as well as strategy,” he says.
Hari says that it’s important to see what the person’s motivations are while joining the start-up, when he’s ditching a comfortable corporate job for the rough and tumble of the start-up world. He gives the example of a cultural misfit he encountered while hiring for the chief operating officer role at TaxiForSure, where one high-flying corporate candidate insisted on flying business class while the rest of the team were flying economy. Additionally, his ultimate goal was to make $10 million in stock options by riding the start-up wave. Needless to say, with those motivations, he didn’t last long.
Regarding hiring as well as culture-building, it is instructive for start-ups to look at Google, which has successfully sustained its energy in spite of meteoric growth, by focusing on small team size, prudent hiring, open and transparent communication, data-driven HR policies and collaborative promotion decisions led by self-nomination. Otherwise, start-ups risk becoming the staid corporates they set out to topple, minus the stability.