It is common for business founders and managers not to know how to hire employees for startup businesses. This can be a big problem: Budgets are often constrained, and a poor hire can be disastrous for the company’s long-term prospects.
Here we look at the key challenges faced by startup businesses when recruiting and hiring, and set out 11 tips for startup businesses when fulfilling their people capability needs.
1. When considering how to hire employees for startups, founders and managers have several challenges including; the risk of a poor hire, budget constraints, the risk of failure and a lack of brand recognition.
2. 11 key tips for how to hire employees for startups include:
- building culture
- recruitment strategy
- managing compliance and legal hurdles
- candidate profiles
- employee retention
- employer branding
- multiple outreach channels
- developing a talent pipeline
- international hiring
- remote hiring, and
- and use of a staffing agency or PEO.
3. If founders are unsure how to hire employees for startups, it may be worth engaging a recruitment partner to supervise the process.
Mitigate hiring challenges with Horizons EOR.
What Are the Challenges of Hiring Employees for Startups?
Recruiting and hiring employees for a startup comes with its own unique challenges. We look at the key challenges below:
There is no wholesale solution to deal with these challenges. Ultimately, a startup needs to get creative in coming up with ways to attract excellent staff to the startup.
In many cases, this means focusing on actions that can be taken within the organization to recruit and hire the best employees. We set out 11 key tips below.
Tip One: Build a Desirable Startup Culture
Any recruitment or hiring approach will fall flat on its face if the right culture is not already in place to attract and retain staff.
While compensation will always be an element of attracting top talent, there are many other factors. in place, including:
- Flexibility. Does the startup support employees in need of flexible work arrangements (such as employees with children and those with disabilities);
- Performance management. Are there incentives in place to support high-performing staff?
- Skill acquisition. Will employees be able to move into other areas of the business (besides the unit they are hired into), in order to broaden or grow their skillset?
- Brand reputation. Does the company itself have a recognized and well-respected brand? Employees and prospective employees are often attracted to working for companies with a ‘good name’ — even if the company is ‘up and coming’.
Tip Two: Establish a Recruitment Strategy
A recruitment strategy is essential in order to balance the people needs of the startup, the available funding, and the likelihood of acquiring staff at a certain price point. It is the internal guide on how to hire employees for startup businesses.
It is at this point that the startup needs to consider:
- How many workers are needed?
- Is it best to hire locally, or should I hire internationally?
- Do staff need to be in-office, remote or hybrid?
- Is it necessary to hire employees, or will contractors/freelancers do?
- What is the ‘cost of labor’, whether internationally or locally? (That is, the cost of salary, plus compulsory benefits, social contributions and compulsory employment/payroll taxes).
Tip Three: Consider Compliance and Legal Hurdles
Alongside the recruitment strategy, a company needs to take into account the compliance and legal restrictions that apply to hiring. Specific obligations depend on the country that the business plans to hire in. But some of the key matters to consider include:
Tip Four: Refine Your Candidate Profile
Once the recruitment strategy is in place, it is time to develop the ‘candidate profile’. This sets out the key characteristics of the professional that you seek to hire, including their educational background, qualifications and work experience.
This profile can then be used to create job descriptions for positions that need filling, as well as informing the HR analytics of the organization.
Tip Five: Don’t Forget Employee Retention
It is no use focusing on the recruiting and hiring of new employees for a startup without also considering the importance of retaning those employees that you do hire.
This means thinking about:
- Development opportunities. To allow employees to improve their skills with more challenging work;
- Ongoing training. Employees will often be attracted to opportunities to learn new skills or qualifications;
- Progressive benefits. Benefits that kick in after a certain time period (such as an extra week’s annual leave after a year) can be effective for retention;
- Culture. Employees aren’t just focused on the explicit benefits (financial or otherwise) of their job, they also want a positive work environment.
Tip Six: Always Work on Employer Branding
All startups are focussed on company branding when it comes to their core product or service. But not all startups are focussed on their branding as an employer.
A LinkedIn survey from 2017 found that 80% of talent acquisition managers considered employer branding to have a significant impact on recruitment. The company’s branding as an employer is how it represents its ‘employee value proposition‘: That means, the value that a company brings an employee in return for the value provided by the employee.
Prospective employees will check sites like Glassdoor, and the company’s ‘About Us’ page to get a feel for the company as an employer.
Aside from the obvious (offering a positive work environment for alll employees), businesses should ensure that all job ads and job descriptions draw attention to the benefits. ofworking at the startup.
Tip Seven: Use Multiple Outreach Channels
As well as traditional recruitment channels (e.g., job sites and LinkedIn), businesses should consider more targeted options, such as:
- Networking events and career expos. Startups should ensure that they are present at relevant networking events in their areas of specialization in order to attract the right potential employees.
- Academic/Trade school channels. By connecting with colleges, trade schools etc, you may be able to source a steady stream of potential hires through their graduates.
Tip Eight: Develop a ‘Talent Pipeline’
As a startup, it is important to avoid any lags in productivity as a result of hiring gaps. In order to avoid this outcome, it is important to have a continuous ‘pipeline’ of new hires into a growing company. Useful ways of managing this include:
- having an employee referral program for employees to refer relevant talent on to the company
- making multiple hires on each recruiting round.
Tip Ten: Consider Remote Hiring
Whether hiring within country, or going international, there can be considerable benefits for startups hiring remote employees. Potential benefits include:
Tip Eleven: Consider a Staffing Agency or PEO
Whether hiring locally or internationally, there is an alternative to hiring a workforce (whether employee, or independent contractor) directly. This means using a staffing agency (sometimes called a ‘contract staffing agency‘) or a Professional Employer Organization (PEO). In the UK this is often called an ‘Umbrella Company‘.
The staffing agency or PEO is the formal employer of the employee. This means the staffing agency or PEO takes care of payroll, tax withholding, benefits administration and employer compliance. But the employee still works on a day-to-day basis, for, and at the direction of, the client company (in this case, a startup).
While the terms are sometimes used interchangeably, ‘contract staffing’ or ‘staffing agency’ usually refer to an organization that specializes in temporary hires.
‘PEO’ is a term which usually refers to a more ‘all-inclusive’ employment solution provider. A PEO can often provide employees on a long-term basis, and may take care of recruitment as well.
The benefits of using a staffing agency or PEO include:
Frequently asked questions
The employees the startup needs change as the startup grows. Initially, many startups will begin simply with the founders doing the work, and no employees.
As the startup begins to hire employees, it is often the senior management that is the initial focus. The following roles are common:
- Chief Executive Officer (CEO). This is the ‘captain of the ship’, with full operational responsibility for the business. Generally, they answer only to the directors/owners of the company (usually, but not always, the founders);
- Chief Technology Officer (CTO). This is particularly important when the business specializes in a tech product or service (e.g., a fintech or SaaS company);
- Chief Financial Officer (CFO). They take care of financial reporting obligations and are essential for ensuring the company stays on top of cashflow;
- Head of Sales. In the early days of a company, it is essential to have great salespeople on board to ‘get the ball rolling’ with the company’s products;
- Chief Marketing Officer. The CMO will direct advertising, social media, PR and SEO activities. This is crucial in the early days when the priority is on raising brand. awareness.
For more on hiring management check out How to Hire a Manager.
Some important ways to attract employees include:
- Focusing on employer branding
- Using multiple (and non-traditional) recruitment channels
- Employee referrals
- Offering remote work/hybrid work options
- Equity (i.e., stock or shares) as well as salary
- Non-financial work benefits.
The usual process for hiring in a startup is:
Come up with a candidate profile and job description
Advertise through the usual channels
Check references or conduct a background check
Make an offer to desired candidate
Hire candidate with a compliant employment contract.
For an example of a typical hiring process in a startup see How to Hire a Software Developer.