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The $404 Million Mistake: Why Startups Need HR

Michael Gugel, CPO @ GoCo

by Michael Gugel, CPO @ GoCo - April 15th, 2016

The $404 Million Mistake: Why Startups Need HR

When it comes to human resources in a small business or start up, I tend to hop onto my soapbox and sing the praises and benefits of HR. Unfortunately, I find that many small business and technology companies don't feel the same way that I do about human resources. Over the last four years attending SXSW's Interactive Media Conference and working with number of companies as an HR consultant, I understand that most technologies and start ups have no love for HR. Except that working with a solid HR professional isn't about love. It's about keeping your ass out of court and money in your pocketbook. Last year in particular I was disenchanted hearing panelists share session after session share with their audience things like, "Recruiters aren't effective unless they can code," "HR gets in the way of doing my business," or my personal favorite, "People over 40 are only a protected class in California."

Dude, you really need HR.

Newsflash dear hiring manager, people over 40 are a protected class everywhere in the US of A. This is pretty much what I said when I stood up and asked the hiring manager who shared this employment law wisdom with the audience during the session Rockstars to Roadies. It made me wonder when the hell tech companies and startups started hating HR. And why the hell are there no panelists in HR in these sessions at SXSW?

Value of HR & Recruiting in Small Business & Startups

Like any type of business, all HR professionals and recruiters aren't created equal. Some are bad. Some are really bad, but a few are absolutely worth their weight in gold. I'd like to think that the majority of HR pros are good at what they do but sometimes we get caught up in creating roadblocks for companies because we're in HR. That's not entirely true, but it seems that way to most managers especially in Silicon Valley and other hot tech beds that are attending this week's SXSW Interactive Media Conference. They've been burnt before not entirely understanding why he/she wasn't able to terminate their employee or maybe why that recruiter didn't take the time to really understand the position they were hiring for. We've all brought on that star candidate we thought was going to knock it out of the ball park only to be severely disappointed terminating them just 3 short months later. While I believe in learning from our mistakes. I take these bad hiring decisions as personal failures of my own. What could I have done differently to make this person successful or what did I do to hire wrong?

Human resources is essential to your organization and in my opinion, companies really need a dedicated HR professional after their organization reaches 75 to 125 employees depending on the state where you reside. California is particularly complicated for a number of reasons with regard to employment law. But until you reach that magical number to add HR, I recommend working with a solid benefits broker, payroll and HRIS company and a consultant who specializes in and has experience in employment law in your state, your industry as well as HR.

The Case for HR at Your Startup or Tech Company

We don't know what we don't know. HR is a lot like accounting in that we don't know we need it until it's too late. That nice little white envelope arrives from the EEOC or the DOL pays a surprise visit and we are scrambling without HR. No one likes to receives a visit from the IRS or any government agency or entity. Here's how I make the case for HR:

  • During the last 5 years 60 percent of companies have faced a lawsuit of the employee variety

  • The average employee lawsuit costs a company $250,000

  • Our friends the EEOC secure $404 million from employers every single year

As a business owner, the choice is yours, but as an HR professional who's audited piles of I-9's, dealt with class action lawsuits, and handled more EEOC investigations than I care to admit, your startup and small business need HR just as much as you need cash flow to maintain your business. I only hope that SXSW panelists and session selections get the memo. Your interactive media conference just like the small business and startups need HR. But in the immediate future, HR should be here at SXSW.

See our article on how to navigate ACA requirements (Affordable Care Act) for 2016.

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