More than ever, startup founders and investors recognize the importance of cultivating an engaged, high-performing team and the work that goes into building and maintaining a strong company culture.
In last month’s article, I described People Operations as “HR 2.0”. The article explores how startup HR leaders have migrated from reactive back-office roles into strategic thought-leaders whose top priority is to create a rewarding workplace.
Today’s article examines three specific ways People Operations directly impacts startup fundraising success.
1. Avoiding Regulatory Pitfalls
The first way People Operations impacts fundraising success is by helping startups avoid regulatory pitfalls during due diligence.
Employee regulations have become increasingly complex due to the recent increase in the numbers of remote workers and independent contractors employed by startups. Most founders aren’t experts in HR regulations or state tax laws and are focused on other areas like product development, sales, and marketing. Still, any serious investors will want to take a detailed look at a startup’s employee classifications, tax records, and related administrative and affirmative action documentation during due diligence. Missing or non-compliant employee agreements and misclassification of employees and independent contractors are among the most common pitfalls startups face during a due diligence process.
For a related read, see Surviving Due Diligence, Part 2: Employee vs. Contractor.
Also, see Burkland’s latest TechCrunch article, Starting up remotely? Keep these labor laws and tax guidelines in mind.
People Operations helps startups avoid missing out on a promising funding opportunity by ensuring that job descriptions and job postings include EEO/AA compliant information, employee classifications are correct, state filings and tax laws are observed, and HR paperwork is up-to-date and designed to protect your company’s intellectual property and assets.
2. Boosting Performance
Another way People Operations impacts fundraising success is by contributing to the company’s performance metrics. Especially when a company is early-stage and has no minimal viable product, investors scrutinize hiring plans, compensation forecasts, the professional backgrounds of recent hires, and how the team has performed against their quarterly goals to determine if they demonstrate long term signs to be successful.
People Operations improves HR performance by:
- Recruiting the best applicants for key hires and optimizing the application and interview process. According to Brandon Hall Group, organizations that invest in the candidate experience state that their quality of hires improved by over 70%.
- Avoiding bad hires, which cost an average of nearly $15,000 each in lost time and productivity and compromised work quality, according to CareerBuilder.
- Providing effective onboarding and training, which improves productivity by 70% and retention by 82%, according to Human Capital Institute.
- Focusing on ongoing employee performance, engagement, satisfaction, and development.
Deliberate People Operations programs result in better hires, higher productivity, lower turnover, and more cohesive team performance. These factors translate directly to higher ARR and LTV and increased Sales Efficiency, Capital Efficiency, and Human Capital Efficiency.
A 2019 Glassdoor study demonstrated a strong correlation between employee satisfaction and customer satisfaction. The study found that, on average, each 1-star improvement in an employer’s Glassdoor company rating is associated with a 1.3-point increase in customer satisfaction, with the effect more than doubled for companies in “high customer contact” sectors.
3. Fostering Culture & Values
A third way People Operations impacts fundraising success is through fostering company culture and values. Until relatively recently, focusing on company culture was shelved until a company hit a certain size or problems began to arise. If the company’s idea was “really good” or the leadership was “brilliant” some startup investors might even look the other way in the face of a toxic culture. Today, early-stage companies and their leaders are held to the same level of accountability that later stage companies are held. All companies are expected to offer cultures of diversity, equality, inclusiveness, and belonging. Investors especially want to see early-stage companies provide meaningful career opportunities that contain challenge, development, impact, and clear paths for growth to recruit and retain top talent.
Investors consider the people behind the company and more importantly their character. A company that has a meaningful mission and operates by a clear set of core values reflects the leadership’s character, serves as the foundation to accelerate their business, and provides transparency to how key stakeholders including employees, partners, customers, and investors are perceived.
A strong company culture is not built overnight and it requires regular attention. CEOs who partner with People Ops strategists position their company to have a strong competitive advantage in the fundraising market.
As advisors to hundreds of venture-backed startups, the Burkland team knows what VCs and other investors want to see when making funding decisions. Along with looking for strong internal finance metrics, significant TAM, a compelling story, and exciting product roadmap, investors look for strong People Operations and the related regulatory, performance, and culture considerations when deciding where to invest.
“Plutoshift engages Burkland for CFO, accounting, and tax services and recently added People Operations as well. Having a fractional resource working on our HR core needs has proven to be as helpful and beneficial as the other Burkland services we use.”
~Prateek Joshi, CEO, Plutoshift
“Partnering with Burkland Associates has allowed our small company to streamline our hiring processes, greatly improve contractual and financial organization, and optimize employee benefits.”
~ Bella Kidd, Director of Operations, Spatial