The Benetits of Focusing On HR Before Ping Pong Tables

In a talent driven economy, it is simply common sense to focus on how talent contributes to achieving strategic goals. JL

Vanessa Fuhrmans reports in the Wall Street Journal:

At many tech startups, a human-resources chief arrives long after the ping-pong table and 100-employee milestone. (But) a more motivated, well-oiled workforce will attract top talent and avoid troubles down the road. Startups that devote more effort upfront to designing their workplace cultures and employment practices were less likely to fail and more likely to go public than other firms.

At many tech startups, a human-resources chief arrives long after the ping-pong table and 100-employee milestone. Then there is CodeFights Inc., whose founders made a head of talent the first hire at their San Francisco headquarters.
The company, which sets up online coding challenges to help programmers hone skills and get noticed by tech firms, is bucking the startup world’s grow-at-all-costs ethos. Rather than scale hastily, CodeFights uses its blind coding battles to avoid hidden biases as it assesses prospective recruits. It also puts job candidates through an interview process aimed to ensure they are team players.
Now with 20 people, CodeFights is hashing out parental leave, harassment and other workforce policies and routinely reviews and rewards employee performance.
Amid recent workplace troubles at Zenefits, Uber Technologies Inc. and elsewhere, a handful of founders are taking a different tack and formalizing their workplace culture as deliberately as they build their products—sometimes before they have enough staff to fill a conference room. The hope, these founders say, is that a more motivated, well-oiled workforce will attract top talent and avoid troubles down the road. “Even with five to 10 people, if you don’t get the right culture going early, it’s almost impossible to get right later,” said CodeFights Chief Executive Tigran Sloyan. Quickly adding staff without building the right team can hit, not help, the bottom line of an early startup, he said.
These efforts test the conventional wisdom that spending time on HR policies drags on startups’ growth. Uber, for instance, had recruiting staff and a team to handle administrative HR functions in its earlier years but didn’t hire its first senior HR chief until 2014, when it had about 600 employees. Uber didn’t respond to a request for comment.
When Bhavin Parikh and his co-founders started Magoosh Inc., an online test preparation firm, his main worries were keeping the company alive and attracting investment, he said. A tech-conference panel on diversity a couple of years ago opened the CEO’s eyes to the insidiousness of unconscious bias in hiring and diversity’s potential competitive advantages.
”We want our team to reflect the customer base because that creates better business decisions,” he said.
Research shows women often don’t apply for jobs if they don’t meet all the listed criteria—so Magoosh decided to head its postings with, “You have many of the following” instead of simply “Requirements.” The postings also stated “Please feel comfortable applying, even if you don’t meet all the requirements.”
The company’s 30 full-time staff have a quarterly check-in with Magoosh’s HR manager to discuss career development and any workplace issues. A 2015 McKinsey & Co. report found that ethnically diverse firms are 35% more likely to financially outperform industry peers. The Stanford Project on Emerging Companies, an multiyear study of Silicon Valley startups during the first dot-com boom, found startups that tended to devote more effort upfront to designing their workplace cultures and employment practices were less likely to fail and more likely to go public than other firms.
Magoosh’s approach has trade-offs. Because the company vets candidates so thoroughly, Mr. Parikh said it can sometimes take six months or more to fill a senior or technical position. Some candidates lose interest along the way and, on occasion, some employees want to fill a position faster, he said.
Yet Magoosh has gotten results: Compared with the high churn at many startups, only a handful of employees have decided to leave the company since it began hiring full-time staff in 2011, he said.
Venture capitalists have traditionally stayed out of startups’ HR matters, though a newer wave of investors such as 500 Startups, Homebrew Ventures and Lowercase Capital are urging companies they invest in to make diversity a priority.
Kapor Capital, whose investments include Magoosh, requires companies in its portfolio to sign a pledge to set and track employee diversity and inclusion goals.CodeFights’ Mr. Sloyan, who aims to double staff to 40 employees by next year, recently talked to one of his major investors, Felicis Ventures, about his growth plans. The venture-capital firm’s partners encouraged him to take the time necessary to recruit people in sync with the company’s values and integrate them into the company in a thoughtful way, he said.
“As long as we’re delivering the results, we’re going to be in control of what kind of company we build,” Mr. Sloyan said.
Kapor has also invested in HealthSherpa, a 19-employee startup whose platform helps people obtain and use health coverage. Cat Perez, co-founder and chief product officer, said HealthSherpa has occasionally put its diversity and inclusion efforts over potential sales: In a couple of instances, it has cut ties to insurance agents who have harassed or made other inappropriate remarks to HealthSherpa team members, she said.
Within a year of stepping up efforts to attract a more-diverse pool of job candidates, the share of Hispanic and black employees more than doubled in 2016 to a third of the staff, including those who work directly with customers.
Ms. Perez said those shifts have helped boost the site’s so-called net promoter scores, which measure customers’ willingness to recommend a company to others, and may have contributed to its 85% jump in 2016 sales. Given that so many of HealthSherpa’s potential consumers are members of minorities, she said, “we’ve got to be in the best position to reach those communities.