• Decision to hire an employee is important for each organization, but in the context of new and growing ventures, this importance is magnified many times. Bad hires, besides having negative impact on firm’s performance, can also poison a small firm’s culture.
• Despite this, hiring mistakes are quite frequent, and in most cases, they result from insufficient selection and hiring process. The most common reasons behind poor hiring decisions include:
  • Relying on candidates’ descriptions of themselves rather than requiring them to demonstrate their characteristics and abilities.
  • Failing to follow a consistent, evidence-based selection process, making hiring decisions very quickly and relying solely on own intuition.
  • Failing to provide candidates with sufficient and objective information about what does the job actually require.
  • Failing to resist the temptation to fill a job as soon as possible under the pressure of overall lack of workforce.
  • Failing to check candidates’ references.
• Following guidelines can help entrepreneurs to avoid making costly hiring mistakes and hire winners when building up their team of employees:
  • Commit to hiring the best talent – “A players hire A players, B players hire C players..”
  • Make recruiting a strategic priority in the venture – it is a starting point for building a quality into the company.
• Attracting good candidates to small ventures requires not only attention but also creativity, as for them it is often difficult to compete with usually more generous offers of large companies. Start-ups have to build sound recruiting strategies and look in new places. Here are some tips:
  • Look inside the company first
  • Look for employees with whom your customers can identify
  • Encourage employee and incentivize referrals, especially among top performers
  • Use multiple advertising channels
  • Recruit on campuses and universities
  • Establish relationships of schools and other potential sources of employees, offer internships as relatively low-risk test-drives
  • Recruit “retired” workers with work experience, time and strong work ethics
  • Use unconventional recruiting techniques – e.g. open events and parties, job-shadowing programmes for students, “what it is like to work here” videos on social media, etc.
  • Offer attractive and personalized (but at the same time affordable) alternative benefits such as flexible work schedule or telecommuting

• Leadership can be defined as the process of influencing and inspiring others to work to achieve a common goal and then giving them power and the freedom to achieve it.
• Being an entrepreneur automatically means being a leader. However, as the venture evolves through the different stages of its lifecycle, requirements on leadership change hand in hand with changing organizational structure. Requirements on leadership evolve as follows:
  • Inception stage – organization is unstructured and there are many different issues, mostly creative and explorative – leadership is done in small teams where everyone has to cooperate – direct supervision of the entrepreneur who should be able to keep good contact with all the others.
  • Early growth stage – structure needs development into more functional units, but entrepreneur still needs centralized control and direct contact with most of the team – leadership moves towards more delegation and coordination, but every unit still reports directly to entrepreneur.
  • Expansion/rapid growth stage – structure gets more complex and control systems are more decentralized – leadership continues delegating responsibilities but in more decentralized structure, indirect reporting and control are developed.
  • Maturity stage – larger functional and decentralized organization – leadership turns into a watchdog for the organizational culture and overall vision and goals.
• As was stated above, entrepreneur’s leadership role throughout the entire lifecycle of the venture is closely linked to keeping and enhancing organizational culture. It is closely linked to one of the general HR roles, which is to assure alignment between employees and culture.
• Organizational culture can be understood as the distinctive, unwritten, informal code of conduct that governs its behaviour, attitudes, relationships and style. In simple words, it is the “way we do things in our company”.
• In small ventures, culture plays as important role for gaining a competitive advantage as strategy does. It has a powerful impact on how people work together in a business, how do they do their jobs, and how do they treat customers. Culture arises from an entrepreneur’s consistent pursuit of core values that everyone in the firm can believe in.
• Creating a culture that would support firm’s strategy is not an easy task. It is important to have a set of overarching beliefs that will serve as powerful guide for everyday business.
• If the entrepreneur wishes to shape firm’s culture in certain way, it should be also reflected in performance measures set for employees. E.g. if entrepreneur wants integrity, respect, honesty, customer service and other important values to be foundation of firm’s culture, measures of success that reflect those core values.
• In relation to hiring process, such expectations on future employee’s performance and respective performance measures should be explained, to clarify both sides’ expectations.
• Sustaining firm’s culture begins with the hiring process. Hiring process must focus on finding employees who share the values of the organization.
• Top employers from among small companies treat their employees fairly, respect their personal lives, provide opportunities for development and add meaning and fun to their jobs. In return, employees will give their best ideas and efforts to the business. Such phenomenon is referred to as a cultural fit.
• How to assure cultural fit in the hiring process: (businessnewsdaily.com)
  • Articulate what values, norms and practices define your business. For example, write down top three or four behaviour critical for success in your firm.
  • Clearly express your culture in all your communication materials, including website and recruiting tools, especially in job advertisement. Ads must reflect firm’s culture and be connected to its values. For example, emphasize some of the qualitative things you want in your candidates.
  • Any member of your firm involved in interviewing candidates must know your culture well and refer to it throughout the hiring process. It is not enough to ask candidates whether they would fit into your culture, as they usually know what is the “right” answer you want to hear.
  • Instead of describing the culture in the best light (by interviewer) and providing expected reactions (candidate) take the time to provide a look at your culture in real time. For example, walk the candidate around the office and let them meet key team members. Afterwards, back in the interview room, ask what the candidate had been thinking of during the walk around the office. If you get other than trained answer, you might have found a cultural fit.
  • Ask candidates to take personality tests and arrange them meetings with team members from different levels across the firm.
  • Avoid asking candidates about personal issues to identify the cultural fit. There are certain issues that are illegal to ask when interviewing a prospective employee.
  • Finally, be careful about too much conformity as it will result in lack of diversity, that can in turn result in poor creativity and decreased competitiveness. Thus, avoid confusing personal similarities with cultural fit.

• Motivating employees is one of the key tasks in managing human resources in a company. New ventures as small companies have certain specific characteristics that imply several advantages over large companies, but also challenges for employee motivation.
• Main advantages are especially the following:
  • Small firms, and especially start-ups, can offer staff more rewarding and interesting jobs.
  • Small firms have the opportunity to keep staff much more involved in the development of the business.
  • Also, SME owners and managers frequently have the flexibility to tailor roles to individuals, helping to improve their job satisfaction.
  • Small firms can share with their employees how the business is progressing, ask for their input and involve them in the overall picture. On contrary, large companies just can't take the views of their staff on board in the same way.
  • There is less hierarchy in small businesses, so communication is often better and employees feel more involved.
• Main challenges involve the following:
  • Small firms, and especially new ventures and young start-ups, cannot always offer the benefits as companies can, so they need to attract and motivate staff in different ways.
  • Leading a team in a start-up environment often means asking people to take on more than one role and do tasks somewhat outside the job description. Asking employees to take on extra work and responsibilities should be balanced with respective motivation.
• Rewards and compensation system is the key motivational instrument in each company. There are two important prerequisites to use rewards to motivate:
  • Link them to performance
  • Tailor them to the needs and characteristics of the employees – rewards and compensation must be based on what is really important to employees
• Components of rewards and compensation system include salary and financial incentives, benefits, and intangible incentives.
• Salary and financial incentives – money is one of the most popular rewards, it is actually a necessity for employees, but as a motivator it only works to certain extent and usually in short-term. Motivating financial incentives include:
  • Performance bonuses.
  • Pay-for-performance compensation systems.
  • Profit-sharing plans.
  • Open-book management.
• Benefits – money is not the only motivator that entrepreneurs can use to motivate their employees. There is a wide array of non-financial benefits, including:
  • Stock options – a plan under which employees can purchase shares of a company’s stock at a fixed price.
  • Health care benefits
  • Free meals
  • Sports activities (either organized on-site, or by providing vouchers)
  • Extra vacation days, vacation day on birthday
  • Occasional catered lunch (e.g. after completing a project)
  • Free tickets to local sports games or cultural events and performances
• Intangible incentives – they are important source of employee motivation besides money and benefits. For many employees, the most meaningful motivational factors are the simplest ones – praise, recognition, feedback, job security, promotions. These things can be done by any small business or new venture, no matter how limited its budget is.
  • People enjoy getting praise, especially from manager or owner, it is just human nature. It is an easy and inexpensive reward for employees producing extraordinary work. Some companies introduce systematic schemes to praise the best employees.
  • Recognition and appreciation is extremely important. Saying thank you is absolutely vital. Although it's easy to do, lots of businesses actually don't do it.

Entrepreneurs tend to rely more on non-monetary rewards and non-financial benefits to create work environment where employees take pride in their work, enjoy it, are challenged by it, and get excited about it – i.e. the employees act like owners of the business.

Tips and good practices:

• Include a personal preferences survey into the new hire orientation.
• Published employees’ results and accompany it by a personal thank you and handshake, or some other recognition.
• Provide training incentives relevant to employee’s job.
• Don't discount the power of fun at work to de-stress and motivate employees.
• Make videos with your best employees and post it on a company YouTube channel.

Most importantly, remember that each employee is an individual. What works well as a motivator for one employee might have the opposite effect on someone else. On the other hand, your motivation system should be closely linked with your firm’s culture and reinforce it. If someone is unhappy with it, consider whether the cultural fit is sufficient.  

• As we mention in the training fiche devoted to managing business growth, organization structure in a business venture is being formed based on increasing need to manage acquisition and utilization of key resources. As one of such resources is people, more formal procedures especially for identifying and recruiting personnel related to venture growth will imply establishing HR management functions.
• In earlier stages, HR acquisition and management is either performed by the entrepreneur himself (or by a member of founders’ team) or delegated on ad hoc basis. Later on, these competencies are delegated to member of the management team. Finally, the stage that follows include establishing specialist HR function. (Wickham, 2006)
• One interesting experience from business practice: If you hire an HR manager too early you may end up losing touch with your company culture and learning about how to deal with people.
• When to hire an HR specialist?
  • When dealing with legal issues related to employing people becomes too demanding due to increasing staff headcount.
  • When you're hiring rapidly, it's nice to have one person who is focused on hiring. Even though founders should be making those final decisions and perhaps even screen applicants when possible, HR specialist can really make the hiring process and related agenda much more smoothly.
  • You're an expert in your product, but are you an expert in your people. A good HR person can help you determine what will make employees the happiest and most productive.
  • If you like figures, most recommendation from start-up practice talk about hiring an HR specialist at staff headcount around 10-15 to 30-35, and HR manager at staff headcount from around 50 upwards. It is very individual and depends on many factors.
  • Note: Not every HR person is a good HR person. You want to be careful that you hire someone with not only the right skills and knowledge, but who can share your vision of how the company should be.