Workplace Strategies

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photo: Jachan DeVol

Toxic startup cultures and the aversion to people operations

It’s not just a job, it’s also a fun hang with inspiring people. Candidates seeking startups instantly find an undifferentiated sea of group photos of smiling teams in logo tees with their cute office dogs united in mission and happiness. What used to appear cultish is the norm and it’s a necessary dream to sell in the ruthless competition to market employee experience and attract top talent. Reality offers no shortage of employee tales on how sometimes, their fun “work-hang” turned out to be a mismanaged daily grind. A grind where even if employees believed in the product or service, they completely distrusted their leadership and burned out faster than their interest in the La Croix in the fridge. Scaling companies hire faster than they can come up with job descriptions, but also commonly stall on hiring HR resources. It seems counter-intuitive and we wanted to know what effect this has on a companies perception and why it occurs. So we dug in to analyze a sample of companies that recently raised a series B funding to get some answers, and what we found was surprising.

The cost of an organization with a “headless HR”

We expected half but found that 69% of the companies did not have any resources dedicated to people operations. Of that group, 22% at least had one dedicated in-house recruiting role which is a start in employee branding at the introduction level. However, without a decent company culture, the employee will just become a candidate for another company soon enough. How do we know? Companies with full-time human resource leads are 2x more likely to have a public reputation with a 4-star average review on Glassdoor. Conversely, companies without in-house HR resources have no employee reviews more than half the time. When they have reviews, they are 3X more likely to have a 3-star review tied down by scathing, low 1-star score reviews, typically criticizing management, not the product or service. While there are many ways to interpret a Glassdoor reputation, at a minimum it overwhelmingly displays that having dedicated resources at least gives a better perception of employee experience to candidates in the market for a role.

Why does it happen?

It’s not odd to see startups balking at hiring people operation resources while racing to hire sales, support, and technology resources. Leaders of early-stage businesses are fighting for their life securing foundational aspects such as market fit, developing their sales process, and making loveable products, and to satisfy investors. Frankly, management and employee experience are naturally going to take a back seat and only a be a defensive measure. Founding teams are also enabled more than ever to just hand off the operational aspects to PEOs such as payroll and compliance. It shows as PEO had a soaring 14x growth in 2018 high with companies such as Justworks and Trinet.

This leaves the personalities of the founding team intrinsically setting the mold of company culture around their speech and actions. As Michael Wolfe quotes (paraphrased),

“Culture is set by leaders, not HR, it’s set early, and is hard to change.”

If founders have the knack to set the right tone for the company, and use tools like Yallhands effectively, then culture foundations can blossom when scaling. If they don’t pull it off, the culture is slowly polluted and after a few years leads to a toxic environment. This can spell disaster for business as seen in the events that occurred at Zenefits (ironically a business operating in the HR sector).

To fix or to forge on

Does a startup’s culture have a solid foundation or is it a house of cards? There are many factors to consider as well as when to ask “when to hire the Human Resource Officer. In general, startup leadership should not assume running on autopilot with headless HR is working effectively. Validation needs to be garnered by asking some questions that need to be continuously asked such as:

  • Is there a good channel of feedback for employees to voice their concerns and questions to management? If so how busy is that channel? What do they say?
  • Do employees feel supported and enabled to be successful?
  • Do employees referrer other employees and brag about their organization?
  • Is your employee attrition fairly low and how does employee morale holdup after their first 90 days?
  • Have employees posted positive reviews about their employment without being requested to do so?

Note the absence of questions about the beer kegs and ping-pong tables, an employee’s personal engagement to the organization is a better anchor in understanding if the culture is on track. If negative answers abound these types of questions, then it’s time to pause and bring in the proper resources to stop the culture pollution before it’s too late.