Start ups don’t have to worry about this human capital stuff, right? Wrong.

7 Feb


You’re a fledgling, but promising, start-up. The patents for your sassy new widget have been approved. Your carefully crafted business plan has attracted outside investment. You’ve never had to hire and manage a staff before, but how hard can that be– the heavy lifting of getting this business off the ground and on your way to the big IPO pay day is just a matter of time, right? If that’s what you’re thinking, I encourage you to reconsider your position– the success of your new venture may depend on it.

Mark Waltzoni has several outstanding posts on this question at his site Building Sustainable Ventures. One hits this question head on:

The human capital side of the investment equation has traditionally received less emphasis during the due dilligence process, except for quantative analysis of benefit plans, pension obligations, and salary costs.

I believe that determining the full value of any investment benefits from a review of the organization’s talent pipeline, ability to access external talent, potential flight risks; and leadership team gaps that could swiftly erode an organizations’ ability execute against their strategic objectives, and current human capital performance such as turnover rates, staffing metrics, employee engagement indicators, and who and when ot offer retention, development, or separation agreements.

I spoke to the Executive Director of a large angel investing organization recently and he told me that in his experience early stage companies rarely failed due to poor technology or financing, but rather a leadership team whose talent, knowledge, and execution gaps doomed it’s ability to scale to the next milestone.

In the course of reviewing business plans over the years I’ve seen too many founders ignore this advice– always to their detriment. I should note that the research database my colleague Leigh Branham and I are studying for our book Lucky To Work Here contains over 10,000 employers, a third of which are small businesses. Our studies again confirm that engaged employees make a difference in all enterprises– big and small, public and private, profit and non-profit.

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