Setting up a great HR team is often a forgotten task in the world of startups. New companies have hundreds of essential decisions to make, many many founders implement "quick fixes" rather than establishing HR policies and developing a proper HR strategy.

However, HR tasks are fundamental to business success, and startups are particularly at risk of running into HR challenges if they aren't careful. In this article, we run through the top eight HR challenges in a startup and practical solutions to avoid these issues impacting your business and success.

8 Human Resources Challenges Faced by Startups

1. Building Company Culture

The Mistake: One of the biggest HR challenges startups face is regarding company culture. Many new companies are so focused on seeing their sales go up and profits rise, that they fail to consider what they want their company culture to be.

The Problem: Without input from management, some businesses will never have a coherent company culture that all employees understand and follow. This can cause divides between teams and make collaborative tasks difficult to navigate.

What's more, employee performance and engagement will dip. Long term, this is detrimental to the success of your company, and spending more time defining a culture initially will pay off. Company culture also impacts the public perception of your company as it is closely intertwined with your company values and beliefs.

The Solution: Startups must intentionally define their culture and expectations within their HR policies. This enables all employees to understand their expectations and work together cohesively.

You then need to tailor other processes towards this policy to ensure your organisational culture is maintained. For example, adapt your hiring process to ensure you check how well-aligned candidates' values are with your own. You might also consider offering rewards to staff members that uphold company values.

2. Recruiting for Senior Roles

The Mistake: When hiring employees for senior roles, many startups focus on qualifications and how well candidates can carry out tasks related to their role, rather than prioritising their leadership and team communication skills.

The Problem: Poor leadership skills have ripple effects throughout an organisation, impacting every employee that sits below them in the business hierarchy. This can negatively affect employee retention, engagement, and productivity. In worst cases, it can cause total disharmony in the team.

The Solution: Ensure you have included mandatory questions that assess leadership skills in the interview process. For example, you might ask how the candidate resolves conflict or what their definition of success is. These selection criteria need to be outlined in your HR practices, so all teams taking on new employees follow these set procedures.

3. Attracting Talent

The Mistake: Many startups don't have a team of HR professionals to handle the recruiting process. This can make it difficult to find new talent for vacant roles, which slows the hiring process substantially.

The Problem: Attracting talent is a problem for all new companies that have not yet made a name for themselves. However, the improper setup of an HR department and lack of recruitment technology makes it even harder for potential candidates to hear about the roles.

This has devastating impacts, and issues with hiring at the right time are one of the most common HR challenges. In fact, 23% of new businesses fail for this very reason!

The Solution: One possibility is to take a chance on people that fit your corporate culture rather than waiting for the perfect candidate to walk along; it is better to fill vacancies than someone than no one. Of course, investing in the right recruitment tools can also help reach a wider audience and gain more interest in your vacancies.

4. Writing HR Policies

The Mistake: Many startups are not concerned with outlining foolproof HR policies. Instead, they're putting all their energy into growing their business, getting their company name heard, and perfecting their products or services.

The Problem: We have already discussed how writing effective HR policies can provide solutions to some challenges startups face, such as building a corporate culture and successfully hiring people for leadership roles. Therefore, the lack of these HR policies is what causes these challenges.

But all HR processes should be guided by clear policies which set the foundation for all behaviours, decisions, and business practices. Examples include policies on ethical behavior, holiday and absences, and pay structure. Without these policies in place, startups can fall apart and conflict can get out of hand.

Moreover, many policies are required by UK law and failure to have such documents in place could result in legal trouble.

The Solution: The only way to overcome this challenge is to spend time writing comprehensive policies. This will take a little time, and it is important to ensure all aspects of the business are covered. Stringent policies help avoid internal disputes, improve business decisions, boost employee satisfaction, and avoid legal issues.

5. Communicating Policies

The Mistake: Even where startups have taken the time to write comprehensive company policies, many fail to communicate these to their employees.

The Problem: Without guidance, employees won't know the appropriate processes they must go through or what is expected from them. This can cause teams to unravel and might mean your company values and culture are lost.

The Solution: Ensure that every employee has access to your HR policies at all times. A great option is to use a Human Resources Information System (HRIS) like Humaans and upload these important company policies to a central document database. In doing so, you can ensure all staff members have access to up-to-date policies and procedures, so there is no excuse for not complying.

Another effective way to communicate your HR policies is by practicing them. You might consider creating employee training for new staff to complete, and regular refreshers for existing staff to keep up with current procedures.

6. Effectively Training Employees

The Mistake: Many new companies do not invest in proper staff training and view it as an unnecessary business expense. Instead, they hire employees that are already good at their job roles to cut costs and boost performance.

The Problem: Only hiring candidates that already have the necessary skills for their job can result in staff shortages. As already discussed, attracting talent is one of the core HR challenges startups face, and assuming you can hire top talent and skimp on training makes this issue worse.

Additionally, startups are extremely fast-paced environments to work in. Your business will go through so many changes in the initial years! The world we live in is also constantly evolving and improving, with the latest technologies continuously changing how we work.

Therefore, even if you have hired perfectly qualified and experienced employees, their knowledge and expertise will be less relevant six months from now. To survive in the competitive startup space, staff need training. Without it, your business will suffer.

The Solution: To remain at the top of your game, you need to provide constant skill training and development to all your employees. This helps to up-skill your current employees, while simultaneously improving job retention rates.

7. Employee Feedback

The Mistake: In the fast-paced startup world, formal feedback is rarely given priority. With a lack of a proper feedback system, many employees are left unaware of how they are performing at work and don't know how to improve.

The Problem: A lack of feedback means that employees are not working to their full potential. How can they when they have no idea which areas of their job they are performing well at, and which areas need to be improved on? Failure to provide feedback means the same mistakes keep getting made, which could cost your company a lot in the long run.

A lack of feedback can also negatively impact employee morale. It can mean your staff feels unheard, leading to disengagement and reduced productivity levels. This has several damaging effects, including increased staff absences, higher turnover rates, and a less productive workforce.

The Solution: Ensure you provide regular feedback to all employees in regards to their performance. Providing employee feedback can help your workforce feel more involved and engaged within your company. Your employees will be more willing to put the hard work in and know which areas they should be focusing on to achieve better results.

When your startup consists of only a few members of staff, performance feedback is easy to monitor and keep track of. However, a digital performance management system is a must for any growing organisation. These systems allow you to easily track progress and see when the next performance review is scheduled.

Human Resource management systems allow for employees to feedback to their employers as well. This again contributes to your employees feeling heard, as well as providing pointers to improve leadership and other issues higher up in the organisation.

8. Getting HR Funding

The Mistake: We've already discussed how startups often fail to invest time into establishing HR departments. However, startups also fail to invest money into developing HR teams, with more critical aspects of the business taking priority.

The Problem: With a lack of funding from management, it is down to the HR team themselves to overcome HR challenges. This means a lot of hard work for HR teams, and a lot of time spend carrying out administrative tasks. Therefore, this could contribute to a reduced bottom line; HR professionals don't have any spare time to help with business strategy or offer company beneficial company insights which could help facilitate growth.

The Solution: Getting the buy-in from management can be difficult, but it is possible. HR departments need to clearly explain what they can bring to the business to facilitate its success, and how funding can help them achieve their goals.

For example, investing in an HRIS such as Humaans can take care of many simple HR tasks, leaving the Human Resources team free to spend time on the things that matter.

Are you facing any of these challenges? We can help! Book a demo with our team and see how our HRIS improves productivity, engagement, and ultimately the success of your new business.


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