Building the Right Foundation: Why Startups Are Like New Houses
Greg Griesemer • February 5, 2024
Jimi Hendrix memorably put it, “Castles made of sand will fall into the sea eventually.”
I can practically hear the song ringing in my ears every time I find myself talking to a startup client about the importance of laying a solid foundation when building their business. If your basement doesn’t have the right materials and connections, you won’t be able to build on top of it and, more importantly, everyday things like water and electricity aren’t going to function correctly. The metaphor extends to companies, too.
It’s exciting to venture out on your own and bring a startup into the world. But founders can easily overlook some of the basic components that ensure success over the long haul. The roots of success or failure are planted early, and the businesses that go on to thrive spend time early on to create a solid and scalable platform for their employees.
What a Pain
It’s human nature to put off addressing a problem until it becomes too painful to ignore. Just like you may not visit an orthopedic specialist until your shoulder starts to ache, startups sometimes overlook basic elements until something breaks or becomes too painful to deal with day in and day out. In the context of the company, this might mean a sticky legal situation that arises from: an exiting employee; or a top-performing employee threatening to leave due to the absence of a bonus program; or a sudden exodus of talent when vesting occurs without a clear retention strategy. These “pain points” are what ultimately prompt startups to take their foundation seriously.
Why not avoid all that pain to begin with?
In the end, I believe that setting a strong foundation for your business is just as critical as the business idea itself. Are you prioritizing the basics to ensure that your company has the right systems and culture in place to support its growth and success?
The Three Key Pillars
For me, there are three key pillars to the human resources foundation for a startup house:
- Compliance
- Well-Being
- Accountability
The first step to building a foundation across these three areas is for the founder/leadership to determine their overarching philosophy in each one. You can’t design policies and programs for employees until you know your broad stance on what kind of company you want to be on these three fronts.
I will follow up this article with three more pieces that dig into the critical questions that startups need to answer in each of these areas. The next piece will tackle building the right foundation for compliance to ensure a balance between protecting the rights and interests of your employees and maintaining the regulatory standards required within your field of work.
In the quest for new customers, access to a wider variety of talent, and better risk mitigation, more startups are expanding internationally—even at a relatively early stage in their development. But in their pursuit of those benefits, the companies sometimes overlook the importance of aligning their policies and processes with the local standards of the markets they’re entering—and that can create big problems for them. It’s a story I’ve seen play out far too many times, especially for overseas companies setting up operations in the U.S.; organizations end up trying to bolt their own regulations and culture into an environment halfway around the world with a vastly different foundation. Here are some things to consider before you open up your branch office in New York or Los Angeles: Establish a solid global framework that allows for country-specific execution. I collaborated with a company headquartered internationally that had issued stock options on their local Stock Exchange—and then attempted to apply those same local taxation laws to their U.S. employees. What they didn’t consider is that U.S. employees don’t live under the local country’s jurisdiction. This mid-sized company, with about 9,000 employees, had global roles filled by individuals who had never worked outside of their home country. Suddenly, these employees were tasked with managing a global expansion. It's important to consider the full range of issues when you’re opening up operations overseas: everything from recruiting and hiring, to onboarding and benefits, to how policies will “come to life” in a country with different regulatory requirements and cultural norms. For example, that same company's U.S. employees were required to submit expenses back to headquarters, receive computers from the same location, and have their legal documents generated by inhouse counsel versed only in local law. This approach created enormous inefficiencies and disconnects that were detrimental to the business and dramatically impacted employee engagement and retention. Most companies think that when they expand to another country, they are merely establishing a division. They often do not consider the necessary connectivity back to the headquarters. Employees based around the world need to function as if they were in their home country, yet they encounter vastly different operational realities. Seemingly simple things like how you collect new employee data require compliance with U.S. and home country data-privacy laws, which can differ dramatically. All of these issues create a spiderweb of challenges that need careful planning and execution. Make sure you fully understand the legal, financial, IT, and HR implications of operating in the U.S. One key lesson is the coordination of these general and administrative (or G&A) functions. It is not enough to hire a local HR team; the entire G&A structure must be aligned with U.S. standards. For example, an offer letter drafted by an attorney in another country might not comply with U.S. labor laws, leading to potential legal issues. Another example I encountered involved where to situs benefits for an Asia-based company. The company had to navigate varying state benefit laws in the U.S. While they initially tied their benefits to the state of Delaware, where they were incorporated, they later had to switch to California, realizing that was the appropriate state, as the bulk of their employees were based there. This process was complicated by the fact that the Asian team wasn’t up to speed on the complexities of U.S. healthcare benefits, leading to delays and confusion. Finally, don’t forget: Culture eats everything else for breakfast. The way that teams approach performance management, time off, and employee relations – among other thorny issues -- can vary dramatically among countries. A company that does not adapt its practices to the local culture and embrace their nuances may place their long-term success within that market at risk, unnecessarily, and face employee dissatisfaction and high turnover. ° ° ° Instantaneous communications allow organizations to operate on a global landscape like never before. But be sure you know what you’re getting into. Companies entering the U.S. – or any foreign market – should take precautions to adopt an integrated and aligned global framework that allows the flexibility needed to execute according to the laws and customs of the country they’re entering. With thorough planning, some local expertise, and a heaping of agility, your organization will be better prepared to ensure a smooth and successful expansion into new markets like the U.S.
I’ve written about how the roots of success or failure are planted early in a startup’s life. Think of startups as being like new homes: If the basement doesn’t have the right piping, the water and electricity throughout the house aren’t going to function correctly either. In my mind there are three key pillars for building a proper foundation for startups: compliance, employee well-being, and accountability. (To read my articles on each of those pillars, go here .) In the final installment of this series about foundation-building for startups, I’ll dive into how to avoid accountability gaps. These gaps can arise due to the fast-paced, dynamic environments and often limited resources that are prevalent with startups. Because of those factors, there are inherent challenge in establishing clear roles, setting measurable goals, creating and maintaining consistent communication channels, fostering strong leadership, and implementing structured processes and documentation. Accountability and Consequences Accountability is about consequences. Without consequences, there can be no genuine accountability. Think of Harry Truman famously placing “The Buck Stops Here” as an ever-present reminder on his desk in the Oval Office. As a leader, you must be willing to create and enforce consequences for actions, or lack thereof. The seeds are often sown during the initial stages of a startup when, as the CEO or early-stage leader, you’re moving at the speed of light and taking on countless tasks yourself. Time is the most precious commodity, and there’s never enough of it. It’s not uncommon for entrepreneurs to hire friends or acquaintances without anywhere near the same level of scrutiny they would apply to hiring a stranger. A firm handshake replaces a thorough vetting process. This less buttoned-up approach can certainly allow you to move faster without layers of process, and building a startup can feel easier when you’re surrounded by people you know. But it can lead to significant problems down the line. When you bring in someone you’ve worked with before or who comes highly recommended, you can assume that their performance will match their reputation. It’s only when you start hiring individuals you don’t know that the accountability gaps become glaringly apparent. Recognizing these realities, what can you do to establish a simple foundation of accountability that you can build from as you grow? Levers of Accountability One of the first levers for establishing accountability is having a bonus program tied to performance. Some small startups might argue that they lack the financial means for bonuses, so they rely only on fixed salaries. The prevailing sentiment might be, “We can’t afford to pay bonuses; we’re already burning through cash as it is.” But my view is: You can pay more in bonuses today or pay more in the form of turnover costs tomorrow. A fundamental component of accountability is having a robust performance management system in place. You can’t wing this based on your gut. I implore every founder to put in place — from the beginning — a comprehensive framework for monitoring and holding employees accountable for their performance. Importantly, this performance management should be closely linked to compensation. If employees meet or exceed their goals, they should be rewarded accordingly — and vice versa. One reason startups neglect performance management is an attempt to be forward thinking. Some companies subscribe to the idea that traditional performance reviews are outdated, and so they embrace a more fluid, informal approach. This might seem refreshing, but it can lead to confusion regarding roles and expectations. I think students need report cards — and by the same token, talent needs a regular assessment, so they know what they are doing right and when they need to course correct. Another critical lever for creating accountability is addressing performance issues promptly. Are you comfortable with giving warnings and making it clear that certain behaviors or underperformance are unacceptable? This is the flip side that comes with hiring people you know well, maybe even relatives: Are you able to separate your relationship from the need to remove incompetent or, yes, even toxic, people from your team? It’s More than Rules Accountability isn’t just about setting rules and expecting everyone to follow them. It’s about creating a web of interconnectedness within the people, systems, and initiatives of your organization — ultimately enabling all of these elements to work together effectively. It’s human nature to wait to address a problem until it becomes too painful to ignore. Just like you may not visit an orthopedist until your shoulder starts to ache, startups sometimes overlook accountability elements until something breaks. In the context of the company, this might mean a top-performing employee threatening to leave due to the absence of a bonus program, or a sudden exodus of talent when vesting occurs without a clear retention strategy. These “pain points” are what ultimately prompt startups to take accountability seriously. Why not avoid all that pain to begin with?
I’ve written about how start-ups have to create a proper foundation in the early days—just like a new home needs a good basic structure to ensure that it doesn’t collapse when you add a second floor, and the electricity still functions when you redo the living room. For a company, this foundation helps it create the constants that employees, customers, and partners can rely on amid the usual ups and downs that all companies go through. In my mind there are three key pillars for this foundation, none of which can be neglected: compliance, employee well-being, and accountability. In this part of the series, I want to explain why employee well-being is so critical. (To read parts one and two of the series, go here .) Defining What It Means for Your Organization I believe that to a large extent the future of the workplace hinges on employee well-being, especially as remote working environments continue to blur the porous line between work and the rest of our lives. Companies that neglect well-being run the risk of increasing burnout and turnover and reducing productivity and engagement—all of which can severely hinder the growth of a startup. On the flipside, I’ve seen firsthand how early-stage companies that get it right are talent magnets. They create an environment where employees feel valued and are aligned and working hard to achieve the business vision. As fast as many start-ups are moving to keep their momentum going, it’s vital for their leaders to carefully think through what employee well-being means for them. It's not just a matter of offering benefits; it's about defining a stance on the various dimensions of how you’ll approach your employees’ overall health, happiness, and satisfaction with work. This should include physical, mental, financial, and even spiritual considerations. What dimensions do you include in your definition of well-being? What do your employees value and expect? What programs and policies help ensure it? And what trade-offs are you willing to make in other areas of the business to make it a reality? From my conversations, I know CEOs and leadership teams can struggle on how to even begin answering these questions. In response I’ve offered a relatively simple framework, with a few questions for each, to get the conversations started. Rich dialogue usually spiders out from here. Getting Started Purpose ( Emotional ): Many start-ups I’ve worked with do not take the time to define their Vision and Values and miss out on the power that clarifying their “why and how” can bring to an organization. Employees seek out and stay with organizations that connect to their hearts and minds – sharing what’s in yours will allow that to happen. 1. Why does the company exist? 2. What is its passion? 3. What characteristics and behaviors will each employee exemplify? Health ( Physical, Mental ): Setting the direction of your benefits offering should be a top priority for companies that wish to remain attractive to current and potential future employees. Most employees do not worry about or even understand their coverage, but need peace of mind knowing that it’s there when they need it most. Getting the programs AND messaging right is key here. 1. What do we want our benefits to “say” about how we treat our employees? 2. Do we have the right broker partner to help us maximize our programs while optimizing our budget? 3. How will we educate our employees to keep them healthy and happy? Pay ( Financial ): Good, fair pay is a cornerstone of your well-being strategy and a non-negotiable. Competitive packages attract and keep talent, provide employees the means to care for themselves and their families, and are often viewed as a measure of equity. Spending time here will help create an environment where employees feel valued, respected, and motivated. 1. What benchmarking methods are you using to ensure competitiveness in your talent market? 2. How transparent do you plan to be on company matters? How openly will you share and communicate your decisions about pay equity, for example? Moving Forward Once you have answered these foundational questions, then you can design the policies and launch the programs to make those broad strokes a reality. At a time when talent is more mobile than ever, having clarity about the well-being of your startup's team is a strategic move that fosters a positive work environment and fuels long-term success. In my next post, I’ll take a look at the final critical piece of foundation-building: accountability.
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