RAJAN SRIKANTH President, Asia, Mercer Human Resource Consulting

I have in this column described a “stages of growth” model for startups. Stage One is all about innovation and creating/establishing that killer product. Stage Two is all about market penetration and creating a broad footprint. Stage Three marks the graduation from a startup to a viable business and is characterised by what I call the 3Ps — professionalising, introduction of process, and profit extraction. The needs of managing a startup through each of these stages differ. The challenge is that the entrepreneur tries to manage with an approach, or operate with a organisation that may be right for one stage, when the business circumstances suggest he or she should be in another stage.

I believe your company has just entered Stage Two. You are looking to diversify your markets and gain a strong domestic footprint. The primary goal for a successful startup at this stage is to firmly establish itself in all of its target markets and create reliable and rapidly growing revenue streams. Profit, while it is nice to have, is rarely the best thing to focus on in a Stage Two company. So, I would first suggest that you take the consideration of shortterm profitability off the table — if you can afford to do so, of course. Besides, for a one-year old company to have only made a 2% loss on a turnover of Rs 10 crore suggests that you may already be running a very tight ship. The relevant question then becomes whether you are not spending enough to support your spectacular growth, and on what you could/should be spending more.

Which brings us to the second part of your question — about keeping/building your team and whether you should pay them more or risk losing them. Here too, I think the question to ask is different. The key to success in a Stage Two startup is typically building a sales culture by hiring market developers and salespersons, and getting more sophisticated in terms of measuring and rewarding sales performance. The first question I would ask then is how your current team measures up against your business need for quickly growing a domestic market for your product and possibly exploring other export markets; where there are critical gaps to fill, and where there are key players in key positions that must be retained. The second question I would then ask for each of these “must hire” or “must retain” positions/players is what it will take to attract or retain them. Our research shows that while compensation plays an important role, it rarely is the reason people either stay or leave a company. Opportunities for career advancement and development is an important driver in attracting and retaining talent. Clearly, it appears that your team moved with you from the previous company not because you gave them great raises, but because they saw a terrific opportunity for career advancement. Now, that does not mean you can continue to pay less when the competitors have doubled compensation, but it does mean that you should practice what I would call “HR for the unit of one”. What I mean by that is you should seek to understand for each of your key players — what really makes them tick, who would require an increase in salary to stay, who can be inspired to even higher levels by adding a variable pay component contingent on performance, who would pledge their loyalty in exchange for a challenging assignment in a new market/role or being given an opportunity to learn new skills, and who would become part of the solution rather than a part of the problem if you invited them into your decision making.

There are no easy answers to the situation you fa ce, but I hope I have been able to point you the right questions to ask. In seeking answers to these questions, I have no doubt you will not only lay the foundation for your continued spectacular success, but also develop a deeper understanding of what makes startups and the people who work in them really tick.

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