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The startup game has changed and today’s growth companies are increasing more than ever. According to Fundz, the average round size for a Series A in 2020 was $15.7 million. TechCrunch notes that just five years ago, that number was $11.8 million, and just over a decade ago, just $5.1 million. The same goes for appraisals; according to Crunchbase, Series A companies are now seeing valuations of $60 to $80 million, targeting a $1 billion plus exit.
The goal is more – more money, more growth and more multiples. However, if not managed properly, more does not lead to better. While the average check size has grown among venture capital (VC) firms, the success rate of their portfolio companies has not increased. Harvard Business School notes that despite increased cash infusion, 75% of VC-backed startups still fail.
Failure can be attributed to a variety of unforeseen or unavoidable factors, often coming from external circumstances beyond our control. However, as leaders and investors, we need to ask ourselves, what are those things in my business that I can control, especially at critical growth moments? And with that question comes a look inside the structure of the organization itself. One of the most overlooked but integral components of this is human capital.
Related: Going Social: Why Businesses Need to Invest More in Human Capital
Circle Capital founders surveyed 25 hyper-growth companies and found that one in four employees leaves in any given year — that’s a 25% churn and more than double the total industrial churn. You can only imagine the impact that repeated hiring, training and retraining can have on an innovation-led company trying to grow at a sustained rate. It’s just not sustainable.
The bottom line is that when startups and their investors work together to raise capital and finance at scale, there is an opportunity to take a look at their existing human capital structure and plan a more targeted roadmap to support its growth. Here are five keys to managing human capital through hypergrowth.
1. Tie your internal shoelaces
Before you think about the ‘what now’, you must understand the ‘what now’. For example, have you identified the existing team members who are integral to the future success of your company? Have you put together growth-supporting reward packages to ensure their continued commitment?
2. Hire an internal recruiting team
Investors expect their capital to be used effectively and efficiently. With that comes the need for quick but effective recruitment. However, the support to manage such recruitments is often an afterthought, a mad race for resources once an event is completed. Prior to launching a fundraising, transaction, or growth, it’s important to get the recruiting team in place and lay the groundwork for human capital alignment.
3. Create a new business archetype
As your business grows, the core may remain, but the features will inevitably change. It’s like a baby becomes a toddler. It’s so important that as your business moves through the key stages of its growth lifecycle, leadership defines what it wants to look like, behave, and be known for post-growth. In short, the company needs to create a new post-growth archetype.
4. Allocate a percentage of your fundraiser in advance for change management integration and training
As the company turns on the growth hose and starts pouring in a gushing stream of investment money, it will inevitably take on a new and more mature personality. Companies know that growth comes with growing pains, and it is in their power to plan accordingly. Change management is necessary, but often it only comes into play when dysfunction occurs. Often that can be too late.
5. Define your growth category
Successful growth isn’t just about sales, eyeballs or market share. So create a comprehensive growth column – the key components that leadership will continuously measure the company against to define successful progress. This growth rubric can be used before, during and after transition phases, benchmarking with individual success metrics and price correction where necessary.
Related: 4 Ways the Pandemic Changed Our Approach to Human Capital
Today’s growth business has a unique opportunity to develop a more confident plan. As part of securing capital, it is up to the company and its investors to develop a comprehensive strategy for healthy scale. Every VC has investors to appease, and their reports are packed with metrics like revenue, compound annual growth rate (CAGR), and customer acquisition. As leaders, we also have the ability to hold ourselves accountable for internal metrics such as hiring efficiency, retention rate, employee satisfaction, and degree of internal promotion. Human capital is the engine under the flashy hood, and it is ultimately what makes the fast car last throughout the growth trajectory.
This post 5 keys to managing human capital through hypergrowth was original published at “https://www.entrepreneur.com/article/421733”