Most small business owners launch their businesses using a fixed amount of capital, often their personal savings or a business loan. To give themselves as much time as possible to establish their business and become profitable, entrepreneurs tend to work with very tight budgets, keeping costs trimmed down as much as possible. Unfortunately, for many businesses, that means keeping wages low, and often hiring entry-level employees that aren’t fully qualified in hopes of saving money. Often, this turns out to be a mistake.

shutterstock 374127247 300x200 - Startups shouldn't underestimate the power of human capital

While ensuring that you have the time you need to become established is absolutely essential, maximising that time in every way is rarely the best approach. That’s because more time won’t save a business that doesn’t have the capacity to become profitable in the first place. A business’ success ultimately relies on the people who work there, and entrepreneurs need to make the investment needed to build a team that can makes success possible.

Diverse startup roles require experience

To control costs, startups frequently hire young college graduates into positions that they’re not prepared for, while some will go so far as to outsource essential tasks to unpaid interns. Not only is this unlikely to produce results, it also wastes the business’ resources, and the very limited time it has to become self-sustaining.

Startup employees are often required to fill multiple roles competently, which requires excellent time management, dedication, and a higher level of competence than most jobs at larger and better established businesses. Businesses who fill these diverse and challenging roles with experienced employees will avoid many of the internal issues that traditionally plague startups, and free up more of the entrepreneur’s time to focus on growth and other factors. Additionally, those skilled employees will be better able to train new talent when the business begins to grow, making lower cost employees more effective over time.

Professional diversity drives innovation

Innovation is the key to success for startups. To compete against larger, better established businesses, startups need to bring disruptive changes to their industries. Regardless whether this innovation targets product utility, production cost, or other factors, this kind of competitiveness is driven by a business’ in-house talent.

Employees with a wide range of professional backgrounds and experience both in and outside the industry bring valuable insight with them that they can combine to reimagine old processes and develop new approaches. While younger, entry-level personnel might also bring some fresh ideas, these workers often lack the expertise to tell whether something will work. Moreover, they’ll need time and training to grow into their current roles. Being asked to participate in product and process development can overwhelm employees who are still trying to develop basic competencies.

Building a large professional network

Entrepreneurs often rely on their professional networks to meet the investors, business partners, and suppliers that they need to succeed. Similarly, experienced workers leverage professional relationships to develop their skills and do their jobs as effectively as possible. This compounds the utility they have for their employers, because they can make use of those connections on their behalf.

Taking advantage of the preexisting professional relationships that employees have allows new businesses to reach investors, clients, suppliers, and industry experts that they otherwise wouldn’t have access to. Businesses who don’t invest in this kind of high-caliber personnel, on the other hand, will find themselves much more isolated. Instead of leveraging the resources of their employees, entrepreneurs will need to help network new workers to give them the tools they need to be effective. This limits the productive and developmental capacity of the startup early on, and creates more work for entrepreneurs themselves.

Finding a balance

Of course, entrepreneurs don’t forego hiring the best talent in the industry because they simply don’t want to. The amount of investment and financing they have available limits the quality of the team they can build, and how long they can operate before they run out of funding. It’s important to understand, however, that a new company absolutely needs a certain amount of human capital in addition to sufficient time in order to establish itself and become profitable.

For business owners, this means that they need to find a balance that allows them to first understand what it will take to help their business succeed, and then find ways to secure sufficient financing. Businesses who come up short on their initial financing shouldn’t try to simply muddle through. Rather, they need to find the additional capital they need before launching. A good way to do this is to take advantage of alternative finance resources such as unsecured business loans, stock loans, or supply chain finance to help free up initial working capital. This gives them the capacity to get their business off on the right footing, ensuring that it has everything it needs to gain traction and grow.

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