"Startup-friendly" HR Practices Key To Corporate Innovation

When it comes to HR practices, startup HR practices are very different from corporate HR practices. If you're a corporation and you want to work with startups as a source of innovation and growth, you need to develop a set of startup friendly HR practices.

The first element of HR practices that might need to be different is the flexibility. Startups typically hire generalists. And the reason they do this is their business is changing quite rapidly. My co-author, Reid Hoffman, helped start a company called PayPal that's obviously very successful today. But when they started that company, it actually went through 4 different pivots, 4 different products and business models. In its first year of existence, it began as encryption on mobile phones. Imagine if you had hired people specifically to be mobile phone encryption experts, and then discovered a year later that you were building an email based payments network.

Going through frequent pivots, and creating new lines of business with different HR needs, is a frequent challenge that startups have to face. Startups need to have flexibility around job titles and departments, and retain the ability to move people around quickly as needed. They simply have no way of knowing in advance exactly how many people they need, or how those people are supposed to be structured into different departments. They are going to be playing it by ear. So whether you're partnering with an independent startup, have acquired one, or are building an internal venture that you hope will have startup-like characteristics, you will be well-served by developing HR practices that enable this kind of flexibility and rapid-response capabilities. 

Another element of startup friendly HR practices is really understanding the compensation side of it, especially the equity compensation side. A key element of the startup business model is having equity compensation for employees so that those employees have the financial incentive to pour their heart and soul into working for their company, to go the extra mile to work the long hours to do the things that are needed to be done in order to succeed. And if a company goes ahead, and it doesn't have any upside for its employees, it's going to be very difficult to achieve startup results.

If you're working to build a new internal venture inside a larger organization and you want to enable startup-like flexibility then finding some way to provide incentive compensation that offers upside and is lined up with the success of the initiative is going to be a critical part of building a successful internal venture. In the same way, if you are building a cross-functional team to support your partnership with a startup that offers the potential to bring dramatic benefit to your business, look for ways to provide incentives to that group of people that offer incentives to them for making that partner a success. 

If you cover these two key basis, flexibility and the compensation, you'll be able to work with internal and external startups and their people more effectively.