Challenges of Implementing HR processes in Startups and MSMEs

There are 10 million MSMEs in India and they employ 140 mn people which is 40% of the country’s workforce.

According to a CII survey, 20% of medium and 80% of small-sized businesses have no HR departments.

To implement HR processes and systems you need to set up an HR Function.

There are two most important reasons for the lack of HR processes and systems in Startups and MSMEs, First, when the companies are at the startup stage, their objective is how to grow first to be sustainable and reach the bigger scale of business. So, human resource is no priority.

Secondly, SMEs operate under budget constraints and they do not focus on building HR processes and systems initially.

Most Startups and MSMEs have smaller teams and founders end up managing the HR functions themselves to save cost.

And when founders manage the HR function, the founder’s culture, value system etc become organisation culture.

In startups and MSMEs, the budget for HR is limited or there is no budget

In startups and MSMEs, the budget for HR is limited or there is no budget.

The startup owners have to be careful about the expenditure on hiring a senior HR team with a hefty salary package because it can make the company spend more money on non-core business activities.

The most important thing is to ensure that it is getting managed professionally and you do not end up spending a lot of money.

The best way to balance this is to work with the right partner who can handhold and take ownership of managing end-to-end HR functions for you without much of your time involvement and help you run the HR department professionally.

Most time founders manage HR and they are not HR experts

It’s a common occurrence that in Startups and MSMEs, the founders manage HR directly.

They are not HR experts, but they have to manage the processes of hiring, training and firing employees.

Most startups don’t even consider HR a core function for their companies; it’s one of many roles that need to be fulfilled by someone else.

Founders often underestimate the importance of an effective HR function for their organization and that does not allow them to scale faster.

Most founders do not value their time and they feel by managing HR by themselves they will save costs but they do not think of using the same time in growing their business would yield better business outcomes and profit.

All smart founders realise that they do not have the expertise of managing HR and someone else can do this work at a lesser cost than their hourly cost so better to work with experts than do everything by themselves.

Unavailability of dedicated HR resource

An important factor that makes the implementation of HR processes difficult is the availability of dedicated HR resources.

As a result, most startups and MSMEs do not have a full-time HR manager or only one third-time staff who can devote all their time to handling HR-related issues.

Thus, it becomes challenging for these businesses to implement long-term policies and processes as they don’t have enough resources to carry out these activities.

In most organizations you will find a single person managing the complete HR department, you expect them to do recruitment, HR operations, run payroll, manage employee grievances and other HR tasks but it is next to impossible for one person to do everything and also ensure they spend a good amount of time in ensuring the HR policies and systems are followed by the team as it takes a dedicated effort and time to implement some initiatives.

Knowledge of in-house HR resources is limited

Apart from the fact that the HR team is not experienced, the knowledge of in-house HR resources is limited.

They do not have an end-to-end understanding of the various processes involved in managing an entire HR function.

Startups and MSMEs do not hire experienced HR resources due to cost constraints.

The majority of startups are founded by business professionals who lack experience in managing people, so they prefer hiring fresher candidates with no prior experience.

The same goes for Medium, small and medium enterprises (MSMEs), which also do not want to spend too much on hiring an experienced person when they are just starting out and don’t have enough cash flow to bear huge expenditures on salaries or training costs.

As a result, these businesses end up having inexperienced human resource executives working on their own without any supervision at all times!

HR is not prioritized as much as the sales and marketing function

While the sales and marketing functions are considered strategic, HR is viewed only as a cost centre.

The reason for this is that it is difficult to measure the impact of HR activities on business goals like revenue or profit. Moreover, there are no KPIs to track these impacts.

For example, an entrepreneur who has invested in hiring a senior VP for sales will track his performance on the number of deals closed and revenue generated; however, if he hires an experienced VP for human resources (HR), he may not be able to determine how much growth this resulted in or if there was any decrease in employee attrition rate after making changes at all!


Implementing HR processes in startups and MSMEs can be a challenge, but it is not impossible.

HR can play an important role in the success of your business, so it’s important that you invest time and effort into finding the right solution as soon as possible.

Take some time to explore all your options, then ask yourself whether you want to manage this in-house or you want to work with a partner who can take up the load of managing HR so you can focus on doing what you do best which is growing your business.



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