Why Successful Startups Invest in Human Capital

Close your eyes for a moment and visualize your perfect work environment. It’s probably a picturesque place with killer benefits, an awesome work-life balance, surrounded by people who make you feel mega-appreciated. While the actual dream job may vary from person-to-person, we all want to feel valued by our employers.

On the surface, this may seem selfish, but studies have shown that companies with happy employees outperform the competition by 20%. So what makes an employee happy to work for you? It comes down to one thing: investing in human capital.

Human capital refers to the capital produced by investing in knowledge. It takes into account the education, talent, experience, and skills that an employee brings to a company.

What investing in human capital means

Chipotle has a training program for crew members who want to become managers. If a crew member goes through the training and becomes a manager, they get a bonus and stock options. To top it off, they get a $10,000 bonus every time they train a crew member to become a general manager.

Cool, right?

This is a prime example of human capital at work. Chipotle isn’t required to offer these incentives, but it’s one way they’ve differentiated themselves from the pack. By investing in their employees and creating incentives for them to stay, they’re creating an unshakeable company culture and increasing their profits—all at the same time.

Investing in human capital pays dividends

Retaining the best employees is just as hard as finding them in the first place. Fail to build human capital, and you’ll find yourself on a slippery slope. Here’s what I mean: High employee turnover leads to low employee morale. Low morale leads to lower productivity, and lower productivity leads to loss of revenue.

Even worse, it takes way more money to hire a new employee than it does to keep a current one. According to a study by The Society for Human Resource Management (SHRM), it takes 6 to 9 months salary to replace an employee. Some of these costs include:

  • Creating and posting the job ad
  • Interviewing, screening, and hiring someone
  • Onboarding and training that person
  • Loss of engagement from other employees affected by the turnover
  • Potential customer dissatisfaction while the new employee trains

Think about your current job. How long did it take you to learn the ropes and fully understand how to do everything? In most jobs, it takes a new employee about two years to reach the productivity levels of existing employees. That can really damage sales.

In addition to improved retention rates, investing in human capital also leads to:

  • Increased employee satisfaction
  • Engaged employees willing to help the company reach its goals
  • Stronger company culture
  • Improved organizational communication
  • Increased return on investment

Sounds good, right? Well, let’s dive into the nitty-gritty of how human capital plays a role in the hiring process.

Human Capital & The Hiring Process

It’s true that investing in human capital leads to better retention. But it also helps you recruit the best prospects from the get-go.

Let’s look at millennials, for example. A recent study by Gallup shows that 87% of millennials view “professional or career growth and development opportunities” as important factors when applying for jobs. This means they’re placing an incredible amount of emphasis on companies that invest in human capital.

Recruiting (and hiring) people for the right job is the best financial investment a company can make. But we all know hiring the “right” person is easier said than done. Do you go with your gut? Do you reach out to your network for potential candidates? The whole process can be a headache.

Thankfully you can use your recruiting funnel to take the guesswork out of finding the right candidates. A few simple ways to do this are by:

  1. Creating a captivating job description that illustrates your company’s needs
  2. Using pre-employment testing to weed out the not-so-qualified candidates
  3. Crafting a compelling offer letter chock full of ways you invest in human capital

From posting a job description all the way through onboarding and training, the hiring process is a surefire way to find amazing prospects who are excited to work for you for the long-haul. But this starts with investing in human capital. Take time to build human capital, and it just might be the best investment you’ve ever made.

If your company isn’t able to dedicate the time or resources needed to find amazing talent, AVRA is here to help. To learn more about how our firm can save you time by taking some weight off of your hiring process, set-up a complimentary consultation with a Senior Recruiter today.

With special contribution from: Cassidy Horton




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