Why entrepreneurs should invest in functional departments at early stage
Regardless of size or industry, every business needs an organizational structure in place. Without functional groups, it is difficult to assign tasks and create policies, especially when your company is expanding—departments are necessary to determine who does what, when, and how for smooth business operation to achieve the organization’s goals. Today there are 19,000+ tech based startups in India as per the economic survey of 2015-2016.
Currently the entrepreneurs himself wear multiple hats at the startup stage either because the entrepreneur is too busy developing the product / business and does not have enough time to go through the strenuous process of recruiting or due to the fund crunch they cannot afford to have experience candidates to head the multiple functional departments like Finance, Human Resource, Administration, etc.
Some feel that having functional departments at early stage of the business is luxury. Although the need for administration may seem obvious, all too often, startups overlook the necessity of a diverse management team in their company. Many startups rely solely on the CEO for all operations and decisions, which could result to delays if the CEO gets too overwhelmed with other tasks like planning, pitching, and investor acquisition. Some entrepreneurs work under the assumption that upper administration personnel will reveal themselves over time from within the company, which is really not a good idea. During the startup phase, a set of managers in place to oversee the directives and goals set by the CEO is a must.
Functional departments are important even for small businesses with fewer than 30 employees. This is called a Flat Organizational Structure—whereby all managers’ report directly to the owner (CEO).
The two most important departments are Finance & Accounting and Human Resource.
The finance department is responsible for the daily transactional accounting that takes place in the company. Finance oversees accounts receivable, accounts payable, cash flow management, advising and/or sourcing long-term financing, as well as helping to improve operations through assessments and evaluations of key numbers. Generally, as the company evolves and develops, rather than running straight to a CFO with a full staff, there is an interim step of working with an outsourced CFO shop. They are situated to handle the functions of finance that would be important-bookkeeping, managing the processes around potential audits, receivable management and factoring, and preparing reports for board meetings.
Your human resource department is possibly the single most important branch of your company, dealing closely with the CEO to build and enforce company policies. The role human resources play within the enterprise is huge, even for small businesses where there might be just an HR manager and an assistant. They help you find the right candidate with required skills and who fits the culture of the company. They also perform employee evaluation, benefits and compensation.
Although the functional departments are recommended as necessary to accommodate the needs of a rapidly growing business, don’t rush to make changes too quickly. Implement changes to personnel and management positions systematically, not all at once. Adding departments as needed will avoid culture shock and give employees time to adjust to new company protocol.
Another thing to consider is advancing from within the company. Spend more time and effort training employees for managerial positions because it is better for your company’s culture in the long run. Bring people from the outside, cold, and unfamiliar with current office interactions can create stress and resentment among team members who are working hard for the benefit of your company.
Once all departments are in place, remember to keep all lines of communication open. As your company grows you will appreciate how every division affects the other, and when all is running smoothly, you will find the dividends of success in all that you do.