The HR tech industry is growing tremendously and expected to continue on an upward trajectory. According to a new report by Grand View Research, Inc the global human resources technology market size is projected to attain USD 30.0 billion by 2025, exhibiting a 10.4% CAGR. What does Angel Investing in such a market involve and how will it benefit HR professionals?
What Value do HR professionals need to provide?
Traditionally HR professionals have been rated on two aspects:
a) strong transactional service leading to a focus on process efficiency
b) adherence to employment law and avoidance of legal risk or in other words harmonious employee relations.
However, the emphasis today is on HR being a business partner by providing strategic and commercial support to the business. This means successful HR professionals need to demonstrate a difference to the bottom line through reduction of costs, improve ongoing employee engagement (and profitability) and assist business leaders in strategically planning for rapid disruption to the workplace. Good HR professionals therefore need to have a sound understanding of how business operates and contribute to commercial discussions around growth and profitability.
Developing Better Commercial Acumen
Investing in a start-up involves not just an understanding of the product proposition but an overall judgement of the commercial viability and success of the product. This involves a deep dive into the following areas:
- Market size: What is the issue that the product is addressing – is the problem real life or just an interesting idea? Do you see its relevance in your organization or amongst your peer group? Is it relevant to just your kind/size of organization (e.g. large corporate) or does it apply to SME’s / fast growing start-ups? If it is a new technology are there any market research reports that indicate what the growth of that technology is going to be? Thinking of the above will help you arrive at a realistic view of the market size / total addressable market for the product. As an example, the talent management software segment is anticipated to grow at the fastest pace and register a CAGR of 13.0%. So clearly, the market size is huge and is expected to only accelerate. Through these parameters, HR professionals learn to understand the specific proposition of any start-up and gauge if it is a good investment opportunity.
- Competition: Some questions to think of are – How many such similar products exist in the market? Which traditional segments is it going to take a slice of? Which emerging products/technology could replace it? Last year, there were around 8000 AI based start-ups in the Recruitment space alone. However, Recruitment often has the biggest budget within HR and has the greatest pressure to demonstrate speed, efficiency and savings. Therefore, while the competition in this segment can be high, the opportunities could be equally attractive. Looking at the competitive scenario helps HR professionals enlarge their market understanding and become more astute.
- Revenues: Most start-ups have only been in operation for a few years. Hence one of the most difficult aspects is judging whether its revenue potential is achievable. This involves a good understanding of sales cycles ( 12-18 months in big enterprise) and whether sales projections are realistic . Understanding how revenue could grow ( linear/step change etc) is a great way for HR professionals to become savvy about their own business.
- Profitability: Finally, the start-up’s ability to achieve profitable growth is a big aspect of the investment decision. This involves a close look at costs. Where has product development happened and what ongoing investment is needed for it? What are staff costs and are they proportionate to the stage of the start-up? What proportion of spend is happening around marketing & PR and is it justified? Investigating these areas will give the HR professional a better perspective around managing their own budgets & contributing in commercial discussions with business leaders.
Investing in a start-up involves a full investigation into all aspects of the business – market size, competition, revenue potential and profitability. It is a great way for HR professionals to apply a holistic business perspective and become real business partners.
In this article we have discussed how it is advantageous for HR professionals to develop commercial acumen by being Angel Investors. We will delve deeper on the third aspect (being future ready) in the third part of the series over the following days.
The London based HRTP (HR TECH Partnership) is an investment venture in the People Tech space with most of its stakeholders being senior HR directors. It is an early stage investor and focuses on AI based HR start-ups around Talent and Workplace productivity. To know more about angel funding and how the HR TECH Partnership works visit – www.hrtechpartnership.com or write to [email protected].
The World Economic Forum has just released a report that shows 52% of human jobs will get automated by 2025 – which is just 6 years away! Getting more familiar with digital innovation is no longer an option but a necessary requirement for any HR professional who wants to stay ahead of the game. The notion of investment being done only by VC’s/ PE firms/ wealthy individuals is no longer true. Angel Investing allows HR professionals to invest a relatively smaller amount of money in a safe manner and helps them understand how the future is changing.
So how can Angel Investing make you ‘Future Ready’ for the changing landscape?
Learn about the digital landscape
When you start investing you become aware of the wide scope of AI based solutions in the entire employee lifecycle. It is astounding to see the range of innovation around workforce planning, recruitment, talent management, learning & development, employee engagement, career development, pay & benefits, wellness (financial, physical, mental), culture & leadership as well as risk & compliance. This exposure to real products helps HR professionals separate myth from reality about Artificial Intelligence and get the confidence to experiment and engage with machine learning. Most are shocked to see how fast things are changing but subsequently excited about the ability to use them.
Understand the big shift around ‘employee democratization’
Trends such as the gig economy, next gen mindset supported by digital are rapidly changing HR’s role from ‘vertical people management’ to facilitating ‘horizontal distribution of work’. Employees want to be treated as customers and expect a service that is instant, personalized and curated. Most HR professionals are unaware that there is a big range of AI based start-ups that can help them achieve the employee experience that is now expected.
To invest in one start-up often requires looking at several different products and in the process HR professionals become aware of how they can take the lead in enhancing employee engagement, get more strategic with the use of analytics and reduce costs through low cost AI based products.
Impact on organizational design and upskilling
A big part of any HR leader’s role is to help the CEO and business leaders prepare for the changing workplace. Without being exposed to the impact of Digital Disruption it is difficult for them to envisage the large churn of jobs that will happen over the next few years and the rapid upskilling of the workforce that is needed. Organisation structures are no longer going to be vertical or team based – instead ,flexible dispersed teams made of machines, contingent workers and full- time employees will be the norm. Investing in AI based start-ups, understanding market trends around emerging technologies and collaborating with other HR professionals while making investment decisions helps HR professionals understand the full implication of digital disruption and influence the business appropriately.
Managing Ethics and Employee trust
Finally, the impact of AI and Machine learning will be across all parts of the organisation- core products, manufacturing, supply chain, customer interface etc. It will result in organisations holding an enormous amount of data particularly on employees. HR professionals now have an added responsibility to manage the boundary between personal and organisation data and its usage. As an example, an HR leader may introduce an AI based physical product to improve wellness at work. Would it be ethical for the management to use the information on an individual employee’s health to determine his/her suitability for another role? This is a completely new scenario that most HR professionals haven’t faced in the past and could lead of rapid erosion of trust (remember Cambridge Analytica?) if not managed appropriately. Investing in AI based start-ups enables HR professionals to become aware of the implications of machine learning and handle it proactively.
There is a lot of information currently circulating about Artificial Intelligence, Robots and new technologies like Blockchain or facial recognition. Angel investing helps HR professionals get a realistic view of these changes and keeps them prepared with practical insights. HR professionals who start engaging with these startups will be able to play an influencing role with business leaders.
In this article we have discussed how angel investing helps HR professionals get ‘future ready’. Previously, we discussed how angel investing brings financial returns and develops commercial acumen in HR professionals. This is the last article in a series of three.
The London based HRTP (HR TECH Partnership) is an investment venture in the People Tech space with most of its stakeholders being senior HR directors. It is an early stage investor and focuses on AI based HR start-ups around Talent and Workplace productivity. To know more about angel funding and how the HR TECH Partnership works visit – www.hrtechpartnership.com or write to [email protected]
