Did You Know That Most Startups Fail Due to Poor HR Practices?

When we talk about startup failure, the conversation usually goes straight to funding, product and market fit as well as strategy. These are the headline reasons, the ones that make for clean wrap ups and tweetable lessons.

In the last 20+ years working with growing companies across 12 countries, I have found that the organisation ender, is the lack of strategic headcount planning. It's in the toxic hire who drove away three good people before anyone noticed. It's in the founder who couldn't let go of control long enough to let their team who they hired function. It's the legal dispute that drained six months of focus for all involved and over £80,000 in legal fees over a contract that was never properly drafted or given at the right time.

CB Insights studied startup failures and found that 23% cite team problems as a primary factor.

Team problems don't just appear on their own, they're symptoms of deeper issues: poor hiring practices, lack of clear expectations, no performance management, toxic cultures that go unchecked as well as managers who've never been taught to manage. A Gallup study found that 50% of employees have left a job specifically to get away from their manager, in a startup context, where every departure can disrupt crucial work.

SHRM research puts the cost of replacing an employee at 50-200% of their annual salary. For a senior developer on £80,000, you're looking at £40,000 to £160,000 in replacement costs. How many startups can absorb that hit multiple times, how many investors would continue to sponsor mismanagement?

Employment tribunal claims in the UK have increased significantly in recent years, with the Employment Rights Bill extending protections this trend will accelerate. A single claim can cost £50,000 or more to defend, even if you win.

Building protective HR infrastructure requires intentionality. Here's what the companies that successfully scale have in place:

Structured hiring processes with defined criteria, consistent evaluation methods and proper onboarding that sets people up to succeed rather than leaving them to figure it out.

Clear performance expectations documented from day one, with regular check-ins and honest feedback. So, if problems arise, there's a pathway showing the help and support that was offered.

Managers who've been trained to lead not just promoted and abandoned, so they understand how to give feedback, how to develop their people and how to have difficult conversations.

Legal foundations that protect everyone: proper contracts, fair remuneration, clear policies applied consistently, documentation of issues before they escalate to dismissal.

I understand the resistance to brining in a HR person, every pound needs to go toward product, sales and survival. HR feels like a cost centre that’s not needed, something for when you're "established" , but there’s investment in getting it right, a few thousand pounds for an audit that tells you where your risks are and to build the core infrastructure or ongoing support that costs less per month than most software subscriptions is what is needed to stop major failures and stress.

The one thing I have learnt is that companies that invest early in their people infrastructure are the ones that scale successfully. If you're wondering where your risks are, let's talk