2021 HR Tech Challenges
At Market One Capital (MOC) we are big believers in marketplaces and the network effects platforms and many of them can be found in the HR sector. Especially right now, as the global pandemic and lockdowns have introduced such a big shift in the style of our work, there is an immense need for new products and solutions. Our MOC’s “HR Tech Task Force” frequently monitors this space and you’ll be able to read about our findings in the series of few articles we are going to publish. Together with Michał, we cover this area and we always can count on some constructive feedback from Marcin. Although we do not have an HR Tech startup in the portfolio of our current fund (yet), we’ve been engaged in this sector, both as investors and entrepreneurs, since 2006 making dozens of investments and seeing hundreds of such companies not only around Europe, where we operate, but globally as well.
2020 will be defined as one of the most challenging years for HR departments. The global crisis differs from previous crises as it not only affects the financial markets but completely changes the way people work and behave on a daily basis. HR was not usually regarded as the most innovative department in the companies, but the current situation requires it to be agile and act quickly to introduce modern models of people management.
The global HR Management market is growing fast, at an expected 11.7 CAGR is expected to reach by 2027 the size of 38 billion USD globally. Its growth was lately (and will be) fueled by:
a) structural changes forced by the global pandemic,
b) structural changes forced by the new generations entering job markets,
c) HR solutions created for niche problems,
d) overall increased adoption of HR Tech among small and medium enterprises.
For example, the pandemic increased unemployment, influenced remote work, and new means of work. It also forced companies to deeply explore new products available in the market, which made the year 2020 a catalyst for the rapid increase in technological HR solutions. Without this, we would probably never experience such fast-paced changes in this area.
Just a few years ago working from home was an option for a small percentage of the workforce, a perk that only employees of the most innovative and flexible companies could enjoy. However, in recent times it became quite a normal practice for white-collar workers and the global pandemic only accelerated this change. According to the survey conducted by Slack more than one-third of the global workforce is working from home and the vast majority (83%) of them do not expect to get back to the office in the upcoming months.
For most companies, this ‘new reality’ poses a wide range of challenges. While the Millenials and Generation Z are used to web communicators, online apps, and the virtual world the older generations might struggle to learn how to work and manage employees without seeing them in the office.
Here are some of the main challenges HR departments have to face in 2021. And by doing this, we will present some interesting startups active in these fields.
Remote work
Probably the hottest term of 2020, is also the biggest challenge. Remote work requires new solutions, starting from simple aspects such as communications through performance tracking to remote payroll and employee benefits. Each of those domains has to be thoughtfully reconsidered, as the products currently on the market not always will be able to solve the newly created challenges.
One of the aspects of remote work is that it extends the pool of potential hires globally. But hiring globally poses problems with different legal systems, taxes, and contracts. Pilot is one of the tools that solve this kind of problem and takes off the burden of compliance and payments from employers. Such a solution allows employees to hire in over 100 countries without the need to set up any kind of local subsidiary.
Remote work means also a remote office, and to make the online interactions more spontaneous some start-ups decided to take inspiration from the world of computer games. They are using spatial technology, animations, and productivity tools to create a metaverse dedicated to work. An interesting example is Branch which has already 500+ companies on the waiting list to be onboarded and boasts a 60% monthly retention rate. Another similar project is Gather, which might cause a 90’s flashback, and for now, decided to stay away from venture funding.
Employee engagement and productivity
What might be surprising, studies show that remote work can lead to a 13% increase in productivity. But when you take into consideration limited space for the whole family to work from home, kids running around, and decreased privacy then the productivity takes a hit. Creativity and innovation also require in-person collaboration, and the decrease in office time might lead to a slump in new ideas.
New tools try to act against it by introducing different tracking solutions and ramifications systems that on one side can create additional incentives for the employees to stay on top of their daily tasks but also help managers to track the performance of the remote teams. At MOC we are always looking at how those new solutions can integrate with the existing software, as many of the new products still rely on more or less advanced employee surveys or manual feedback. That creates additional work for employees which makes it difficult to create a daily habit of using such solutions.
We all are social creatures, and an important aspect of work engagement is the ability to maintain relationships with our colleagues. Tel Aviv’s Eloops creates an internal social network where employees can share stories, experiences, and get feedback from their co-workers on new ideas and initiatives. The platform also includes tools to train employees remotely or conduct online team building activities. If you are a fan of quirky zoom backgrounds then check out Teamfow and Spatialchat. They use video chats to recreate real-life social interactions. Spatialchat boasts 2.5k+ customers, including LinkedIn, Salesforce, and Harvard.
Employee mental health and well being
Over 50% of Americans said their stress level spiked in recent months, which is a significant jump from 32% in March, according to the Kaiser Family Foundation’s survey. Not only that, but workers who up to this point had no mental problems are reporting feeling burned out and under pressure by not being able to divide their professional and personal lives.
In comparison to the more mature in this regard American market, Europe is just starting to notice the importance of mental health. In each European country, we can see new players being born, most of them following the model of successful US-based companies such as Talkspace or Betterhelp. They operate in a heavily managed marketplace model that offers online consultation and support the therapists with solutions such as text-based therapies, CRMs, or additional materials for patients. There are players on the market that try to automate the therapies but we predict that the human connection and complicated treatment processes are far from being completely replaced by computers.
A much better contender for automation are products that deal with less extreme health problems and broadly defined ‘well-being’. Products based on CCBT (computerized cognitive behavioral therapy) does not require a human to guide the patient through the whole process, and significantly lowers the cost for the customer. Probably the most well-known example is the meditation apps such as Headspace and Calm, which boast millions of paying users and a huge amount of capital poured in from respected investors.
A recent survey of 256 companies by the nonprofit employer group the National Alliance of Healthcare Purchaser Coalitions found that 53% of employers are providing special emotional and mental health programs for their workforce in the wake of the pandemic.
Employee communication
Once the whole team works remotely, e-mail, Slack, or Zoom might no longer solve all the communication problems. You cannot quickly discuss a problem, and the communication is reduced to a few daily Zoom calls, that often have strict time boundaries. You lose the informal part of the office relationships, such as grabbing lunch together, onboarding new employees, discovering what your coworkers like to do outside of work. It might be also especially difficult for creative teams, such as design or marketing departments, that rely on teamwork and brainstorm-type idea generation.
Acapela, build by the ex-founder of Dubsmash wants to reinvent the online work that we know currently. “With Acapela, we aim to define a new category of team collaboration that provides more structure and personality than written messages and more flexibility than video conferencing”. A similar problem is solved by Tandem that acts as a “virtual office” and managed to secure a $7.5M seed round last summer. It lets you easily chat and engage with your remote-office-colleagues.
If you are building a startup in the HR tech space, do not hesitate to send us your pitch deck, or just drop an email if you’re also interested in that sector. You can get in touch at michal.gren@moc.vc
