From hiring to retention: HR tech’s most promising opportunities

For better or for worse, the HR function has consistently been overlooked — by everyone from investors to the media.

Why? We’ve heard everything ranging from comments that the C-suite only turns to HR when things go awry to the notion that it’s just not an area of strategic focus for CEOs (i.e. no budget) and more. This couldn’t be more wrong and we’d like to outline why HR tech is primed for change.

After our research around the Office of the CFO (OCFO), we were drawn to HR as we view it as the next function to undergo a well-deserved transition towards being a strategic partner to the CEO. Finance was elevated through unifying disparate financial data sources and providing a single source of truth for business performance. We believe the same transformation will occur for HR when we can build a holistic view on managing the single greatest area of spend for an organization and the core tenet of your business strategy — human capital.

Your people strategy is your company strategy. Effective Chief People Officers (CPO) of the future will enable the C-Suite to guide the business through the lens of talent and ensure there is a clear relationship between company strategy, financial performance, and achieving human capital outcomes.

Our vision for the future of HR is one that transitions from a reactive, tactical business function to a proactive, strategic business unit, similar to the shift that other functions like finance and customer success have experienced. Today, HR leaders are focused on execution and don’t have time to build for scale. HR struggles to even report on the business today, let alone forecast and plan. To have credibility in the boardroom, Chief People Officers need data at the foundation of their systems and strategy. Without it, it’s incredibly difficult for CPOs to even explain what they need to execute a strategic goal. The HR discipline will become more integrated with other functions; planning will move from spreadsheets to software to promote collaboration, versioning and reporting; recruiting will be more coupled with sales/marketing and customer success to promote more cohesive brand-building; and improved employee onboarding/training will allow organizations to better understand their employee LTV and ROI.

Recruiting

The core premise of our thesis on the recruiting stack is that talent acquisition organizations of the future will resemble the high performing sales organizations of today. Like the rise of RevOps and DevOps, Recruiting Ops is a requirement and not a luxury, yet there are few tech platforms or operating systems designed for them. In our view, you can map out the various opportunities in recruiting operations to their Go To Market (GTM)/Sales stack counterparts and highlight opportunities for innovation within the stack:

As a subcategory of HR tech, recruiting presents a compelling venture investment category through multiple lenses:

• Demographic transition: The Congressional Budget Office projects that the working age population in the United States will grow at ~0.4% CAGR through 2053 compared to a ~0.9% growth rate over the past 40 years. This deceleration of growth in the working age population will intensify the demand for talent and provide an impetus for organizations to re-evaluate how they identify and attract key hires moving forward.
• Relative underinvestment: Compared to the sales and GTM tech stacks, there has been a relative underinvestment within the recruiting vertical, which leaves white space for a killer recruiting company to emerge.
• Unique talent: Competition for talent remains — especially for unique skills (e.g. AI/ML engineers). Outside of tech, many industries experience high turnover and struggle to hire and retain talent.

The most compelling opportunities within recruiting are solutions that enable talent acquisition (TA) professionals to become more strategic and deliberate. Historically in many organizations, people leaders are left flat footed in strategic planning discussions, but with a more data-driven recruiting stack personified by companies such as Ashby, Betterleap, Dover, and Covey, people leaders have an opportunity to be leading voices in strategic planning decisions. Data arms recruiting and people leaders for conversations about how their team is performing.

• How are we tracking to plan?
• What’s our capacity right now? What are we spending to achieve this?
• Where can we improve performance in our funnel?
• If a business leader comes with a change to their hiring plan, what can I tell them about their budget and expected timeline?

Ultimately, by applying the modern analytics that best-in-class GTM teams employ to the recruiting discipline, enterprises will be able identify and attract the right candidates for the right roles at the right time while more easily quantifying the ROI of their hiring decisions.

More so than ever before, talent acquisition teams are tasked with doing more with less. Capacity can’t only be solved with headcount — a non variable cost. In order to achieve this, teams are looking for solutions that deliver clear ROI. One example that comes to mind, recruiting operations tools such as ModernLoop can help elevate the productivity of existing teams, leveraging AI to drive candidate scheduling and ramping up new interviewers. Finally, despite solid Applicant Tracking Systems (ATS) in Lever and Greenhouse, there remains whitespace to create a truly one-stop platform within the recruiting vertical — from candidate sourcing to signing.

Data & analytics: data aggregation & connectors and workforce & compensation planning

Another key area of focus for our team is the data aggregation & connector layer. In conversations with many HR leaders, the root of many persistent pain points arises out of the lack of data integration. The band-aid fix is often manual, archaic and disjointed — pulling HR/Finance/Engineering resources away from higher-value add tasks while routinely failing to provide the accurate and timely information to key decision makers.

We view the data connectivity problem manifesting in two different avenues:

1. Infrastructure: From our vantage point, many HR tech stacks do not effectively communicate with each other. This is born out of a historical walled garden approach to data sharing from legacy, payroll and insurance players that are reluctant to allow access to their valuable data repositories. Companies such as Merge, Finch, and Flexspring enable the HRIS to integrate with a huge list of payroll and recruiting systems.
2. Applications: The core HR systems are the ATS and HR Information System (HRIS) and the intersections with other teams have been overlooked. Most technology today is focused on workflows and task management and lacks automation or analytics. We get excited by companies building at the intersection of Finance and HR. Two examples of large unmet needs are Headcount Planning and Compensation Planning.

Infrastructure

In conversations with HR leaders, the most pressing issue within their tech stack is lack of data integration between their various HR solutions. More often than not, core HRIS systems (both legacy and next generation) restrict the level of data portability in an attempt to further entrench the product into the enterprise and maintain product moats. And HR doesn’t yet have a de facto data architecture standard; this is both a problem and an opportunity. To compound this issue, many of these legacy providers have complex data architectures and labels, which, contrasted against the fragmented landscape of HR tech, leads to a significant organizational effort to allow for systems to work effectively with each other.

This poses many problems for an HR organization — processes become cumbersome and manual and require significant human oversight in order to have reliable, consistent reporting and integration. Companies that are addressing the infrastructure-layer problem within HR include both Finch and Merge.

Applications

Compensation planning and workforce planning are consistently a top pain point with People and Finance leaders; currently they require armies of analysts and spreadsheets. Talent retention is a priority; the cost to replace a given employee can be 50–60% of their OTE and impacts the business even more than that. People are critical to the operations of any business unit, however the planning, interviewing and hiring effort required to find the right talent is both time-consuming and non-core for most organization leaders. To add, most lack the right data and frameworks in order to make optimal decisions. CFOs scrutinize contracts 1/10th the cost of an employee; they are eager to better understand People Strategy but lack the tools or processes to analyze and rein in spending here. Lastly, new technology within data & analytics (e.g. ML, AI) can accelerate HR tech’s push towards being data-driven and provide the foundation for a compound company.

Ultimately, data-driven products should exist across the entirety of the HR stack — however we believe that the Workday killer will be built on data structures that go beyond the employee; a relational database of prospects, employees and alumni that prioritizes data spanning skills, engagement, diversity, etc. Some companies building in this space:

• Headcount planning: ChartHop, Headcount365, TeamOhana, and Trace are adding rigor, process, and flexibility to how companies plan and adjust headcount strategy.
• Compensation data planning: Aeqium, Aura, Barley, Compa, Compete, Complete, and Pave are building data-driven compensation platforms.
• People analytics: Datapeople, Eqtble, Knoetic, and Visier are developing people analytics platforms that deliver meaningful HR metrics and reports.

Vertical / frontline

The third area of interest is HR solutions for non-traditional knowledge workers; a term which encompasses deskless, W2 contractors, frontline, and specialized and/or accredited workers. In our view, the opportunity here is born out of a historical underinvestment in HR solutions for the majority of the global workforce: deskless workers, contract employees, etc. The cause for underinvestment is twofold; financial, organizations historically have had a difficult time justifying high per-employee-per-month spend and cultural; for better or worse corporate attitudes towards these workforces tend to be different.

The global workforce continues to change. Both supply and demand driven, we’ve seen a rise in the gig & shift economy (i.e. part-time or contractors) and the resiliency of blue collar industries. Combined, they represent a growing majority of the US and global workforce. We continue to lack technology that serves this workforce and the importance of attracting and retaining top talent is arguably even more critical here, with a higher turnover population. We believe that all-in-one HR is poised to breakout here. Many companies are using painfully customized legacy solutions. Historically, it’s been hard to justify expensive point solution seats, but bundling changes the arithmetic. Lastly, we’ve all seen the rise of SaaS sprawl and this is the last place you want it; non-traditional knowledge workers should be leveraging 3–4 core applications max.

There’s an opportunity to truly build an all-in-one HR platform tailored to their specific needs. Companies can start single product, single vertical, and quickly compound from there. We see this need from both specific labor groups (contractors, gig workers, deskless employees) and for specific industries (e.g. unique needs from a compliance, accreditation, or certification perspective). Mobile workforces demand mobile solutions, and industries like nursing, contractors, etc. need compliance and certification built in from the start.

There are a couple key elements to the non-traditional HR tech stack that are prerequisites for success. First, the ability to introduce a compound product (a la Rippling) that focuses on unique labor forces (contractors, gig workers, shift workers) and non-tech industries (dealing with compliance, accreditation, certification etc.). Second, due to the deskless nature of these roles, a mobile first strategy is a key ingredient for success. Finally, each specific vertical will have different wedges that enable companies to effectively sell into their respective customer bases. Some approaches we admire are:

• Payroll: Zeal, Check, and Salsa are examples of a company that is simplifying payroll for specific workforces by building embedded payroll.
• Recruiting: Companies like Emi Labs, Grayscale, Skillit, Workstream, WorkWhile, and Wingspan that enable everything from recruitment to retention for these unique workforces.
• Time-Tracking: Companies such as Miter, Clockedin, and Sona that enable time-tracking and scheduling for shift workers.
• Enablement: Companies like Workstep that focus on employee engagement and experience.
• Workforce Management: Companies like AllWork that center around managing and paying your workforce.

Despite the different starting points for each solution, we believe that the north star for any non-W2 company should be the entire back-office all-in-one. And many of the companies we’ve mentioned have this compound vision. After owning the core HR workflows for a specific industry, breakout non-W2 software products can introduce additional HR products (enablement, learning & development, performance) and finance and IT functionality to become the core operating backbone of the business. Moreover, a platform vision creates focus for the workforce (i.e. limited SaaS sprawl) while also helping to justify increasingly larger ACVs to help these companies grow from both new and existing customers.

What are we looking for?

Now, more than ever, we believe HR tech will breakout by taking advantage of three key forces:

1. Elevate HR as a strategic function. Give People leaders an ability to report, forecast, plan, and predict. Arm the C-suite with the data to drive people strategy.
2. Build data as a moat. Capture, structure, and unify people data we’ve never readily had before. Surface unique data and insights to drive people strategy to impact the business with clear ROI by combining it with sales, financial, or product performance data.
3. Have a compound vision. Given the critical data owned, there’s potential to build additional products that benefit tremendously from a data moat.

We’d love to chat if you’re building in these categories! Feel free to reach out to Eugene, Thom, or Justin.