December 14, 2020
Employee culture | HR | PEO | Venture Capital

Why a Venture Backed Startup Should Almost Always Use a PEO

Any new venture-backed startup company has a lot on its plate. While startups are infused with energy, innovation and drive, there are dozens of administrative duties and unexpected tasks to work out as well. From managing payroll and retirement plans to the intricacies of health insurance, recruiting, compliance and more, a trusted PEO partner can […]
PEO 360

Any new venture-backed startup company has a lot on its plate. While startups are infused with energy, innovation and drive, there are dozens of administrative duties and unexpected tasks to work out as well. From managing payroll and retirement plans to the intricacies of health insurance, recruiting, compliance and more, a trusted PEO partner can help alleviate a lot of responsibility, time and stress from a startup company.

Increased Focus

Sales and Product are the primary focus of a startup. One of the primary benefits of a small to medium-sized business using a PEO is more time back in your team’s hands.

A startup company may have a crew of tech geniuses, but they can’t also be expected to be experts in federal labor laws or how to handle a workers’ compensation claim. With a PEO managing these complicated human resource-related tasks, your team can focus on meeting their goals and doing what they do best. Crossing those bothersome tasks off your list can also allow for better time management and lowered stress.

By collaborating with a dedicated PEO, a startup also receives expert advice that’s tailored specifically to their needs. Each partner organization acts as a personal guide or advisor, bringing years of experience and know-how in a particular area to guide an organization in the best direction.

For venture-backed startups, in particular, investors can feel confident knowing the organization remains focused on their product or service and that they are not distracted by a long list of administrative undertakings. Investors would also recognize the value of one study that showed PEO-backed startups have double average sales growth. 1

Attract Top Talent

A successful enterprise begins assembling with a talented team, and the competition is steep. It’s imperative that employers today offer a solid benefits package and there is no one-size-fits-all approach.

With the right PEO, a startup can offer not only offer enhanced benefits but at a lower cost. These benefits can include 401k, life insurance, STD/LTD, FSA/HSA and even pet insurance. Professional Employer Organizations can often negotiate lower rates based on their relationships and expertise within the industry. Offering these competitive benefits is another important factor in attracting and retaining higher-quality employees.

A PEO can also accelerate hiring and make the process more streamlined. This is important because a delayed or bumpy hiring process can mean the loss of potential talent. One study showed that 54% of HR directors have lost out on a qualified candidate due to a long hiring process 2, making a faster hiring timeline another important advantage.

Once an employee is hired, a PEO can also create a seamless onboarding process to ensure new hires have a positive experience and are set up for success.

Fast-Tracking Growth

Professional Employer Organizations offer valuable tools and resources needed for a startup SMB to grow, whether through organic headcount or acquisition. As an organization expands and workload increases, teams can find themselves with less time available and more oversight required. A PEO can assist in building the right infrastructure to support an organization as they scale. Clients of PEOs also report 10-14% less attrition. 3

A growing team also means a busier HR department. With a dedicated PEO offering a turnkey solution to hire in almost any state, less internal support is needed in HR and Operations departments, leaving money to be better spent on other revenue-generating activities.

Controlling Burn

Venture capitalists want to see their dollars going as far as possible and being put to use in the right ways. Investors can appreciate knowing that a PEO-backed company on average will have a lower operating cost per employee. PEOs make these cost savings possible through an economy of scale and the ability to contract better rates and offers in their respective specialized areas.

Companies using PEO’s also experience up to 32% lower turnover rates 4, including the expense of hiring, onboarding, training, ramp time, lower engagement and increased errors. With turnover costing up to 1.5 – 2 times an employee’s salary 5, that’s another way for a startup to find major cost savings.

Consolidated PEO systems can also provide additional savings and offer comprehensive solutions for multiple vendors, creating further efficiencies.

Reduced Risk

A venture-backed startup knows the vital importance of protecting its valuation. And while your founders and initial team members may be handpicked, as your team grows, so does the chance for risk and liability.

A PEO can help mitigate risk by proactively putting best HR practices in place and will offer support if a claim or employment-related issue arises. Most PEOs offer Employment Practices Liability Insurance (EPLI) and will protect you through litigation. A Professional Employer Organization has skin in the game and acts as a partner for your best interest.

Staying Prepared for Acquisition, Exit or IPO

What happens when your startup company becomes a huge success? A PEO can make the step of acquisition, exit or IPO an easier one.
With the varied capabilities of a PEO, the process of due diligence becomes much quicker and less painful.

In the event of an acquisition, any risk is transferred to the PEO and not inherited by the acquiree. Having a predictable cost can also help an acquiree to understand the acquisition cost with greater accuracy, especially in the event they are continuing as a self-operated subsidiary.

The Results Seem to Agree

A recent 2019 analysis shows the ROI of using a PEO is 27% 6, further illustrating the economical advantages of PEO services for a venture-backed startup. Another study showed that 68% of companies leveraging PEOs became more successful than a non-PEO SMB. 7

Even more impressive, 98% of PEO users report they would recommend the service to their peers7, making it a highly valued partnership.
With PEOs proven not only to increase cost savings and efficiency for venture-backed startups but also time management and focus, utilizing a Personal Employer Organization as a startup seems like an easy choice.

***
So, how do you choose a PEO? What if you need more than one? For more information and help selecting the right organization for your needs, contact jeff@peo360.com

Sources: 1-Lonestar PEO, 2-Robert Half, 3-Swipe Clock, 4-GNA Partners, 5-BuiltIn.com, 6-PR Newswire, 7-NAPEO

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