Hypergrowth Companies & EORs: Scaling Growth Hack
Erez Greenberg| Dec 24, 2020
Hypergrowth companies are every venture capitalist’s dream. Investors often get involved in a start-up’s infancy, even at the seed stages, in the hopes of discovering the next Uber, Slack, or Netflix. These companies seem to blink into existence, before growing exponentially over an extremely short period of time, and becoming household success stories. However, the truth is, over 70% of start-ups fail because of premature scaling.
Let’s look at the challenges of this kind of hypergrowth model, and how you can think outside the box to limit your risk at this critical juncture.
The Need for Speed: Are Traditional Employment Models Slowing You Down?
Studies show that the top two challenges that hypergrowth companies face are acquiring talent, and managing regulation. In our experience, these two often go hand in hand, as onboarding skilled candidates for new roles generally leads companies to source talent in new locations. This in turn leads to regulatory headache and liability, as they attempt to get set up compliantly in a new geography.
Of course, these considerations are not unique to hypergrowth companies. However, the urgency of their situation is different. Hypergrowth start-ups have a genuine need to grow aggressively and at speed, and to acquire and retain the best talent for any given role. As setting up a legal entity in a new location can take 3-6 months, many companies are immediately met with an immovable stumbling block, just when they need momentum the most.
Another consideration for hypergrowth companies is the idea of testing out a new location to see if it works for the business. At the early stages of growth, a company might not yet know whether it wants to set down roots in any given country. It might have one promising candidate who could build their own team in the long-run if successful, but is just as likely to relocate after six months, or a single salesperson that is tasked with scouting for interest.
The need to set up a legal entity in that country becomes impractical, if you’re only going to start the process of tearing it down again in a matter of months, a task that also can become costly and time-consuming in itself.
Putting Agility First through Employer of Record Solutions
According to McKinsey, the top 10% most successful companies, the most resilient companies, are the agile ones. The organizations that are able to move quickly, scale effortlessly, make changes on the fly, and add and move employees when strategy dictates as such. Traditional employment methods are important for the long-term, and will definitely need to be part of your global employment model, but when it comes to hypergrowth – they are likely standing in the way of your ability to be agile.
With the necessity of expanding overseas to keep momentum going, but the naturally inflexible process of doing this legally and compliantly, it’s no wonder that premature scaling causes so many fast-growing companies to fail.
This is where Employer of Record (EoR) models of employment (also known as a global PEO) can be a real boon to hypergrowth companies.
The way it works is simple. Instead of incorporating in a new country, you partner with a local partner in that country, who hires them on your behalf, becoming the employer for all legal requirements, such as payroll, tax, compliance and benefits. From the employee side, the day to day workload, line management and communication channels will be the same as it would being employed directly by your business, but the payroll management, compliance, and employer tax considerations are handled by the EoR.
With a local, in-country partner, the relationship is inherently compliant, and sidesteps both the costs and work involved in setting up a local entity. These can include obtaining necessary paperwork like a public deed of incorporation or certificate of uniqueness, registering for social security, or waiting for a company tax code to be approved.
The local partner will also have their finger on the pulse of the local laws, and benefits or non-benefits based expectations. They will know the norms with regards to non-mandatory salary benefits in your particular industry or sector and will advise and manage these issues on your behalf. As a result, it’s the quickest way to hit the ground running in a new location.
As a hypergrowth company, this allows you to put agility front and center, and focus on the right candidate for the right job, no matter where they are in the world. Without worrying about the practicalities of hiring abroad, you can focus on the business side – using the new location and employees as a springboard to grow core value at speed.
On top of that, you can use EoR to test the waters in a new location. Send small teams or even single employees to new locations without worrying about liability, compliance, or the resources needed in setting up (and tearing down) legal entities abroad. Suddenly, you don’t have to worry about your scaling being premature, as a large part of the risk has been eliminated.
Choose a Partner for the Long-game
The right EoR partner will be able to support you through the multiple, fast changes your business goes through as a hypergrowth company. This could be anything from initial start-up of your payroll requirements in a single location, to onboarding EoR solutions around the world where contractors are not suitable.
You may decide to start with a specific candidate in a single location, but the beauty and simplicity of this model, is that it allows you to expand quickly and easily into many countries, and focus on hiring for talent, alone, or moving where the opportunities lie. A partner who provides an aggregator model is essential here, so that you have a single point of contact as you scale, and aren’t struggling with the management of numerous ICPs around the world.
A global workforce partner who offers all three employment methods can also advise you on the best time to move from an EoR model to setting up a legal entity, taking employees in this location under your own payroll. This could be related to a cost-benefit analysis over the two options over time, a critical mass of employees in that location, or a certain amount of revenue and your own associated tax requirements as a business.
When this time comes, and in a hypergrowth company it may be faster than you think, the last thing you need is to be stalled again by the complexities of changing global payroll providers, and the complexities of integrating with new technology.
This is exactly where Papaya Global is unique. As the only global payroll platform that covers all the models of employment, hypergrowth companies can form a single relationship with us, and gain not only an intelligent, automated, tech-based solution for global payroll, but also a trusted advisor, no matter the stage of business growth. As a tech company ourselves, we share in the DNA of a start-up, and understand the importance of speed, security, flexibility and technological innovation.
From hypergrowth start-up expanding abroad via EoR solutions, to flourishing enterprise success story with multiple legal entities around the world, we can provide you with a single, automated platform for your employment needs, from hiring and onboarding globally, to fully compliant management, payroll, and reporting.
Get in touch to schedule a demo of the Papaya Global platform.
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