How to Build an HR Function from Scratch: A Practical Guide for Scaling Companies

Most founders and CEOs think of building an HR function as something they'll do "later", after the next funding round, after headcount reaches a certain threshold, after things settle down. The companies that win the talent war don't think this way. They build their people infrastructure before they need it, not after the problems become expensive.

Why Getting HR Right Is a Competitive Advantage

In a world where the best candidates have options, how a company operates its people function is a signal. Fast hiring processes, clear role expectations, structured onboarding, regular performance conversations, transparent compensation, these things are not HR bureaucracy. They are the operational expression of how much a company respects its people's time and ambitions.

Companies with strong HR functions also retain better. And retention is one of the most underappreciated competitive advantages in fast-growing businesses, every time you retain a great performer, you avoid a 6–18 month productivity dip and a €15,000–€50,000 replacement cost.

The Four Stages of Building an HR Function

Stage 1: Founder-Led People Operations (0–30 employees)

At this stage, the founder or a senior leader handles all people decisions. Hiring is done through networks and direct outreach. Onboarding is informal. Performance management barely exists. This is appropriate, the overhead of a formal HR function outweighs the benefit at this size.

What you should invest in at this stage: documenting your hiring process, defining your culture explicitly, and using an HR system (BambooHR, Personio, or equivalent) from day one so you don't have to migrate data later.

Stage 2: First Dedicated HR Hire (30–80 employees)

This is typically an HR Manager, HR Generalist, or Head of People, someone who can own the people operations end to end. This hire should be able to run recruiting, handle onboarding and offboarding, manage compliance, build a compensation framework, and partner with leadership on culture and engagement.

Common mistake at this stage: hiring a very junior HR coordinator when you need a senior generalist with real ownership, or hiring an HR specialist (e.g., only recruitment) when you need a generalist who can cover everything.

Stage 3: Building Specialist Capability (80–200 employees)

As headcount grows past 80, the generalist model starts to strain. This is where you start adding specialist roles:

• Talent Acquisition specialist, if you're hiring 3+ roles per month consistently
• HR Business Partner, embedded with specific business units or teams
• Learning & Development lead, once you have structured career ladders and development programmes
• HR Operations / HRIS lead, as your people data and process complexity grows

Stage 4: The People Function as a Strategic Asset (200+ employees)

Above 200 employees, the HR function should be a genuine strategic asset, not a support function. This typically means a VP of People or Chief People Officer leading a team of specialists, with HR data informing board-level decisions on talent, culture, and organisational design.

The Most Common HR Hiring Mistakes

• Hiring too late: waiting until HR problems are already expensive (high churn, inconsistent hiring quality, compliance exposure)
• Hiring for the wrong stage: bringing in a "big company" HR Director who can't operate without established systems and dedicated teams
• Underinvesting in compensation: HR salaries are consistently undervalued, the best HR talent knows its worth and will go where it's properly paid
• Isolating HR from the business: treating the HR function as administrative rather than strategic reduces its effectiveness and frustrates good HR professionals

How to Hire Each Role in Your HR Function

The sourcing approach varies significantly by role. For a Head of People or HR Director, passive candidate sourcing through specialist networks is usually more effective than job boards, the best HR leaders are rarely actively looking. For HR generalists and specialists, a combination of job boards, LinkedIn outreach, and specialist HR recruitment agencies typically delivers the best results within a reasonable timeframe.

Reference checking is particularly important for HR hires. The way an HR professional has been managed, and the way they've managed others, tells you more than almost any interview technique. Ask referees specifically about how the candidate handled difficult people situations, how they influenced leadership without direct authority, and how they balanced employee advocacy with business needs.