This post is part of Accel’s Secrets to Scaling series, where leaders from across our portfolio share their learnings and advice with the next generation of European entrepreneurs building global winners.
As the world of work was turned upside down last year, technology became a more important part of managing teams than ever before. Personio, which is building Europe’s leading HR platform for SMEs, is a business at the heart of that transformation. Already serving almost 4,000 customers across Europe, the company doubled its headcount in 2020 and entered multiple new markets including Spain, the UK and Ireland, the Nordics and Benelux. At the beginning of 2021 it raised a $125m Series D round, valuing the company at $1.7 billion, and by the end of the year it will have passed the milestone of 1,000 employees.
Founder Hanno Renner spoke to me about how he went from yachting to entrepreneurship, bringing the software revolution into the SME market, the importance of staying focused and the disciplined approach to hiring that has underpinned Personio’s success.
You were a student and a yacht skipper before starting Personio. What made you want to become a founder?
As the child of two teachers I had no idea about how to start a company, and it wasn’t on my map as a potential career path. But during my time at the Center for Digital Technology and Management (CDTM - an entrepreneurial programme from Munich's two big universities TUM and LMU), I got to see a lot of start-ups founded by alumni and I was inspired by the idea of creating something. I realised how easy it is to start a company - to grow and make it successful is really hard work - but the initial set-up is quite easy. As a mechanical engineer I also knew I would have fallback opportunities if I failed. Having interned at a few companies that weren’t great places to work, I wanted to build one where I could work with people who were as motivated as I was, and give them a positive working experience. One of the best things about being a founder is that you can create a place that is impactful for everyone who works there. You have the opportunity to make people’s careers as they help you to build the business.
Why did you decide to focus on Human Capital Management?
At the time a friend of mine was CTO of a 100-person company, which was having a lot of trouble managing all of its HR data in Excel spreadsheets. They had the classic problem that this data is very difficult to work collaboratively on, because so much of it is personal and confidential. Lots of people need access to different parts of it, but information like addresses, bank account details and performance reviews needs to be well protected. That was the initial insight that helped us realise there was an unsolved problem in the SME space, and a need to bring this data into the cloud with different access rights, viewing rights and collaboration tools so people could work with it effectively without compromising privacy. Some large enterprises had solved this problem for themselves, but there was no modern, software-as-a-service (SaaS) solution that catered to SMEs. We wanted to democratise what was being done in the enterprise space and bring its benefits to the entire market.
Why do you think SMEs have traditionally been underserved by software providers?
In the old school model of software distribution, it was simply that there was more money to be made in the enterprise space, selling to the largest customers. People thought you could only build a sustainable business by focusing on the enterprise. But the growth of SaaS over the last 10-15 years, and the shift from on-premise solutions to the cloud, has made software much more accessible for SMEs. It’s quicker and more affordable to implement, without the need for a specialist in-house IT team. Cloud services allow small businesses that might have been put off by the investment requirements of a traditional solution to adopt at their own pace, and without a huge up-front commitment. That’s a huge benefit to the economy as a whole, because it brings technological solutions that are transforming key areas of business operations, including finance and HR, to the entire market rather than limiting them to the biggest and richest companies. It’s a democratization of technology.
You founded Personio with Roman Schumacher, Arseniy Vershinin and Ignaz Forstmeier and then Jonas Rieke joined the company a little later on. How did you choose your co-founders and what would your advice be for entrepreneurs making the same decision?
One of the benefits of CDTM was the fact that it was an interdisciplinary programme, so we weren’t all business folks. I got to know a lot of people who specialised in different areas and that’s useful when you’re working on projects together. There's a lot of debate about whether your co-founders should be your friends, and I personally believe if you're spending so much time together, you should enjoy their company.
Don’t try to choose someone just because they have the right skills. Make sure you can spend time in the office, over weekends and in the evenings together as it’s a very long and tough journey!
I agree! One of the things that has struck me about Personio is your ability to hire high-calibre people consistently. How have you gone about building that team?
We’ve tried to be patient, and to take as much time as needed to find the right people. I think there’s often a misconception in start-ups that everything is chaos, you have to go with the flow, move fast and make the people you meet match the team you’re building. There’s some truth to that, but it’s also important to be thoughtful and not rush. There are some roles which are so important you feel like you have to fill it tomorrow, but it’s better to live a bit longer with the pain of having an empty seat if it gives you time to find the right person. For example, it took us two years to find our Chief People Officer [Ross Seychell] and we interviewed more than 200 people in the process.
Hiring can be a self-fulfilling process: if you lower the bar once, it makes it harder to raise it the next time, because people joining compare themselves to the people already on your team.
We also evolved the structure of the team over time as the business grew. Early on we never really had a C-level team, but once the company was past 100 people, we started building a VP layer which was a combination of people who’d done really well for us and been promoted, and others we hired from outside. That improved our senior leadership, and it allowed me as a founder to reduce my number of direct reports so I could lead the business as a whole more effectively.
Personio recently announced its Series D round, which was an amazing milestone. What is your advice for founders on fundraising?
There’s a lot of capital available at the moment, so I would say be very deliberate about when you try to raise money and why. It’s not just about being able to get a term sheet, but knowing that the money is going to make a real difference for the business at that point in its development. In the beginning, we bootstrapped for a year and I think it can certainly be helpful to give yourself time to figure out your vision without external influence.
As with hiring, patience is also very important and there can be costs to moving too quickly. If you rush to do your first raise, you might find someone to invest in you, but it may not be the investor you wanted or could have got if you’d waited until the business was more mature. Investors are an extension of your team, and you should be selecting them as much as they get to pick you. You need to make sure you have the proof points ready and the next steps clearly mapped out to have the best chance of landing your first-choice investors.
What should a start-up be looking for when it comes to investors beyond just money? How should they choose?
Start by looking at their existing portfolio because it definitely helps if an investor has worked with companies that are similar to yours in some shape or form, whether the same industry, target market or business model. The portfolio tells you about the experience those investors have, and also who they can most easily introduce you to as potential customers, partners or advisors.
Secondly, I’d think just as much about the individual partners as the fund itself. The investors who back you are the people you will be working with, taking advice from, and who may take a seat on your board. It’s important to have an effective working and personal relationship with those individuals as - just like your co-founders - you’re going to spend a lot of time with them during both good and bad times. When you’re choosing whom to work with as an investor, don’t just rely on what you learn from a few meetings with them. Do reference calls with founders in their portfolio to understand how they work. Also, try to build relationships with investors when you aren’t actively fundraising. In the current environment, rounds can be completed extremely quickly and you’re at a disadvantage if you only get to know your next investor during the few weeks when a deal is being done.
As an HR software company you have a unique viewpoint on how COVID has changed working habits. How do you see the future of work?
I think we’ve seen attitudes change more than once during the pandemic. At the beginning there was a realisation in lots of companies that working from home could actually work. But as time has gone on, people have realised they do actually like going into the office as well. Flexibility is good but so is meeting people. Some things work well remotely, but others will always be better done in person.
In view of that, my prediction for the future is that we will emerge from the pandemic with something closer to what we had before than the ‘new normal’ a lot of people were talking about a year ago. It won’t ever be the same as it was, but a lot of people enjoy the separation between work and home that you get by coming to the office, and they feel more productive. We are introducing a flexible working scheme at Personio and I think a lot of companies will do something similar. Employers should be offering the best of both worlds to people: giving them the flexibility they want and need, but also providing them with a place where they can enjoy working and the social aspect of work.
Looking back to the beginning, what do you know now that you wish you’d known then?
There are a lot of ideas about how people can prepare to be founders, such as working in consulting or other start-ups, but I don’t think anything really prepares you for this role.
My most important learnings have come through experience, doing a lot of things, failing at some of them, and realising how much I didn’t know.
Experience is the best teacher, but there is also a benefit in being a naïve first-time founder. Because we hadn’t done any of this before, we tended to take general phrases like “people are the most important success factor” quite literally. Hence we early on established a very disciplined hiring process involving several steps to make sure we identified people that best fit our culture and could contribute to our ambition. That helped a lot, because it meant we didn’t compromise about some of the most important parts of company building. We assumed that everyone must be doing the same.
There are a lot of things it would have helped us to know, but we also benefited from what we didn’t know. Nothing can replicate the process of figuring things out for yourself.
Life as an entrepreneur can be extremely demanding. What habits have you developed to help you deal with the pressure?
I think being comfortable with constant uncertainty is useful, but it’s hard to learn! What has helped me a lot is knowing how to find my own balance and sport is one of the ways I do this. I’ve also started journaling regularly to help structure my thinking and focus. Also - and lots of people now do this - meditating. It really helps me declutter and gain clarity of thinking so I can focus on what really matters.
What gets easier as a company grows and matures? What gets harder?
An obvious benefit of maturity is visibility, and the traction that helps you to gain in key markets. In the beginning, it feels like an uphill battle to win every deal, but as you become better known and a solution of choice, the sales motion starts to become more efficient. But nothing comes for free. As an established provider you may acquire customers more easily, but they also expect more from you, and there’s a constant need to add features and functionality.
Some things you expect to become easier, but they don’t. I thought once we reached a certain stage of maturity, it would be more straightforward to manage and prioritise product development. But even with a team of 150 people across product engineering, there are still so many things we want to build, so many things customers would like to have, that there is never enough time and never enough resources. With a larger team it also takes more effort to manage priorities and align everyone behind them. When you are smaller, more can be assumed and left unsaid.
Finally, there are some things which don’t get easier or harder. The most obvious example is hiring, which I continue to spend around 50% of my time on. I thought that having an established brand might make this easier, but - as you scale up - the requirements increase too. We now hire hundreds of people and have over 40,000 applicants a year. This doesn’t get any easier because it takes the same discipline and commitment to hire your thousandth employee as it did your first.
Read our Secrets to Scaling interviews with:
- Chainalysis' Michael Gronager here
- BlaBlaCar's Nicolas Brusson here
- Supercell's Ilkka Paananen here
- Miro's Andrey Khusid here
- Trade Republic’s Christian Hecker here