Building an HR Tech Company

Shannon Anderson, Talent Director, Madrona Venture Group

Shannon Anderson, Talent Director, Madrona Venture Group

1. What are some of the key trends within the HR Tech Startup space?

Technology is advancing the speed and quality of our work. It is a force multiplier. We are all familiar with companies such as Uber that introduced the concept of connecting yourself to a ride and getting insights about that ride from data through AI and Machine learning. Now, everyone understands the concept of “uberizing” or connecting the digital and physical worlds (what we at Madrona refer to as “Diphy”) to solve real-world problems. The speed and quality of the work we can perform on top of these technologies and platforms is unprecedented. There are companies today that offer conversational AI platforms and robotic process automation platforms that enable the automation of recruiting workflow, which largely removes human beings from the parts of the picture—especially in terms of candidate engagement and experience. It is just not at the front end either, these advancements tackle the day to day drudgery on the back end for recruiters and talent folks. However, in the pursuit of enabling speed and quality of work, these technologies remove some critical human interaction. The feeling of being responded to by a human, serving or being served by one, and being understood by one, is an essential aspect of the human condition. A craving for real connection is increasing as technologies such as chatbots intercept our old models of relating.

"Solve a high-quality problem that people are willing to pay a premium for"

I’m not saying this is a bad thing. On the contrary! Technology enables us to remove some of the rote and transactional aspects of interaction, thus freeing our minds and hearts to have more enriching conversations and relationships—which is an interesting, unexpected and wonderful by-product of AI and ML. For example,  a company in our portfolio—offers a permissions-based AI-powered platform for managers to understand the engagement levels of their teams by observing their digital interactions. Based on the precise data gathered on the qualitative behavior of the employee and manager, it generates information about trends and predicts outcomes. This data and insight based on science enable managers to adjust interactions and improve performance, and retention. 

We are light-years away from AI replacing human intelligence. AI enables human beings to move faster and boost their intelligence and intellect. It enables informed, data-driven decision making, but at the end of the day, it’s the human who makes the judgement calls and places the smarter bets.

2.  What are some of the key attributes you look for in a company before investing in them?

We are a Seattle-based firm, and we are deeply committed to growing the ecosystem here, so most of our investments have HQs in Seattle and the PacNW. We are an early-stage venture capital firm, so this means we like to get involved with founders at or before the Seed round and stay with them through the long-run to IPO or a substantial exit (Amazon, Smartsheet, Apptio, Impinj, Heptio, and Turi are a few examples). We invest in companies that solve very high-quality problems at scale, enabled by AI and cloud computing. We invest in companies in sectors where we have deep operational expertise so that we can help them grow and scale, recruit talent, connect with customers, and build their brands. We look for strong founders who are deeply knowledgeable and credible in their space. We invest in founders who are interested in building something valuable and durable, not just enter the market and make a quick exit. 

3. How has your experience within the HR landscape helped your current portfolio of companies? 

I’ve been a recruiting practitioner for over 30 years. One of the greatest opportunities I had was being a part of Microsoft very early on, helping the company grow from 8000 to 40000 employees, and we were building the recruiting machine while we were in-flight! I learned a lot about creating repeatable and predictable processes, boldly trying new things, failing fast, and doing that while scaling 10x growth on a daily basis.  At Microsoft, I learned that nothing was impossible and that every problem has a solution. I spent four years with a venture firm, which was a startup itself, and we were funding startups. I co-founded an executive search firm. I placed engineering executives at Google (when they were only a search engine) and Amazon (when they were still a bookstore). I spent time with mid-cap companies teaching interviewer training workshops, and teaching recruiters how to be business partners, teaching CEOs how to conduct executive searches.

Now, I bring all of my experience to bear here at Madrona to help our portfolio companies get a competitive advantage with talent. My work is a combination of teaching companies how to recruit and helping them make connections with superstar talent that they might not otherwise have access to. For example, I lead a group of very high potential recruiters from across our portfolio. Once in every six weeks, we have sessions and workshops to help them elevate their business acumen and their ability to partner as talent advisors while also giving them tools to pay their workshop learnings forward to their CEO, leadership team, and peer recruiters. Sharing knowledge is a force multiplier and helps our portfolio companies to rise together. Together we are building Cultures of Recruiting.  

4. What would be the single piece of advice that you could impart to a fellow or aspiring professional in your field, looking to embark on a similar venture or professional journey along the lines of your service and area of expertise?

I’ll frame my answer to your audience of would-be HR Tech entrepreneurs. Solve a high-quality problem that people are willing to pay a premium for. Leverage the power of the cloud, AI, ML predictive analytics, and real-time decision science. HR is a complicated market to revolutionize, and there’s no shortage of entrepreneurs who are trying. Many HR tech companies have started and failed. Last I checked, there were about 5000 HR tech firms in which the majority were startups, most of which won’t make it. I would advise any founder looking to venture into this field to deeply understand the total addressable market for your product (TAM) and think carefully about your pricing model.

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