Expert: Startups Should Avoid Outsourcing HR to AI

Sometimes the smartest strategic move you can make is knowing when not to use AI.

Startup companies trying to gain marketplace traction and become profitable may be tempted to keep administrative costs down by outsourcing HR to an agency or turning over multiple HR functions to third-party AI-powered technology.

David von Rosen, the founder of online gaming platform Lottoland, luxury property developer 25 Degrees and celebrity fan engagement and philanthropy platform Favrr, emphasized in an interview that while outsourcing HR may be OK for enterprise-level companies, it’s paramount for startups to keep their HR in-house with full, hands-on, human oversight.

A serial entrepreneur, von Rosen knows a thing or two about running successful startups. One of his other companies, which sold branded, high-end clothing online, created a fashion sensation when Apple co-founder Steve Jobs wore one of its black cashmere sweaters (a departure from Jobs’ usual plain, black turtleneck) while introducing the iCloud platform at the Worldwide Developers Conference.

AI’s Not for Full-on Outsourcing HR at Startups

“I still believe in AI very much. I’m very bullish on what AI will be able to do in the future” von Rosen said.

However, he also said that AI isn’t suitable — at least not yet — for fully outsourcing HR’s talent acquisition duties or helping make hiring decisions for companies that are at the startup stage.

For one, he argued, it could be a potentially devastating setback for a company in its infancy if AI makes a recommendation to hire someone who doesn’t mesh well interpersonally with the rest of the team. If someone isn’t clicking with a team that’s, for example, putting in 16-hour days together, it spells big trouble.

Also, if startups start tech-outsourcing HR, they risk losing the human touch that’s important for holding that hard-working team together.

“If you’re a small team, I think there’s nobody better than yourself to look for the right people. … If you have a small team, you should very well know who that additional person is who comes in and joins you. … No external software will be able to replicate what you know [about company culture and values], and therefore at that stage, you should do it yourself,” he said.

What Outsourcing HR to Tech Can’t Do

Von Rosen shared a story of how he researched, then relentlessly recruited, a German IT leader to join one of his startups. After multiple LinkedIn messages and emails, the tech pro finally agreed to meet with von Rosen for coffee. Their face-to-face interaction confirmed the suspicion that he was indeed the perfect candidate for the position. This approach is something AI isn’t capable of executing (at least not yet).

According to von Rosen, AI isn’t fluent in assessing crucial soft skills or leadership potential, although machine learning could change that. “[AI is] more for the know-how and the expertise and what you have done in the past. … Is [there] a human and interpersonal match? I think that’s going to be much harder for any software to understand,” he said.

“HR is a function which is mostly based on human interaction. The HR departments at my companies, in my view, are responsible not only for hiring — also for firing in some cases — but also to keep a very close eye on the atmosphere in the company [and] to take people for [coffee or to lunch] to understand where the problems are — the individual problems as well as the bigger problems … in the company — to get ideas from them,” von Rosen said.

When Can Companies Consider Outsourcing HR Functions?

When asked if there were revenue or years-in-business benchmarks where a company should start investing in AI-powered HR tech tools, von Rosen said because one size doesn’t fit all, it’s up to the CEO or company founder to make the call when the time is right.

The takeaway for startups: “Do as much [HR] as you can yourself because … we’re the most intelligent creatures on earth. And until AI has clearly taken over, and can do interpersonal functions better than we can ourselves … I would say try to fulfill those HR functions … yourself.”