Building Your First HR Function: What Nigerian Startups Get Wrong

At some point between your fifth and fifteenth hire, someone says the words that signal you have officially outgrown the spreadsheet: ‘We need to sort out HR.’ What happens next usually determines whether your people infrastructure becomes a competitive advantage or a liability that compounds quietly until it forces a crisis.

Most Nigerian startup founders do not have an HR background. So when the moment arrives to build an HR function, they either delegate it to the person who seems most organized, outsource it without a clear brief, or ignore it until a compliance notice, a resignation, or an employment dispute makes ignoring it impossible. About 25% of African startup shutdowns in 2024 were due to people and operations related challenges. HR is not just an administrative function. In 2026, it is one of the most direct lines between your startup surviving or not.

Mistake 1: Hiring a Senior HR Person Before You Have HR Systems

The first and most repeated mistake is hiring shiny talent in the infancy stages. A Head of People hired into a company with no documented processes, no HRIS, no onboarding framework, and no compliance infrastructure spends their first six months building what should have existed before they arrived. That is expensive, slow, and deeply frustrating for someone hired to lead rather than build from scratch. When Coinbase-backed Mara went bankrupt in 2024, the CEO highlighted that they paid high salaries to attract talent from companies like Apple, but they did not always deliver the expected results. The sequencing that works: build the systems first, then hire the person to run and improve them.

Mistake 2: Treating Employment Contracts as a Formality

Many startups bring people on board based on referrals or ‘they seemed sharp.’ Hiring without structure results in misaligned expectations and unclear responsibilities. In Nigeria, employment contracts are governed by the Labour Act. Companies that skip formal contracts or use generic templates regularly discover during a termination or dispute that their contract either does not reflect Nigerian law or does not reflect what they actually agreed to. Specific clauses Nigerian startups routinely omit: intellectual property assignment, non-solicitation provisions, probation terms with clear performance expectations, and Labour Act-compliant termination procedures. A lawyer reviewing your contract template once costs less than a single employment dispute.

Mistake 3: Scaling Headcount Without Scaling Compliance

You do not have to increase your staff from 20 to 60 in three months just because you raised $3 million pre-seed. Every new hire triggers statutory obligations that require active setup: PAYE registration with the relevant State IRS, pension enrollment with a licensed PFA, NHF deduction and remittance registration, NSITF setup. Startups operating in multiple regions must comply with different labour laws and tax regulations. Without large HR and legal teams, staying compliant with evolving regulations adds significantly to an already heavy workload. The practical answer: separate compliance execution from internal HR entirely. An outsourced payroll and compliance partner handles the statutory stack while your internal HR stays focused on culture, performance, and hiring decisions.

Mistake 4: Skipping Onboarding and Calling It Speed

Speed matters in startups, but the most common version of this mistake is what founders call ‘throwing people in the deep end.’ A new engineer joins Monday, gets added to Slack, is assigned their first ticket Tuesday, and is expected to be productive by end of week; no structured introduction to how the team works, no clarity on who to ask for what. The cost of poor onboarding is not immediately visible because the new hire does not fail spectacularly. They underperform quietly, make wrong assumptions, disengage within three to six months, and start listening when recruiters call. Without a clear onboarding process, new hires feel disconnected and take longer to reach full productivity. A functional onboarding process does not require a sophisticated platform. It requires a document and a dedicated first week that prioritizes connection and context over immediate output.

Mistake 5: Confusing Culture With Perks

Free lunch and ‘we are a family here’ are not a culture. Culture in a startup is how decisions get made when the founder is not in the room. It is what people optimize for when they have competing priorities. Culture fit means aligning on values, work style, and mission, not hiring people who feel like us. The companies that retain people through difficult periods are the ones where employees understand the mission, believe in the leadership, and feel genuinely invested in the outcome. Building that requires intention from the earliest hires, not a culture deck written after you have 50 people.

Mistake 6: Not Knowing When to Stop Doing HR Yourself

The moment to stop managing HR yourself is not when you have a problem. It is when HR administration is consuming more than 20% of someone’s time who was hired to do something else. For most Nigerian startups, that inflection point arrives between 10 and 20 employees. The most efficient model for early to mid-stage startups is a hybrid: an outsourced compliance and payroll partner managing the statutory stack, a lean internal HR function focused on culture and people development, and clear handoff points so nothing falls between the two. With 70% of Nigerian organizations yet to embrace AI in HR, early adopters gain significant competitive advantages, attracting top talent with efficient processes and freeing HR teams to focus on culture building rather than administrative burden.

The Bottom Line

Highly engaged professionals are linked to a 23% increase in profitability. But investing in people without the operational infrastructure to support them is not investment. It is aspiration without architecture. The startups that build HR properly are not the ones with the biggest budgets. They are the ones who recognized early that people operations is a discipline, not a task.

Next Read

The Nigerian Employer’s Compliance Checklist for 2026: the practical reference guide for every statutory obligation your HR function is responsible for managing.

Research Sources

• TechCabal — Why Startups Fail: The Overlooked Role of People Processes (June 2025)
• StarGuide HR Consulting — 5 HR Mistakes Small Businesses in Nigeria Make
• TalentHR — HR for Startups: 8 Key Strategies for 2025
• HiBob — 9 HR Challenges in Startups (December 2025)
• HCMatrix HR — Implementing AI in HR: A Practical Guide for Nigerian Business Leaders