When the founder holds everything together
In the early stages of a business, most people decisions sit with the founder.
Hiring, performance conversations, pay decisions, policies, and compliance are handled directly, often instinctively. The team is small, communication is constant, and the mission and vision live clearly in the founder’s head. Decisions are fast, aligned, and easy to explain.
This isn’t a weakness.
It’s exactly how small businesses operate effectively.
Informal HR works in this phase because leadership is centralised, context is shared, and complexity is low. But as the business grows, those same conditions quietly change — and what once worked starts to strain.
The challenge isn’t that informal HR is wrong.
It’s that growth alters the environment that made it effective.
Why informal HR works when businesses are small
In small teams, informality can be a genuine advantage.
The founder or owner makes most decisions
Structures are flat, with no departments or silos
Expectations are communicated through daily interaction
Change can be implemented immediately — no paperwork, approvals, or cascading
Trust is personal, not procedural
Because the business is simple, leaders rely on judgement and memory rather than documentation. Everyone knows what “good” looks like, even if it isn’t written down.
At this stage, formal HR processes can feel unnecessary or even obstructive.
But this only works while complexity remains low.
What changes as the business grows
Growth introduces distance.
New managers are appointed. Teams expand. Roles become more specialised. Decisions are made by different people, at different times, under different pressures.
Crucially, new leaders don’t automatically share the founder’s lived understanding of the business — even if they share the same intent. The mission and vision that once guided every decision now need to be communicated, translated, and reinforced.
This is where informal HR begins to show its limits:
Expectations are assumed rather than aligned
Similar issues are handled differently across teams
Leaders interpret standards instead of applying shared ones
Employees start comparing outcomes — and noticing inconsistencies
This isn’t a failure of leadership.
It’s a signal that the business has outgrown reliance on shared memory alone.
The quiet consequences leaders don’t expect
When informal HR starts to break down, the impact is rarely dramatic.
Instead, it shows up gradually:
Frustration framed as attitude rather than unclear expectations
Managers hesitating because they’re unsure what’s defensible
Leaders revisiting decisions or repairing trust after the fact
Time lost re-explaining “how things are done here”
Increased risk — without a clear moment where it began
Over time, this erodes confidence. Leaders feel reactive rather than supported, and people issues begin to carry more emotional and operational weight.
Why structure isn’t control — it’s leadership support
At this point, many leaders resist structure, worried it will slow them down or undermine trust.
In practice, good HR structure does the opposite.
Clear expectations, documented processes, and consistent decision frameworks:
Reduce ambiguity
Support fair and confident leadership decisions
Protect both people and the business
Carry the founder’s intent forward as the organisation grows
Structure doesn’t replace judgement.
It supports it, especially when leaders are no longer present in every conversation.
This is where compliance and culture stop competing — and start working together.
A maturity moment, not a failure
Outgrowing informal HR isn’t a sign something has gone wrong.
It’s a sign the business has reached a new level of complexity.
Strong organisations recognise this moment early. They evolve their people practices — not to add bureaucracy, but to preserve clarity, fairness, and confidence as they scale.
The goal isn’t to lose what made the business work.
It’s to protect it as the business grows.
If your business feels harder to manage than it used to — even though nothing specific is “wrong” — it may be time to pause and ask whether your people practices still match the size and complexity of your organisation.
Clarity now prevents confusion later.
If you need a hand getting clarity on what this means for your business, you’re welcome to book a consultation with us.
