Strategic human capital

Strategic human capital is the “disproportionately productive and valuable individuals employed by a firm who are capable of contributing disproportionately to that firm’s competitive advantage” (my definition). Consistent with the human capital literature, the productivity and value of these individuals arise from the knowledge, skills, and abilities they possess and apply toward the goals of the firm (Pfeffer, 1994). To be a source of competitive advantage, their knowledge, skills, and abilities must be valuable, rare, costly to imitate, and nonsubstitutable (Barney, 1991) and they must also be imperfectly mobile (Peteraf, 1993).

Strategic human capital in new, developing ventures

How to you motivate your “star” employees in the early stage of development without giving away the company. Some companies give their employees enough money to take financial incentives off the table and give them autonomy and non-financial incentives to motivate them. They don’t give stock options because they want their stars to think about the customer instead of the stock.

Venture capitalists traditionally have been reluctant to give funding to start-ups that will essentially be used for salaries unless they understand the value proposition of doing so (motivated talent, keeping stock options off the employee table) because there’s no tangible residual for the VCs and because of causal ambiguity, social complexity, and firm-specificity. Strategic human capital aligns these three attributes of talent with the strategic goals of the firm and the investment interests of the founders and venture capitalists. The question is: “How do you pull this off?”