People Analytics

The Rise of the HR Tech Stack

By Sarah Hallam

Last updated: Feb 15, 2023

Explosive growth and VC money in the HR tech space has given way to the rise of "HR tech stacks," something industry veterans never imagined possible ten years ago.

HR tech companies received a record $3.6 billion in VC funding so far in 2021. Image credit:
HR tech companies received a record $3.6 billion in VC funding so far in 2021. Image credit:

The COVID-19 pandemic and remote work have created unprecedented opportunities for startups new and old that are disrupting the traditional human resource space. According to new research by Fortune Business Insights, the HR tech market is projected to reach $11 billion in the next 15 years.

Venture capital firms have scrambled to jump onto this trend. Human resources and people operation platforms have raised $3.6 billion in VC funding so far in 2021, surpassing the $2.2 billion raised during the entirety of last year.

“What we are seeing is a greater recognition of more and more companies caring about HR,” said Jon Stross, the President and Co-founder of Greenhouse. “They’re seeing that this isn’t a back-office function that we are just managing for cost. This is a really important function to determine whether we win or lose, and because of that, companies are going to spend more overall and that attracts all those investment dollars.”

Of course, for all of the opportunity made available by the pandemic, new challenges have also emerged. Camilla Velasquez, SVP of Product at Justworks, says the pandemic has fundamentally shifted the expectations both employers and employees have of eachother, now that the workforce is more geographically distributed.

"There's definitely been a recent change in that relationship and a realignment in expectations on both sides," Velasquez said. "Recruiting and retention are the main problems across all industries and company sizes.

Greenhouse co-founders

Greenhouse co-founders Dan Chait and Jon Stross. Image credit: Greenhouse.

Greenhouse is intimately familiar with the challenge of recruitment. Stross said he and his co-founder Dan Chait came together to launch the company to make hiring easier after hearing how much of a headache recruiting became for CEOs and upper-level roles.

Stross has been watching the HR tech landscape steadily expand over the past nine years. One thing he has noticed is the growing tension between companies choosing one software suite to manage all of their HR needs versus purposely choosing a host of different specialist tools to create a “full HR tech stack.”

“The amount of HR tech tools that each company uses seems to just keep growing and growing,” Stross said. “It's not all locked down to three companies anymore.”

Stross isn’t just observing, it’s a known industry fact that a curated tool suite is becoming the norm. In 2020, the average company was using 137 unique SaaS tools. With a paradigm shift toward remote work, companies are leaning on HR tech tools more than ever to strategically hire and operate functions like payroll and onboarding, and to grow culture.

The growing presence of this ubiquitous “HR stack” provides even more room for startups in this ecosystem.

Take Tango, a Chrome-extension founded by three Harvard Business School dropouts; their platform has built a tool to conquer all tools, creating a “shadow” system that allows onboarding for team members to quickly get up to speed on whatever software or processes their company uses.

“There's a proliferation of tools, and those tools have gotten increasingly more narrow,” CEO and Co-founder Ken Babcock said. “There are tools that are just dedicated to employee bonuses. There are tools dedicated to surveys or collecting user feedback. That adds another layer of complexity when you're talking about bringing somebody on, they're going to learn a tech stack and all of our tools.”

Tango Co-Founders

Tango co-founders Brian Shultz, Ken Babcock and Dan Giovacchini dropped out of Harvard Business School to start their onboarding tool startup. Image credit: Tango.

Babcock and his two co-founders, Dan Giovacchini and Brian Shultz, launched Tango right at the tip of the pandemic in March 2020 and on Thursday brought their shadow tool out of private beta and officially released it on ProductHunt.

Babcock says the dramatic shift the pandemic brought to workplace habits has presented a new space for his company to work with but has also created a vacuum for new HR-adjacent startups to thrive.

“I think some of the shifts and challenges we're seeing are with increasingly distributed teams,” Babcock said. “You're juggling multiple time zones. You're making use of Zoom, which is fine, but it doesn't allow for the watercooler type of conversations or informal camaraderie within a team, like, ‘hey, let's go grab lunch,’ or ‘let's go grab coffee.’ And I think there's a lot of opportunities there.”

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