Key considerations for effective startup staffing
Every year, less than 10% — out of an estimated 100,000 technology startups — are considered promising enough to achieve the first round of investment from private equity or venture capital sources. When a startup accomplishes this benchmark, it is no longer an interesting idea but has evolved into a viable commercial prospect.
One of the pressing questions for emerging startups, as they begin to grow revenue through the adoption of their products and services, is the sequencing and investment in new hires. The balance pivots across a number of axes – managing cash flow or burn rate, increasing revenue, servicing new customers, and getting the leadership team focused on investors, key clients, and strategy.
There are four key decisions around when and who to hire for effective startup staffing as your business begins to grow.
Confidence vs. Cash
Adding staff brings, what can be, a harrowing set of decisions that startups must make as they find growth. The balancing act lies somewhere between the confidence in your business growth versus the cash you are burning. It requires careful planning and a methodology to determine which key people will have the highest ROI. This ROI is not defined by just revenue growth but opportunities to increase your service, improve your technology, or professionalize your processes.
Start-ups who are indeed confident in their growth trajectory can begin to add key personnel strategically. This means they hire the people who add the most value to the strategic roadmap. They do it with great precision and planning, as much as six to nine months in advance. Prepare by writing job descriptions, determining salary ranges, and establishing which essential departments and people need attention and focus to achieve your targeted objectives. Build a long-term strategic roadmap of hires based on revenue or internal milestones. This hiring strategy also must bring a lens around other areas of company needs. That includes the cultural fit, the diversity, and the mix of talent (or talent holes).
Customers vs. Customer Service
One of the dilemmas startups face is whether to add more customers (by adding more sales personnel or increasing marketing budgets) or to service their existing customers better (by adding additional account managers, customer service reps, or to create programs and processes that increase customer satisfaction). The answer is, of course, yes — you need to do all of it, but you may want to weight these hires differently. It is not necessarily a one-for-one exchange in the value they bring.
The inclination is to always add more sellers to grow revenue and show investors your customer adoption curve. Investors will continue your success on the customer base and your product adoption, so that cannot be ignored. However, once you have a customer, it’s terribly important to service them well and eliminate the costly effect of churn.
Retaining customers is vital to success. Research tells us that increasing customer retention rates by 5%, increases profits by 25% to 95%. And finding new customers is significantly harder than building the team to support your existing customer base.
Client retention is usually more efficient and certainly, it is easier to up-sell and grow existing clients revenue. Great customer service people aren’t necessarily just a cost center. You are simply building on the trust and loyalty you have already earned. I always lean on over-servicing your existing customers – making your services incredibly sticky.
If it comes down to increasing your sales staff versus adding support to your client services team, review the LTV of a customer and carefully do the analysis for the most effective startup staffing. The results may surprise you. Can you afford to lose a customer or not gain a new one? Find the right mix of both, but don’t under-invest in your service.
Product vs. Process
I see many startups have brilliant technology teams and engineers. I do find though, that they also have poor product and project management processes that create an oversupply of engineers to compensate for the inefficiency of an organization. If you are constantly descoping product, missing release milestones, pushing new updates, it may reflect a process problem. That doesn’t need more people but more so a focus on the execution.
Make sure the process of building new products is efficient and smart. A process-driven, quality-focused methodology is key to ensuring you aren’t over investing in engineering talent.
The companies that do this well have velocity and delivery of the core products in a timely and organized fashion. They don’t over-invest in engineering talent; they invest in the processes that get the most out of the people. Don’t waste engineering cycles but build rigor into your agile processes.
Agility vs. Angst
Many founders are overseeing too many operational details. They want to stay lean and mean, yet carry the burden of every detail of the company. When business owners find themselves dealing with the thousands of small everyday calamities, they may be sacrificing their company’s agility. The angst of losing control, versus the agility necessary to grow faster, becomes a common founder’s dilemma.
Founders, who understand the need to hire a few key deputies to disperse the decision-making, are usually the ones that achieve faster growth. While a founder needs to have a pulse on the company, there comes a tipping point where they cannot possibly manage all the details. This is when effective startup staffing comes in. Founders by nature like to be in control. The strategy to empower the team while keeping the organization and company moving forward will create fewer decision bottlenecks.
As an early-stage VC, Mark Suster writes, “Great leaders recognize their own individual strengths and recruit people who compliment them rather than compliment them.”
Growing startups face so many challenges. Finding the right balance between managing cash flows, bringing in the right people at the right time, and sustaining growth is complicated. There is no secret formula, but the company’s culture and its agility will remain higher if the company continues to invest in the right people, in the right places, in the right order. This hinges on managing outlay’s, servicing existing customers, and developing great processes. The highest payback will be seen when the founder is out of the weeds of effective startup staffing and instead focused on long-term investors, key clients, and strategy.