The job market is booming. Companies are growing at eye-watering It’s harder than ever to prioritise headcount, managers are vying for priority and there’s growth on all fronts. It’s hard to know how to sequence hires when there are requirements across the business. If you grow too fast without a person in place, it could spell disaster. Or if you have disproportionate teams, it could overload other functions (support/operations). We’ve just been through the journey of creating our first headcount plan, starting from a blank slate. I wanted to share our experience using market data to help other folks create their headcount plans for 2023.
During our seed funding round, an investor asked us to produce a headcount plan. We’d scribbled down a headcount plan before but only the sort fit for the back of a fag packet. Not something we’d want to present to a prospective investor. In order to try and put the right amount of rigour into it, we asked for advice from some People leaders and investors. But we were surprised to hear this was more of an art than a science. In fact, our first couple of passes at this were pure guesswork. Coming up with whatever job titles we could recollect and randomly placing them in the timeline. It didn’t fill us with confidence.
We studied other startups and read everything we could find, but didn’t feel confident shooting from the hip on this. We decided to try and put some more science behind the process by analysing some data on LinkedIn to back up these big calls.
We’ve plotted the first hire in each function for 12 seed stage companies and 6 ‘successful’ series A companies. Successful in terms of raising money from VC’s and employee satisfaction, not in terms of customer impact. Not factoring in the date founded to avoid putting too much emphasis on growth rates being the main measurement of success. These teams have grown at different rates.
Each bar represents when the role is hired in the business. The series A businesses are in blue and the Seed companies are in grey. I’ve grouped B2B SAAS companies, that’s companies that’s primary product is a web/mobile/desktop business application. And I’ve grouped B2B API companies together, their primary product is an API or infrastructure.
The job titles have been fuzzy matched and synonyms of each job title have been grouped. For example: Sourcer, Talent, Candidate Attraction have all been grouped under Recruiter.
We gathered all current employees and previous employees' work dates from LinkedIn. There is a % of people that are not on LinkedIn and there is a percentage of people that will have churned from the company by the time the hire is made. The average churn rate was 23% across the companies.
Churn rates ranged from 9% to 88% across the companies. Hat tip to Duffel with the lowest all time churn rate of 9%. The role with the highest churning role was Business Development and the lowest was Operations.
When to hire your first designer
The first designer is employee number 19 on average. In this batch, series A companies hired their designer earlier as employee number 18 and at seed businesses a designer was hire number 20. Companies selling API products hire their first designer later, which isn’t hugely surprising.
When to hire your first salesperson
The first sales hire on average is hire number 9 for startups. If you take the anomaly out, it’s hire number 7.
For SAAS companies it’s hire number 6 on average and 15 for API companies. I’m surprised the parity isn’t larger here given how trendy it is to reach the later stages being purely product led.
When to hire your first product person
The first product hire is on average hire number 25. This was higher in the series A organisations, who made the hire at employee number 37 on average. This may speak to a shift in hiring product people earlier, since the Seed companies were founded on average 3 years later. The series A companies were founded in 2015 on average and the Seed companies in 2018. But there is a real mix here.
Stripe famously delayed hiring their first product person until 5 years after founding the company and they’re by no means a shabby startup so there’s more than one way to skin a tech startup.
When to hire your first Recruiter
The first Recruiter is on average hire number 35, consistently later than the previous roles looked at. This role was only hired in the first 20 hires on one occasion. External talent folks are listed as talent employees in 41% of cases. I’m sure the rate of organisations using external help for talent behind closed doors is much higher.
When to hire your first HR person
The first HR hire on average is hire number 39. It’s hire number 44 in series A companies and 36 in the seed companies. On average this is 4 hires later than the Recruiter hire. It’s brought into the first 20 hires on two occasions. Anecdotally it seems common to bring a People/HR & Talent/Recruiter generalist in to play both roles.
When to hire your Chief of Staff
The Chief of Staff hire is on average hire number 32 in the companies that have made this hire. Albeit, only 27% of organisations brought someone into this role which speaks to how new it is.
When to hire your first DevOps person
The first DevOps hire is employee number 43 on average. But since these teams have all hired a good number of people into Developer roles. Unlike Talent or HR, there are other team members who have professional experience in DevOps activities. I’m sure there will have been Developers doing a flavour of DevOps work. It’s interesting that API companies weren’t hiring DevOps engineers earlier than SAAS companies with arguably more complex infrastructure. I think this chart speaks more to when technical organisations start to split off into specialist roles.
For more of a birds-eye view, here’s an overview of the numbers in each functional area. These are based on current employees, unlike the above graphs which include previous employees.
The split is similar across tech, commercial and support roles and in most organisations. The function split is relatively evenly distributed, especially in the ‘successful’ businesses that have done a series A raise.
As expected the API product organisations are heavier on the tech side and lighter on the commercial and support side in comparison to SAAS products. More surprisingly, they are lighter on the management side too. Often with an equal split between support and operations for the 2nd largest function, this may speak to the need for fewer managers per head in technical teams.
Here are six learnings for your headcount plan:
- Be aware of your bias. You’d expect a business to be leaner in the founders area expertise, since founders are better placed to cover this area. But 80% of founding teams made multiple hires into their area of expertise in the first 10 hires. For example, 2 marketeer founders make 2 marketing hires in their first 10 employees and a product founder makes 2 product hires in their first 8 employees. People do this because the better you know a field, the better appreciation you have for the craft. The higher the level of skill you have in a domain, the greater the appreciation you have for the levels within it. You see this with juniors new to a role who may misjudge their level. But greater appreciation isn’t a bad thing, you know what can go wrong if you skimp. You have a better chance of building a world class function in the area you know best.
- Watch out for blindspots. Conversely, founding teams are more likely to underestimate getting to a sufficient level of quality in areas they do not know well. Undervaluing the craft and the organisational debt they’ll take on. If you’re a Talent/HR person at a startup, be aware of this bias and feedback to your team. To offer a strategic perspective, let leaders know if a business area looks different from the norm. Leaders are thinking more about the roles they know best, so keep an eye out for their blind spots.
- Investigate disproportionate functions. If an API company is heavier on the commercial side, like a SAAS business, they’re not falling into this trap. But there may be some other fundamental problem at play. The oversized commercial team could be compensating for a poor go to market plan, or an inefficient sales strategy. If you tally up your functional splits and they look different from the norm, look to address why.
- Account for churn. Churn ranged from 9% to 88% amongst our dataset. Being on the higher side of that range would be crippling. If your churn rate is over 40%, then you’d be in the top 10% of this batch of companies. It could be that you’ve had a pivot, or grew too fast and need to restructure. But if this isn’t the case, then take a deeper look. If your churn is consistent across the board, look at your culture and recruiting process. If churn is high in a specific function, it’s time to have a think about how you’re enabling people to be successful there. You're never too early-stage for employee surveys and exit interviews. Factor your churn rate into your headcount plan, or you’ll be behind at the end of the year.
- Factor in your time to hire. To take a headcount plan to the next level, include time to hire for different business areas. For this, work out your time to hire for each role, then work out your company wide average. For roles or functions above the average, you need to start the search X% of time earlier. Otherwise at the end of the year you’ll be behind in the harder to fill roles. It’s safe to ignore this, if you have less than 2 years of hiring data under your belt.
- Avoiding headcount plan pitfalls. At a pre-product market fit startup, the danger of hiring too fast could be the end of the business. In growth mode, it’s more common to be behind on your headcount targets. At the early stage, you should scrutinise the sequence of hires because of the potential devastating effects. Bringing in person X too late could lead to organisational debt that will handicap the company. Making a strategic Talent/HR hire ahead of the average (employee #39/35) is a solution to this. A Talent/HR person who can cover the companies blind spots and look out for your headcount warning signs.
Contact me if you’d like any data on other job titles. If you’ve experienced bringing someone into a role drastically later/earlier than the norm, please do share your experience.
Zinc is an employee background checking toolkit that saves you time through seamless checking from your. Zinc elevates your candidate experiences through gifting applicants with data. If you’re looking for advice on which background checks to run in certain regions or for different roles, we’re happy to help.
This post was written in collaboration with Recruiting Brainfood.