Hiring is an essential and really difficult component of company building that often gets neglected in early-stage startups. That’s because hiring is not as glamorous as building product, acquiring customers or doing sales. Yet hiring is absolutely essential because it is the people you hire who build products, drive marketing and sales, and generally get things done.
Before you hire, you need to build a hiring plan. Here’s an example of the worst yet most common hiring plan:
“We need to hire 3 engineers and have enough runway for 18 months.”
Engineers, while essential, aren’t always the right people to hire. Not only that, investors do not want to fund your burn. Investors want to fund you to your next big milestone so that you can either raise more capital or become profitable.
With that in mind, a great hiring plan is based on two major considerations: MILESTONES and FUNCTIONAL AREAS.
Hire based on milestones you need to hit
Instead of starting with hires, or engineers to hire, start by defining specific business milestones you want to achieve over the next 12 to 18 months. Spend a lot of time thinking the milestones through to make sure they will be sufficient for you to raise capital again, or to become profitable. The best milestone is specific monthly or annual recurring revenue. Once you decide on the milestones, you then figure out how to get there. Each hire you make, especially if you are an early-stage startup, should contribute to your bottom line—the milestone you need to hit.
What drives revenue? Essentially two pairs: product/engineering and sales/marketing.
Decide on the product team you need. What features are missing? What is it going to take to develop them? Most importantly, why do you believe these specific features will drive revenue? This is a key piece to validate with prospective customers because it will impact your hiring plan. Once you figure this out, you should be able to decide on the number of engineers, designers, and product managers you need on board to make a great product.
Next, evaluate your sales and marketing needs. If you are clear on your sales process then you should scale sales by scaling your sales organization. Do you need more SDRs? Do you need a director of sales? Estimate how much revenue they will be driving to decide how many sales people to bring on board. On the other hand, if your product is self-served you may need to scale your growth marketing team, instead.
In addition to product/engineering and marketing/sales hires you may need other hires. If your startup is operationally intense, sells physical goods, or has an inventory complex product supply chain, you will need an operations team. If you have a product that requires support, you may need to build up a support function. Regardless of what you are selling, if you are a b2b company, you’ll need to start thinking about customer success early on. Again, think about all of these hires from revenue generation and revenue retention or other KPIs and milestones.
Hire based on functional areas
Before we dive into functional areas, let’s explore a simple analogy of what happens with startups as they progress from just the founding team to more mature businesses.
I call it the game of giving out hats. Here is how it goes:
When you are just the founding team, each of you wears many hats. For example, your CTO could be also head of product and VP of engineering. Your CEO could also be head of sales. Your third co-founder could perform the function of head of marketing and head of customer success. In other words, each founder in the beginning wears lots of hats.
As the startup grows, the founders’ goal is to give up extra hats.
In other words, the CTO will hire a head of product and a VP of engineering and will give out those hats. The CEO will hire a head of sales. You will also bring on board a head of marketing, head of customers success, etc. By the time your startup becomes a later-stage business, all the hats are given out.
So here is the key thing—in addition to figuring out hiring based on milestones, you need to figure out hiring based on the FUNCTIONAL AREAS specific to your startup. That is, as a founder you will figure out that it is time to give out a particular hat and make the hire to replace yourself in that specific role. Making these hires will allow you to continue to scale your business.
Figuring out when exactly to make these hires really depends on the vertical, stage and growth of your startup. Typical functional areas are Product, Engineering, Sales, Marketing, Operations, and Customer Success. Your startup may have additional areas depending on the type of business you are running.
Once you decide that you need to scale a specific functional area you need to hire a functional area lead. Whether you give them a VP or Director title, the hire you are making should be capable of running this specific functional area instead of the founder. Once you hire the lead, they’ll naturally be tasked with hiring more people in their specific area. Your overall hiring plan then, will comprise of hiring plans across different functional areas.
If you over-hire, two things will happen. First, and obviously, you will increase your burn, and run out of money faster.
But a more subtle effect of over-hiring is that you may slow down instead of growing faster. Once you have people on board you will be forced to give them work to do, potentially creating more tasks than you need and de-focusing.
When you over-hire, you slow down and miss the milestones. So not only you will be burning through money faster you will be making less money. So overall you will be running out of cash much faster.
Spend a lot of time thinking through your hiring plan. When you nail it and make the right hires, you will grow the business and hit your milestones faster.
Engineer, Immigrant. Vegan. 3x Founder, Managing Partner @2048vc. Previously ran @techstars in NYC. I write #startuphacks: http://alexiskold.net .