Over the last few years working in a high growth tech startup has become pretty popular and these days it’s normal to see startups headcount growing 100% year on year. Some have gone down the sustainable, profitable route — growing only when they can afford it. Others are scaling fast to meet their potential using capital raised.
We have been in San Francisco for the last two weeks and naturally headcount growth is the topic of many of our discussions with startups. Some say they’re proceeding with caution but many are brushing the economic instability right off.
The big question I have for Founders & CEO’s is…. Are you willing to risk the culture of your company for your rate of headcount growth during uncertain times?
You’d be hard-pressed to find a startup founder who doesn’t prioritise building a positive culture for employees. At the recent SaaStr Annual conference there weren’t many speakers that didn’t raise the importance of getting the culture right in a company and these speakers were some of the most influential and intelligent people in the business.
If your company is not profitable and you grow your team aggressively your cash burn increases. It’s pretty simple. If you have a few bad months and miss your sales projections or if you experience any number of complications that often occur in startup companies things will likely get tough. Just take a look at the challenges a few high profile startups are facing now.
We see this kind of stuff reported about all the time and we know that if you need to reduce cash burn a few things will happen. First you’ll find that staff travel and entertainment expenses will reduce to essentials only. Then a hiring freeze… and then the layoffs start.
Employees will hear things like “this is just business, it happens”. You’ll go through the process and it will be hard for everyone involved. Those affected will go through every stage of grief in the beginning but they’ll move on and they will also have the benefit of carrying some valuable lessons and experiences for future adventures.
But what about those who are left and what kind of environment exists now? It’s likely to be one of fear that their jobs may not be secure and one of anger and sadness that they’ve had to say goodbye to their peers and that things are different now.
As leaders in the company you are responsible for what has happened. It’s dangerous if there are no consequences at a leadership level, especially if there’s a perception of wrongdoing or incompetence. You’ll need to work hard to regain the trust of your employees. You’ll need to be hands-on every day — leading by example and showing that you’re dedicated to the success of the company and that you’ve learned from your mistakes.
The changes you’ve made should hopefully allow you to weather the storm but you need to know what’s going to come next. Many employees will leave after a restructure occurs — they’ll stay loyal for a while and give you a couple of months to see what happens but word will be out about what has happened and you’ll have companies and external recruiters throwing opportunities at your employees that will be hard for them to turn down. Some of these departures will be a good thing for your company, others will have a big and negative impact.
You’ll need to invest heavily in retention and you’ll need to have a strategy and the resource to deal with replacing these people who have left, particularly if your employer brand has taken a hit. You’ll need to be prepared to pay more for many of these replacement people and you’ll need to think about the length of time it will take to onboard and have them become productive.
Even if you get half of that stuff right your culture has changed. Employees will say things like “it’s a corporate now”, “it’s just another company” or worse, “it’s just a job”. A lot of the pride your people felt towards your company will be gone and many will stop telling all their friends and social connections how great your company is making it a lot harder to hire.
With direct correlations between company culture and company performance you’ll need to be hyper-focused on ensuring your customers don’t feel the impact of the changes in your business or have your investors lose faith.
So, what should you do?
- Think very seriously about your hiring plan and your rate of growth. Get comfortable with the risks associated with your decisions.
- Use the data you have in your business to help you plan the hires you need. Ensure the unit economics support your strategy and that your managers are aligned on the plan and priorities. We know planning and alignment is a challenge, that’s why we created Populate, check it out.
- Don’t just hire because you have the money in the bank. Even if everything works out fine it’s important teams feel some level of discomfort to ensure you are being efficient with your hiring and internal processes and that you are solving the right problems at the right time.
- If you’re in a highly competitive environment think about what you can do without adding headcount. Worry less about your competitors and more about what you’re doing that is better and more unique than anything else in the market.
- Read this post by Danielle Morrill if you haven’t already.
Think about the long game here. Do you want your company to be great? Do you want to build something that lasts, is successful and even special? If that’s the case, what’s the harm in slowing down a little? Your people will thank you for it in the long run.