Why headcount isn’t always a sign of success
Headlines don’t always tell the full story about how a company is actually doing.
Like an iceberg, there’s much more lying hidden under the surface. And like an iceberg, those hidden details can break a hole in a company’s hull and send water rushing in.
Something constantly played up is headcount. Where a company is deemed to be successful just because they are looking to double their headcount this year. There’s something very wrong with that.
Headcount means extra cost
Adding more people can often be a sign the company is growing. But that comes at a cost, in real terms and less obvious ones.
The obvious effect is on your overheads. It costs more to run your business. Which means you need more revenue coming in to support the new people.
You also now have more complexity in the number of people you need to manage. Exacerbating the revenue challenges, the increased velocity you were hoping for can sometimes be slowed down rather than sped up.
On top of this is the risk of poor hiring. You don’t ship your product as fast because you’re dealing with HR issues instead. That lost time and productivity can kill you, especially when you’re trying to move quickly to keep up with your customers and stay ahead of the competition.
If you hire right it helps you better manage your time and ensures the right people are in the right roles (side note: you can’t and shouldn’t do everything yourself, especially if you’re not good at it).
So now, despite what looked good on the outside, you’re losing more money and you have more distractions taking you away from focusing on getting the business to where it needs to be.
Headcount means you could be scrambling to fix a bigger problem
When things aren’t going well, it can be easy to try and hire your way out of it. In my experience, unless you already have the right people leading the company, hiring more experts in won’t solve anything. Not immediately anyway.
It’s quite easy for companies to panic when they see a problem and don’t know what to do next. And when they don’t know, they rightly look to others to help. When you’re a startup it might be a new advisor, head of growth — generally someone from another established startup or from the corporate world if you’re selling a SaaS solution. If you’re a more established business, it’s rolling in the fancy and expensive management consultants.
Now this all seems great in theory. But as I said, unless you have an established founder / great leadership (the person who has the vision and passion but just needs the right people around them to fill in gaps), it’s not an easy fix. That leader will then be thrown a host of different opinions about what to do. And if they’re already struggling making decisions, where do you think that ends up?
Headcount means you’ve hit the growth pedal too quickly
I’ve talked about this in a previous post, but this is very common. It happens when a company misinterprets the market signals and believes their product is working.
A light bulb goes off and the first instinct is to spend more money to fuel the fire. But when you pour fuel on the wrong flames, you’ll end up burning down the camp.
If you’re missing the mark when it comes to your product, hiring more people in sales and marketing may increase the number of people coming through the door, but it won’t keep them there. And because you’re adding more variables, learning becomes more difficult. Why did these people choose to take up the product? What’s the difference between people we’ve paid to come in and people that have come in on their own? How do we know who they are? Are they even the right target market?
When you pay for growth too early, initial numbers will always look good on paper. People will get excited as they admire the chart that shows a nice right incline in sign ups. But unless you have the product sorted, expect that to be short lived.
Headcount doesn’t mean you’re impressing others
Quite a few startups I’ve come into contact with almost use headcount as a sign that they’ve made it. “Check me out, I’ve started this from nothing and now have 50 people working for me!”.
When I meet with companies, I’m only interested in their headcount when it comes to looking at who they have doing what. What is their expertise? Where are the gaps? Are they sufficiently resourced or do they have too many people for what is needed today?
To me this is far more important than how many people they have overall. Because I’d rather know they’re equipped to win and see hyper-growth in customers and revenue. It’s a much better picture than a graph that shows costs blowing out and not a lot to support it.
So next time a company announces that it’s just doubled its headcount again, I think it’s more important for us to ask why that might be. It could all be good news. Or it could be just the tip of the iceberg.
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