Employee Headcount

What the greatest technology investors say about Employee Headcount

Fred Wilson: The CEO is responsible for hiring

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“Most CEOs [Wilson] know[s] interview every hire [until headcount reaches over 100].   Even if [there’s an HR (human resource) head] and a top notch recruiting team, the responsibility for hiring is [the CEO’s]. A bad hire is [the CEO’s] fault. A good hire is [the CEO’s] success.  [The CEO should] make the final call on each hire until [the] company is developed [and strong enough] to start making these hires themselves.  That is how [to] build a great team,[culture and] company.”  Fred Wilson, MBA Mondays: Best Hiring Practices, Jun. 11, 2012;  http://www.avc.com/a_vc/2012/06/mba-mondays-best-hiring-practices.html

Management is Relevant when Building Usage

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Once the product has been built, launched and achieved ‘product market fit’, “it is time to get more users or customers [as the company enters] the “building usage” phase.”

This means the team must now be built including more engineers to scale the product/service and more employees in product, customer support, marketing and business development, sales (if an enterprise/SAAS focus) and administration.  Team size will at least double from building product’s stage with upwards of twenty when the building usage stage is exited.

Management issues herein: 1. managing engineering (where most of the headcount now is), i.e., recruiting, retaining and sometimes terminating engineers.  “[The] right people [must work] on the right things, [teams must execute and] the right environment” must exist for engineering success. 

“[Many] technical co-founders and lead engineers [don’t] enjoy managing.”  Wilson suggests helping a lead engineer become a good manager or hiring “a VP Engineering who is a great manager and move [the] technical co-founder or lead engineer into a more technical role [ i.e., CTO or chief technology officer]”. 

2. Founder/CEO’s challenge of navigating more direct reports. With potentially 10 + direct reports, a founder/CEO in management crisis can occur. Wilson suggests “find[ing] [team members with] management talent or inclination and invest in their ability to help [] manage the team” while “building communication systems, business processes, feedback, and routines [to efficiently scale the business and team].  [He] suggest[s] that founder/CEOs [][work] with coaches [to build management skills].” 

While stage 1 (building product) focuses on individual contributors and stage 2 (building usage) continues as such, management becomes relevant at stage 2.  “Strong individual contributors are often not natural managers”, presenting the CEO with challenges.  Fred Wilson  The Management Team - While Building Usage Jan. 9, 2012  ; http://www.avc.com/a_vc/2012/01/the-management-team-while-building-usage.html

Building Product is about having the Right Team

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“The first stage of a startup, [] the Building Product stage is management light.  The team should be small [with typically five or fewer: the founder/CEO (usually the product manager), often a technical co-founder leading development, two or three developers and maybe a designer].

[] Building product is [about] having a small team [of] the right people [with] product, design and software engineering skills [who are] focused, committed and driven[,] [] working together, and [executing]. [] Management skills are not a requirement.”  Fred Wilson  The Management Team - While Building Product  Jan. 2, 2012;  http://www.avc.com/a_vc/2012/01/the-management-team-while-building-product.html

What's the "Right" Monthly Burn Rate

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“The number of people [is important in] getting the company building process right. Too many [slows] things down, burn[s] through too much cash, and increase[s] [overhead needlessly]. Too few and [you’ll] be resource constrained and unable to grow as [quickly].”

Wilson’s suggested fully-burdened monthly burn by stage for mainly consumer internet, software-based businesses (Fully-burdened includes salaries, rent, overhead, etc.):

“Building Product Stage – [] below $50k per month []

Building Usage Stage – [] below $100k per month []

Building The Business Stage – [] below $250k per month []

A good rule of thumb is to multiply the number of people [] by $10k to get the monthly [fully-burdened] burn. [] [Thus,] suggested team sizes are 5, 10, and 25 respectively for the [above three stages].” Fred Wilson  Optimal Headcount At Various Stages Jun 4, 2012;  http://www.avc.com/a_vc/2012/06/mba-mondays-optimal-headcount-at-various-stages.html

Hire Slowly & Wisely, not Quickly

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[Wilson’s] strong bias on [optimal headcount] [] is that  less is more.  [Repeatedly] [he’s] seen the entrepreneur who wants to hire quickly fail and [] the entrepreneur [who’s] [] slow to hire succeed.”

In his experience with software-based consumer internet businesses, “[] [success] might be most highly correlated with a slow hiring ramp [] [during a company’s early years.]  Being resource constrained can be [good] when [] getting started.  It forces [] [a] focus on what's working and get[ting] to the rest of the vision later on. []” His advice: “[] hire slowly and wisely instead of quickly.”   Fred Wilson MBA Mondays: Optimal Headcount At Various Stages, Jun 4 2012;  http://www.avc.com/a_vc/2012/06/mba-mondays-optimal-headcount-at-various-stages.html