Hire When It Hurts

Capital efficiency is critical when relying on investor capital rather than operating income to build your company. In the early stages, hire carefully. In fact, in general, put off expanding your team prematurely by only hiring when it hurts.

Founders dream of building a big business, rapidly scaling to extraordinary heights, and having a team with diversified expertise to tackle whatever problems emerge along the way. This is what wildly successful startups appear to be doing from the outside.

However, for pre-breakeven startups, hiring in advance of the need translates into rapid consumption of the limited resource, that is, investor capital/runway, so take such risks with care. Most of the time, progress takes longer and requires more resources than you anticipate, so extending your runway as long as possible is imperative. Here are some ideas to keep in mind as you develop your hiring strategies:

• Avoid hiring for an undefined plan. Think through how you will balance all the systemic constraints on your growth and be mindful not to hire in one area (where it may be easier to recruit talent) that will create a pinch point in another area.
  
  
• Stretch to meet rising demand rather than over-building capacity in advance. Visionary startup leaders can imagine how they will grow their startup, and it is tempting to hire towards that vision. However, it is easy to get ahead of yourself by hiring in advance of demonstrated need and wasting investor capital.
  
  
• Bring in talent when gaps become clear and pressing. As much as we wish to be ahead of the game, balancing using precious capital and creating necessary capacity is critical. Often, that big partnership or huge order you are worried about will end up delayed, so wait until you cannot wait any longer. Perhaps you can use a bit of overtime or extra effort to create temporary surge capacity. If your team is not straining a bit to keep up, perhaps you can wait a little longer before adding more people.
  
  
• Remember the capacity of your existing team to absorb new team members. My rule of thumb is that new team members would never be more than half of your existing team in the same function because that seems to be about the rate at which an existing team can train and absorb new members without totally tanking their own productivity and the startup’s capabilities in the process.

When to Prioritize Runway

There are common times when it makes sense to wait to hire as long as you can. For example:

• Product-Market Fit: Beta testing and early launch is a time when you are learning about how customers are actually responding to your product. It is a good time for the founding team to stay closely involved to identify any needed corrections quickly. In addition, figuring out the sales playbook will take lots of insight from those who first identified the opportunity as you seek to dial in the salient value proposition.
  
  
• Operational Capacity: Entrepreneurs always wish that sales will grow quickly; however, often it takes longer than we expect. There will be time to expand capacity to meet demand (unless you are launching a new highly anticipated smartphone, but in that case, this blog is not for you!)
  
  
• Expanded Product Offerings: Often, it is tempting to expand your product offerings before you achieve success with your first product to market. This can require expanding your team before you have proven your first product’s success. Focus focus focus!

When to Risk Investing in Expanding Your Team

Sometimes, it is wise to invest in your team to accelerate your progress. Just recognize that there is also risk involved in making that investment – and the risk had better be worth it! For example:

• Product Development: A startup that is developing its product benefits from being fast to market, will often need different skills to create its minimum viable offering, and will likely have raised money to build a core product development team to get the job done. Investing in a lean and effective team tailored to the work ahead can be the fastest way to develop a product. Avoid, however, overbuilding the team since a lean and experienced team can often require less coordination and management, enabling the focus and efficiency to move fast.
  
  
• Sales Scaleup: If demand is skyrocketing, building your team to meet it is essential. Just be sure that demand is taking off – and that you have your playbook and manufacturing figured out before you scale. A lean team of sales and delivery folks is often more effective than a sprawling team.
  
  
• Delivery Capacity:  Often, we wish to jump right into automating our production lines, lab capacity, or other facilities. However, scaling stage by stage as sales accelerate allows the necessary learning to occur while still keeping up with demand. Do not be afraid to invest in each capacity stage along the way rather than shooting for the moon and discovering after you did not have all the kinks worked out.

This is one of those places where inexperience can kill your startup and where an experienced startup leader with multiple laps around the track can be very valuable. If you do not have that experience, lean on your mentors and advisors to stress test your thinking about managing team growth effectively.