Why Headcount is a Vanity Metric (and You Shouldn’t be Worrying About it)
One of the most frequent questions first-time founders ask as they start to grow their business is: “How many…?” How many employees should you hire before your Series A? How many engineers are generally hired in the seed stage? How many people should you be hiring per quarter?
These questions are entirely understandable, since headcount is so often held up as the all-important growth metric for startups. However, second-time founders generally have a different perspective — and they’re far less caught up in the numbers.
“One of the most common things founders tell us they need to do during a YC batch is hire,” says Harj Taggar, a Group Partner at Y Combinator, in an episode of the Group Partner Lounge. “And one of the most common bits of advice we give is to not hire.”
Obviously, to scale your company, you’re going to need employees. However, when planning those hires, don’t get too caught up in the numbers. Here’s three reasons why.
Your numbers depend on your goals
Nobody knows your company like you do. While others can tell you how many engineers they hired at their seed stage, their goals, needs, and challenges were all probably different to your own.
“When you’re raising money, I once heard an investor say, ‘What cards are you trying to turn over with the money?’ and I think that’s a really helpful analogy,” says Nolan Church, co-founder and CEO of Continuum. “When we raised our seed, it was about launching a product that people were using and had product-market fit. We hired two amazing engineers and that’s really all we needed to prove that. So I do think it’s circumstantial — but I would be thinking about, ‘What cards are you trying to turn over with the money that you raised?’”
That doesn’t mean you can’t seek guidance from other founders, of course. However, focus your efforts on talking those with similar trajectories as your own company. After all, some seed-stage companies have already nailed product-market fit, while others may be in their Series B and still working towards it.
Early stage hiring is about quality — not quantity
Another error first-time founders will make is focusing on the number of new hires, rather than the actual caliber of those hires. Often, that pressure comes from a misguided sense that customers and investors will be more impressed with a higher headcount.
Not so much, says Jaclyn Chen, co-founder and CEO of Benepass.
“Just as important as your company’s growth metrics are, I think investors are also seeing whether you as a founder can attract high-level talent,” says Chen. “Think of it not just as, ‘Oh, it’d be so great to work on the product and grow the company.’ Think of it as a big element of fundraising and investors checking your ability to grow the company to the next stage.”
Rather than think of hiring as a numbers game, think of it as a process of “firing yourself,” recommends Church. Hone in on people who are better than you at certain tasks, and bring them in to take over portions of the work. And keep in mind that the quality of your initial hires will help determine the quality of the folks that work beneath them. If you bring someone in just to fill a role, you run the risk that they won’t be able to build a strong team below them.
More employees, more problems
It’s easy to think that throwing more employees at a problem will solve it — after all, the more minds in the room, the better, no?
Unfortunately, productivity doesn’t increase in step with your number of hires. “After a team of five or six people, you have to really start to manage people,” says Chen. Employees will need to be managed to their strengths, coached, and developed.
An increased need for people management isn’t the only thing that can hamper productivity, either. As your headcount increases, so does the need to communicate seamlessly. As teams grow, it becomes easier for information to get siloed — and for an early-stage startup, having everyone work towards the same goal is essential.
“I remember when we were going through Y Combinator, number of employees might have been the primary KPI for every one of our companies,” Michael Seibel, Managing Director and Group Partner of Y Combinator, said in an episode of the Group Partner Lounge. “And I feel as though after managing people, I’m like, ‘Oh, God, if I could just do it with fewer people.’”
Grow your team intentionally
If you’re new to building out your teams, planning your first few hires can feel overwhelming. However, there are steps you can take to make your hiring planning more intentional — without ever worrying about hitting pre-determined number.
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