How to hire after you raise
Shiyan Koh, GP and co-founder at Hustle Fund, agrees.
“People raise and basically don't have good frameworks for how many people to hire and how to measure them."
The result is that founders realize they need to lay off employees in order to survive. What follows is an unnecessary loss of time, money, and morale.
But why does this happen? How can founders know the correct number of people to hire? And how can founders make sure everyone on their team is meeting the expectations from when they were first hired?
Shiyan has a ton of experience helping portfolio companies make better hiring decisions.
So I asked her a bunch of questions to learn what founders should avoid… and what they should do instead.
Why companies are overstaffed in the first place
Imagine you’ve just raised $1 million for your startup.
You need to show more progress. So you hire people to deliver the growth that you’ve promised. Investors reward you with more money. You hire more people to make more progress. Repeat the cycle until you exit or IPO.
Welcome to building a hyper-growth startup! It’s a roller coaster. Everyone is hanging on for dear life because you’re all moving so fast.
If you’re a first-time founder, you probably don’t have great systems in place for building the right team.
- How do you write a job description?
- How do you pick the right person for each role?
- How do you know if that person is actually doing the job well?
Having funding is both helpful and harmful in this situation.
It’s helpful because you have the resources to hire great people to help you grow the biz.
But it could be harmful because you aren’t incentivized to think critically about your hiring strategy. Got a customer acquisition problem? Just hire more sales people. Got a customer onboarding problem? Just hire more account managers.
For a while, things might be going well. You’re building more products. You’re making more money. Everyone feels productive. There’s no need to fire anyone and ruin morale, right?
But then sh*t hits the fan, and all of the company’s gaps are revealed.
- You realize it will be hard to raise money next quarter
- You realize not enough projects are getting off the ground
- You realize you have to lay off 15% of non-essential staff to stay afloat
These are realistic and common situations that every founder should be prepared for. The question is… are they preventable?
Best practices for hiring at hyper-growth startups
Instead of hiring tons of people, Shiyan recommends two strategies:
- Take the time to carefully vet your candidates.
- Hire 5-10% fewer people than you think you’ll need
This process requires ruthlessly prioritizing your goals.
When your team has an annual planning meeting, ask: “What are the three top things the business needs to thrive for the next year?”
Review your current projects and people. Is everyone on the team working directly on projects to make the company’s top goals a reality?
CEOs should be amazing at allocating resources. Ask yourself:
- Can our money be better spent elsewhere?
- What is the ROI of this person and this team?
- Does adding more people actually make the boat go faster?
Best practices for measuring performance
A big part of knowing who (and when) to hire is understanding the efficiency of current employees.
Putting a system in place will help with this.
Different projects should be measured on a regular cadence, whether that’s quarterly, monthly, or weekly.
If a project isn’t actively helping the business grow, the founder and project manager should identify the roadblocks.
- Do we not have the right people on this team?
- Is the project no longer relevant to our goals?
- Is everyone set up for success?
In an ideal world, you have a Head of People who can help you answer these questions.
This person’s job is to oversee three departments: recruiting, HR/admin, and leadership & development.
Recruiting refers to attracting top talent.
HR / admin is all about retaining those people.
And leadership / development focuses on growing your employees’ careers within your company.
Most founders tend to over-index on hiring an amazing recruiter. But that may not be the best person to help employees with career progression, or design attractive compensation policies.
It’s important to think critically about your team in both good times and bad times.
Prioritize your goals, hire fewer people than you had planned, and have someone on your team dedicated to measuring their performance (and their fulfillment) in the company.
This tweet sparked a big discussion in our team chat: