When Should a Startup Bring Talent In-House?
It's an understatement to say that a startup has a lot going on. Any one of the following things can be a full time job in and of itself: bringing an idea from concept to fruition, taking an MVP service offering from pre-revenue to PMF, navigating customer segmentation within a specific vertical, and building out the founding, management and various teams.
For this occasion, we'll focus on building out the team. The principal buckets are of course executive & administrative (G&A on the street), sales & marketing as well as research & development (R&D). Whether you're a technical co-founder or an experienced commercial-side i.e. non-technical co-founder, placing names in each of the functional roles is tremendously important. While various stages of your startup's growth will drive changes in the org chart, we'll discuss B2B Saas focused startups between ideation & post revenue (< $1M ARR) stages.
Bucket 1: Executive & Administrative
Key principle #1: Founders maximize highest & best use of their time
- Budget permitting, the founding team should list out its core responsibilities for the company and strive to do only those things as company gets started. This list will be long and the best parts of the job will not be the only things on the list at the beginning stages of the company. It's imperative that the founding team be willing to stretch themselves not only in duties but also in time dedicated to managing the company, but only for a season, and only when the duties fall within the skillsets of the founders. Chronic overwork and working 'outside your lane' will lead to burn-out and really important management activities improperly acted upon, which can compromise the business' growth trajectory and even interject enough risk into the business to cause it to fold.
Key principle #2: Leverage fractional labor force
- Far before the advent of the gig economy fractionalized professional assistance has been available in a number of areas. Examples of this range from personal assistants all the way up to CFOs. We'll run with these two examples for now:
- Personal Assistant: If by chance neither of the founders have the administrative chops to keep detailed records and a calendar straight, there are several opportunities to outsource this effort to anyone from off-shore administrative services to US-based grad student interns.
- CFO: While the job of CFO tops off an entire stack of financial services all of which a company needs, a nascent startup does not need any of these positions full time. Bookkeeping and accounting services are essential to keep your company's data room clean and thorough.
Key principle #3: Automate rote work and complex workflows
- In order to have clear understanding of the tasks that you find yourself doing over and over again, one recommendation would be to have a journal of your daily activities. While I have rarely if ever had an actual 'journal,' the effect of this can be gleaned by reviewing your calendar or task list on a weekly basis through the lens of 'what things could I stop doing?' or 'what things are getting way too complicated that I want to search for a system that can help me manage certain processes?' Deciding plainly and transparently (in front of your co-founder or clients in some cases) to stop doing certain non-essential things can be tremendously freeing, when there is always more things to be done than time permits. Automating the things you must continue to do, but have progressed from being creative endeavors to rote activities, those which take almost no 'brain-power' to do, but must be done nonetheless, results in you gaining leverage over the time that you do have to commit to managing your company. Automation typically takes the form of using various cloud-based management systems such as task management (rote) or working document management systems (complex workflows-i.e. exchange and collaboration of document creation outside of email).
Bucket 2: Sales & Marketing
Key principle #1: Industry SME needs to be sales lead
- The founder who knows the customer persona the best needs to embody the client-facing role of the company; typically this is the CEO. While it's tempting at first glimpse of traction to offload sales activities to a specialist, it's undoubtedly too early and creates complexity where there shouldn't any. There are a bunch of factors that will impact at what stage certain roles within the sales team will be beneficial to bring on, i.e. sales volume needed, degree of consultative sale, etc. but for the most part, until you have a proven, repeatable sales process that is battle tested, the primary sales efforts need to stay within the CEO role.
Key principle #2: Marketing-start it early
- Unless one of your superpowers is Marketing, i.e. digital and/or brand messaging, leveraging consultants (fractional labor force) to assist you with these essential elements is highly recommended at the early stages of your company. Getting a honed messaged to your core customer audience right out of the gates will be more than worth the investment in the price tag. It's akin to building muscle density as a teenager which makes you stronger for the rest of your life; if you try too late in the game to 'get strong' on the marketing side, it will cost you a lot more time and money without the benefit of a long history of compounded benefit.
Key principle #3: Establish a growth strategy
- It's important to have a plan that informs your cash model. Customer acquisition costs and revenue targets cannot be dice-rolled into an Excel model, but need to be well-researched from data sourced 'ground-up.' Once you have a plan in place that takes into account number of paying customers forecasted, cost to acquire these customers (not only in dollars but in people's time as well), track progress against this plan and make adjustments to keep on track. Maintain the plan! A plan is useless if you put it together and then throw it out the window when 'whale-sized' opportunities come knocking. If it doesn't fit into your plan, take a really hard look as to the unforeseen consequences of diverting away from your plan. The most attractive opportunity may in fact hide severe collateral damage to your business as a whole if it takes your focus away from the plan.
Bucket 3: Research & Development
Key principle #1: Lock-in Roadmap & Budget
- In order to have a solid reference point to make hiring decisions, the most important starting point for R&D is for the founding team to determine its roadmap & budget. As much as possible, lock this in early as deviations from this plan will adversely affect your runway.
Key principle #2: Choose a repeatable and dependable development process
- If one of the founders is technical, it's likely nonetheless that the initial build effort will benefit from a larger team in order to get product to market more quickly. Even if you scrap together a couple college friends, it's important choose a repeatable and dependable development process. This will provide the highest likelihood of achieving the roadmap with minimal pains (e.g. need for micromanaging dev team, missing deadlines and shipping sub-standard product).
Key principle #3: Protect the continuity of the team
- When selecting additional team members for your initial build team, have high regard for the selection process; the decisions you make now on this team will not only be one of the most significant contributing factors to the early success of your company, but it will also play a big part in the degree to which you'll be managing residual cost of 'R&D gone wrong.' This team should not only agree to abide by the above process in taking down the roadmap within budget, but also be a trusted partner within which the 'tribal knowledge' of your R&D arm will reside. This tribal knowledge should be held within cloud-based management systems, however there will undoubtedly be efficiencies for the core R&D team to remain on the product and be in place to continue to grow the team, whether additional capacity from relatively junior talent or grow the team through the onboarding of key internal hires.
Key principle #4: Monitor operational efficiency
- As the roadmap is gobbled up in a predictable manner, operational efficiency becomes a key metric that rises to the top. An analysis of talent compensation of 3rd party vendors/partners against the time-based equivalent compensation of employees will be key to determining when the tipping point will occur that makes it clear to hire internally.
Conclusion: When to hire internally
We've discussed that on the G&A side as well as on the Sales & Marketing side, the threshold to hire internally is pretty high, as capital efficiency is maximized by leveraging tools and working with fractionalized labor/consultants. When determining when to hire internally for R&D, we recommend that you start as close to the product as possible. By this we mean senior skilled positions that work with the business case of your product. These hires will continue to provide increased leverage for the founding team to continue to maximize their time to the highest & best use. Once you have the additional key team members in place, they'll be able to continue to analyze operational efficiency benefits of bringing on additional personnel. These decisions should consider primarily consider the skills needed for ongoing work, as opposed to point in time skills (like database architecture) which are critical path, but not something you'd hire for the foreseeable future.
What follows is a step by step checklist of actionable best practices when you find yourself at this inflection point.
Steps a decision maker can take to find the perfect fit for their growing team”
- Assess current landscape of headcount
- Where are the skill gaps of current resources?
- Create short-term and long-term goals
- Decide on budget for the resource
- Base salary
- What additional incentives will be included?
- Create a well thought out, concise, and thorough job description (a good agency will assist with this)
- What skills are needed?
- What is the current culture of the team?
- What type of personality will fit in best?
- Clearly communicate needs to recruiting team
- Top three must haves?
Involve multiple resources on the team to interview the candidates and have them weigh in on culture and skill fit.
- The following suggestions work best if the hiring authority places significant value on both skills and culture.
- Naturally, the leadership panel will serve as the final authority for any hire, however it’s best to consider including a peer or two in the interview process.
- Collective “buy-in” is helpful; it’s important that the current team has a positive reaction to minimize workflow disruption.
- It’s best to have a consensus that the candidate will seamlessly integrate with the existing team.
- A word of caution: Involving multiple team members can be cumbersome. Be sure this additional step doesn’t derail your hiring timelines. In an aggressive candidate market, speed is certainly a factor.
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