The thing everyone forecasts wrong
I’ve now been through a bunch of board meetings at a variety of different startups. The typical meeting goes through the plan and compares to actual and we all review where the company is ahead or behind plan. One observation that I made recently is the discovery of the most incorrectly forecasted number. It’s not revenue, traffic, conversion rates or anything like that.
It’s headcount.
Almost all startups I’ve seen overestimate their hiring needs and under-hire against plan.
Here’s why I think this happens. When putting together the plan, the CEO asks each department head, how many hires do you need to make plan? Every human being has a tendency to want achieve their goals. So the heads faced with aggressive goals and timelines have a natural instinct to want to add more to their team. And it’s also a natural instinct of many ambitious managers to want to have larger teams. So, they say that they need more than they really do. For me in marketing, it was usually something like this – I need one smart generalist that can execute and analyze and I need 2-3 more writers and maybe I need a designer. In reality, I didn’t need half of this – I needed to better utilize my existing resources and prioritize better. And VCs and CEOs love to see a company growing – our mantra is usually grow, grow, grow and worry about margin and profit later (as long as there is a clear path to it).
So, the typical plan is usually more aggressive than it needs to be with respect to hiring.
But they have the plan in place, so why do people under-hire to plan?
A few reasons:
· Increased execution – with more learning comes better prioritization. Excellent managers will prioritize better and become more efficient and thus alleviate the need to hire more. Basically they become aware that they overestimated their hiring needs.
· Talent is hard to find – this is the best reason to underhire. If you don’t find an A+ player, just don’t make the hire. I’m more and more a believer in opportunistic hiring. Hire A+ players when you can, don’t hire non-As. The plan should not dictate your hiring, the available candidates should.
· Hiring takes a low priority – most startup execs have a strong focus on meeting the numbers – which in almost everyone’s mind means things like customer acquisition, revenue, NPS, uptime %age, etc. Very few people are referring to headcount when they talk about hitting the numbers. So, in the relentless pursuit of meeting revenue-type goals, hiring becomes a lower priority since an employee now will probably not help the numbers this quarter. The short term focus deprioritizes hiring – and therefore great candidates don’t make it into the process and execs rightly don’t make a hire.
I don’t have any suggested solutions – these are just observations. Let me know if you’ve seen the same thing or not. I do wonder if it makes sense for startups to hire an HR manager / recruiter earlier than the current norm.