For most entrepreneurs, the startup journey starts with an idea. You could argue, however, that the first time you involve another person in your venture is an even more significant milestone.
“You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.” – Paul Graham.
It’s not a coincidence that Paul Graham, the co-founder of Y Combinator, started the list with good people. Early-stage startup ideas are bound to change a lot and have very little value before they are tested against reality (before it is proven that the product or service is something customers actually want). It is your early-stage startup team that seeks and finds this validation.
Consequently, building a startup team is something that you need to get right from the start. Here is what you need to know about startup hiring in the early versus growth stages.
The Early-Stage Startup Team
The early-stage startup team is to a large degree defined by the first and third parts of Paul’s advice. You need to attract the right people while carefully budgeting for the next stages of the business. This is a critical point because the more funds you have, the more time you will have to iterate on your ideas and try different approaches. And the better your team, the better your execution, and the higher the chances of building and marketing something people need.
The early-stage startup investment fund, First Round Capital, shows that teams of two or more founders outperform solo founders by 163%. This highlights the importance of the early-stage team. Having a team right from the very start is ideal.
Generally speaking, your team needs to cover two important areas:
First, you need at least one person adept at marketing and sales who knows the industry. This person would be responsible for talking to customers and gathering their feedback, which is the single most important activity if you want to ensure you are developing a startup product customers want.
Second, you need a person with the required technical ability to build the product with which you can test the market.
Once your startup manages to acquire resources (usually through fundraising after showcasing early-stage traction), it is a good time to expand your team. The important thing to keep in mind is that you are not yet a traditional business, which means you don’t need traditional employees. You need people with an entrepreneurial disposition, a high-risk tolerance, and most importantly – a lot of proactivity.
Your early-stage team members act a lot like co-founders, so it’s imperative that you find highly-motivated people who are willing to pull their own weight and have energy left to spare.
The Growth Stage Startup Team
If your early-stage team is successful, your business will grow and you will have access to more resources, which would allow you to do more hires.
At this stage, the requirements of the business are also growing in complexity. You will need more salespeople and engineers, but you will also need people to take care of the legal and financial side of your business.
That said, one of the biggest startup killers is premature scaling, a part of which is over-hiring before the business needs can justify it. According to data from the Startup Genome project, 70% of the startups in their study suffered from premature scaling, and at the same time, not even one startup that scaled prematurely passed the 100k user mark.
In the growth stage, it is important to carefully decide whether to grow your in-house team or outsource all the functions you can afford. Growing your in-house team creates a lot of long-term intrinsic value (usually in the form of culture), but at the same time, it increases your fixed costs and makes your business less flexible. It is very hard to downsize and upscale fast enough, which could create dangerous liquidity problems.
If your cash flows are volatile (and they often are for growth-stage startups), it is usually a better idea to outsource in order to keep your core team small and flexible.
In conclusion, a good startup team is undoubtedly one of the prerequisites for startup success. Every business is different. However, as a rule of thumb, when it comes to investing your funds in recruiting an exceptional team or team member, think about how this investment will help you move your startup forward. A team is an investment and different teams will lead to a different return on your investment. Investing in the wrong team will have negative consequences.
There many startup areas where you should always be thinking about ways to reduce costs. It is different with hiring. Involving the wrong person or team can cost significantly more than the premium paid for the right recruits, especially in the early days when the goals of every team member must be aligned.