Our first horseman of the revenue apocalypse plagues the entire organization. The disease that it causes is pervasive; spreading across and within your revenue functions.
Your people, technology, systems, processes, and methodology are all at risk. Across five parts we will break down each of these organizational components as we look to diagnose, inoculate, treat, and begin recovery for those that are already experiencing symptoms.
Most organizations invest in training their team on how to hire, but that rarely provides guidance on when to hire who for which role, and most importantly, why you're adding that headcount in the first place. Like most problems that businesses face, it can be solved by creating structure through shared understanding, accurate metrics, and communication. This structure will surface accurate indicators that you can use to uncover when a new hire is needed, who you're actually looking for, which role they'll fill, and why you require more people based on concrete business metrics.
The most frequently used interview techniques are structured interviews. Structured interviews are being used by 74% of HR professionals around the world. (Linkedin, 2019)
Starting at the beginning, how do you know when to expand your founding team?
If you haven't already, assess each person across the three core revenue functions: marketing, sales, and success.
This requires you to be honest and pragmatic because underperformance or failure within any one competency will create systemic issues. The pain caused by these issues manifesting as false indicators that you need to hire. Leading to hiring too early, too much, or too senior.
23% of startups fail due to not having the right team (cbinsights, 2019)
Once you've made your assessments, assign functions and processes to the person best suited to execute. Each person should then document the processes their responsible for and make them available to the team to expand coverage. Meeting as a group, have everyone explain their newly established domain to create a foundational understanding of functions, roles, and accountability. This also provides a forum to bring up any concerns that the team has in your collective ability to perform due to knowledge, experience, or bandwidth constraints.
No one is perfect.
By highlighting these deficits, you develop a wide understanding of the areas where you come up short. This makes it easier for your team to diagnose whether there's truly a need for additional headcount or you're simply feeling pain related to suboptimal performance.
Just because things aren't operating optimally doesn't mean you need to grow your way out of it. It's okay to let pain continue as long as it's intentional, monitored, and understood across your entire team. Pain isn't fun, but it's much cheaper than making the wrong hire too early.
According to SHRM, "The cost of recruiting, hiring and onboarding a new employee can be as much as $240,000…" (SHRM, 2017)
The temptation to grow headcount only grows with your company. It feels good to add people to your team, and for some, it brings along a measure of importance. Many leaders fall victim to the incorrect equivalency that the size means success. In most cases, it means the opposite and demonstrates a lack of control or understanding.
Once you better understand the capabilities and gaps across your current team, you should move to optimize what you already have. This counts for existing, non-founding teams as well.
You're looking to achieve a validated revenue engine that's predictable and easily forecasted before you consider adding additional teammates.
It can be tough to hold back on hiring when you're under pressure. Under pressure to increase sales, capture market opportunity, capitalize on new investment, etc. This pressure often leads to a false equivalency of, "I need more revenue, therefore, I shall hire more people." Where this logic isn't inherently flawed, it rarely establishes sustainable revenue if you don't have a validated, predictable, forecastable engine. We often interpret, "hiring your way out of a revenue problem," as a last-ditch effort because it shows the person taking action is out of ideas and looking to save their job.
Let's assume you don't have the aforementioned revenue engine, but you are feeling growth pressure in some way. Before you begin to expand, you should first look for any potential efficiencies to maximize the output of your existing team within your processes and technology.
It can be hard to examine your processes critically because you've likely brought them from a previous gig and molded them to fit your current situation while learning a few new tricks along the way. These behaviors only engrain your processes further, building an attachment to them. Attachment makes it hard to adapt, remove, and incorporate new processes. Be vicious with yourself here, it'll help.
If you haven't documented your processes, document them.
If you haven't trained your team on them (or recently), train them.
If you haven’t asked your players about potential efficiencies, ask them.
If you haven't educated your cross-functional partners, educate them.
If you haven't networked your pains or ideas for feedback, solicit them.
The intent of these activities, and their order, will help you recognize opportunities efficiently with renewed clarity.
Next, examine your technology. In the next part of this series, "Shorting on Technology," we'll cover this in more detail, but your tech stack should support, facilitate, and automate. If it doesn't, why are you using it?
By support, you want to make sure that you have platforms dedicated to helping your team execute their specific function, it allows them to self-serve, and the content is formatted in a way that empowers their success.
When we think about support technologies, it's things like…
Supportive technologies are less role-specific and they should be "turn-key" ready for new hires. I'm not saying that you should have them setup in advance of each hire, but they shouldn't take much effort to get started. Having new employees setup and self-educate themselves in your current systems is a great way to fill time between training and HR tasks on their first day. It helps them understand your methods, intentions, and best-practices from the very start while demonstrating how much you invest in your team.
Facilitation tools are far less ubiquitous. They are technologies that help individual roles perform their core functions better, faster, and at scale.
Under the facilitation category, we find…
Commonly, facilitation technologies cause inefficiencies in their presence. They're either overly absent or overwhelming. As a rule, we recommend that organizations be frugal with their technology investments. To be clear, this is not being cheap.
Frugal maximizes value.
Cheap minimizes cost.
Global technology spending was nearly $4 trillion in 2019 (cnbc, 2019)
We will cover how to maintain a balance and calculate technology ROI in our next post. For now, determine whether your technology is getting in your teams' way, a missing tool is holding them back, or its application is just helping them do worse, faster.
Finally, we have technologies that boost production through automation. Where these are self-defining, it's important to note that efficiencies are gained here only through significant upfront investment and continued iteration.
These are platforms like…
The misuse of automation technology has the capability to do damage, "hither to undreamt of," to quote Dr. Strange. If you can't dedicate the resources for stable, sustainable, and scalable automation with strong error handling, don't even bother. Most often, automation goes awry when it's ignored, so you can't take your eye off the ball. If you jumped the gun or left automation to degrade and is hurting you more than it's helping, rip it out and start over when you're ready.
Ask yourself one last question before you look to expand your team.
You need to first exhaust any processes and technology optimizations or you risk setting yourself further back as you add more players to a poorly running game. This makes it more difficult to diagnose what you're ailing from and how to fix it.
Remember, it's faster, easier, and cheaper to fix processes and technology than it is to hire, train, and remove the wrong people.
Now that you've assessed, organized, and optimized your team, you can look to expand your organization.
Expansion comes in two flavors: hiring and specializing.
We believe these two activities go hand-in-hand due to their complementary nature and their similar justification.
As you hire, you don't necessarily need to specialize your labor force, but you'll want to consider it in the event that you have a disproportionate amount of individual contributors to management. However, outside reorganization activities, you'll need to add headcount as backfill when you specialize employees out of individual contribution.
The ratio of employees to managers (aka "span of control") can range from 3-15 based on your manager archetypes based on research from the McKinsey Group. (McKinsey, 2017)
Legitimate pain that prompts a need to either hire or specialize can feel very similar:
Because these symptoms can be nearly identical you need to confidently determine which you're suffering from to pursue the right treatment. Luckily, this can be done through three distinct measures.
Using a team of direct - inbound sellers as an example:
Let's tackle team workload first.
If your team is salaried, you probably don't record the average hours worked across your team. Asking them is unlikely to produce an accurate number due to a cognitive reaction called, "The Hawthorne Effect." Instead, you will want to measure hours worked through more distinct means.
Once you have an accurate count, compare it to a high-funnel output (SQL) and a corresponding quality metric (MQL>SQL%) at both the team and individual level. First, you're looking to see that more hours means more output. If it doesn't, there's likely a quality issue with your inputs (in this case MQLs) that's causing the over-work. If your quality metric has stayed the same or grown, your input quality is likely being held constant.
If your workload and output have increased to the degree of being overcapacity while your input quality has remained the same, you should be adding headcount. That last detail is important, "you should be adding headcount," as in actively pursuing it.
This is tough from a timing perspective. How do you begin the hiring process if you just discovered that you need to hire?
You can't in this instance, but moving forward, there are two things that you can do to help you stay ahead of being overloaded without over-hiring.
Keep a job listing up on your website at all times (don't pay for a listing) and continually interview candidates to build a bench of options. They will likely rotate on and off quickly so remote interviews will save everyone time. When you need to hire, you'll have applicants at your fingertips. As an added bonus, this practice provides options to refresh talent outside of growing headcount and leaves you less vulnerable to unexpected team changes.
Step 1: Using the workload (measured through hours or inputs), output, and quality metrics from above to create a team capacity report. This will give you a better understanding of how much your average performer can handle and what over or under performance looks like. Monitor workload as your team changes and grows. Most organizations will do more with less as they improve their skills and your business gains other efficiencies. Performance expectations should never stagnate!
Step 2: Compare your new hire production curve with respect to hiring delays and an extrapolation of the measured increase of inputs. Delays are a fact of life. Even if you have a candidate that you're ready to extend an offer to, it will still take a few days for communication and their two-week notice period before they're in-seat. Adjust accordingly.
As you measure and extrapolate the increase across your inputs, identify the cause. This will add accuracy to your decision. In our example above, an increase in MQLs could simply be a short-term impact through additional marketing spend, a new campaign, or seasonality. Make sure that the cause is expected to grow or extend into the long-term. Again, it's safer to delay hiring when in doubt(not safe, safer - you can't hold all variables constant).
Let's say all of your indicators, data, and graphs say that you need to add headcount, but you can't due to a lack of budget, a hiring freeze, or an unqualified labor pool. In that case, specialization could be a good way to improve capacity. Where Henry Ford is the go-to business case of the division of labor through the Model T assembly line, its first published application goes back to Adam Smith's, "The Wealth of Nations," from 1776 in pin making.
Yep. People making pins and needles by-hand, applied to modern business theory.
Working from the same team example as before, the pain feels similar, but the measures are…
...well, completely the same. The important details will come out as you breakdown the averages.
To some degree, all humans, their attributes, and their activities exist on a bell curve. In that, your top performers can hide key insights as their peaks fill in the valleys of under performers.
We can simplify the above distribution because you shouldn't have any performers one standard deviation below the mean (D or F). If you do, they're likely not going to stay in that position for very long so we can ignore them for this activity.
As your team naturally settles to top (A), mid-level (B), and average performers (C), your metrics will homogenize somewhere in the middle.
To identify the need for specialization you'll want to explore more specific workload, input, and quality measures. For example, an affinity for a particular industry/market segment or task competency like business development/demos. Your resulting metrics will create a cohort that helps you measure similar inputs across different individuals (e.g. SMB MQLs that each person received in a set time period, the work each put into those MQLs, and the output from those specific opportunities). Then, you want to dig into any outliers (at least one standard deviation from the mean).
Use data in your CRM to find quantitative outliers where possible while consistently assessing your people across more qualitative tasks to quickly hone in on opportunities to improve across your team. Once you identify someone who's outperforming their peers, apply those concepts to the rest of your team, but be warned. Learning from a top performer in order to elevate the group comes with the responsibility develop their career. If you don't, you're going to drive best practices underground, create a culture of secrecy, or even toxic competition.
Let's say Sally is your best producer and you're constantly identifying that she's the best at X, Y, and Z. So you learn from her to upgrade processes and update training to bring more of the team up to her level. As the gap between Sally and the team grows, she'll likely to her innovation only outperform again, shifting the production curve through the psychological principle of Social Facilitation.
After a cycle or two of this without promotion, increase in compensation, or other means of advancement, you can bet that Sally will be moving on to another company due to fatigue. In Sally's absence, you'll lose capacity and your source for process improvements.
Even worse, in the time that Sally is looking for another job, her performance will drop and she won't be interested in helping the team. This causes animosity, reduces output and performance while your team increases the number of hours that they work to try to win with quantity over her quality. Deforming your key metrics even further.
It's difficult to innovate. Recognizing the value of innovation installs a team culture of constant improvement and incentivize the right behaviors. Always demonstrate that top performers who share are given opportunities to advance their careers, make more money, gain more independence, etc.
Additional Reading: Blog Post: "Role specialization without raises or promotions"
Then, it's simple. Move top performers in the areas of specialization that you need:
Concluding part one, it's important to remember that any headcount growth or specialization should be your last line of defense due to its cost and risk. Work with what you've got as long as you can by better understanding your team's capabilities. Leverage improvements in process and technology because they're easier and cheaper than people. Finally, identify what you really need and plan ahead because people don't walk into your company on day one at full production nor does your current team fill the shoes of a newly specialized role. Know your production curves, communicate expectations to all impacted parties, and have patience because it always takes longer than you think it will.
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