How to optimize your workforce and avoid labor hoarding
There’s no denying that it’s a different funding environment for startups in 2023 than last year. I personally saw some valuations that were crazy compared to the past ten years of working with startups. It was a great scenario for startups (well — mostly great), and we saw startups and scaleups who didn’t even need the extra funds, fuel up and fill their bank account with massive amounts of cash.
Until recently, there really was only one downside: the looming threat of down valuations. Klarna and others took substantial hits on their valuations, and investors were unhappy. Since then, SVP — Silicon Valley Bank (and other banks) closed down, which added even more complexity to the mix. Fortunately, all deposits are safe, but investors in SVP took a massive hit.
Another potential disaster is always looming around the corner — or a crazy lucrative market opportunity. As someone wise once said — showbiz has its ups and downs. This brings me to the purpose of this post:
There really is no time like the present. While I do love the strategy play and planning the future, I’m a huge advocate of solving today’s problems today and leaving the rest for tomorrow.
We might have to live with the crazy ups and downs we’ve seen since covid and embrace the fact that we’re living in volatile times. On a daily basis, I see startups struggling with their hiring plans, and I have tried to outline a couple of often-seen scenarios below:
- Should we hire now or wait?
A classic “damned if I do, damned if I don’t” scenario. I have seen a lot of startups in 2023 delay their commercial Q1 hiring to Q2, which seems like a smart idea but is also a road paved with potential issues.
Hiring usually always takes a bit longer than you expect, and if the original plan was to hire four account executives and 2 SDRs in Q1, there’s often a spillover to the next quarter. The start dates of your new team depending on their location. In Europe, they may have everything from one to four months notice period (Germany, as an example, would often be 3–4 months).
Curiously, many startups don’t really factor in the time, which means that the team you signed in April might not onboard until August. Assuming that they need a two-month ramp-up period and there's an average lead time of 3 months, you’re not really going to see an impact of those hires until Q1 2024. If you delay hiring a quarter, then we’re in Q2 2024 (assuming everything goes smoothly and you succeeded in hiring the right people).
Let’s say that your last round was a seed round end of 2022, which gave you a runway of 18 months, or until mid-2024 — that brings you dangerously close to when you were supposed to raise your A round, and there’s no way that you’re going to hit the same targets if you’re missing two quarters. If that’s not a vicious circle, I don’t know what is. You took the cost but got none of the planned revenue you promised investors.
While it can be wise to delay hires, I rarely see it working in real life when it concerns a commercial team.
2. How about the current organization, which may currently be underutilized?
Apart from the cost involved, building an organization costs blood, sweat, and tears, and the last thing on your mind is to lose the team you worked hard — for years — to put together.
I hear you. But to be successful as an organization, it is paramount that you have the right team in place at all times. Remember the thing about solving today’s problems today and leaving the rest for tomorrow? This is exactly what I meant. Making sure that you have a team well-equipped to solve todays problems could be the deciding factor in making your startup survive and thrive during an otherwise challenging period.
Keeping your team together and avoiding reductions seems like the “right” thing to do, but if your current team is underutilized (in the sense that they are not the resource you need to solve today’s problems), and keeping them employed means that you can’t afford to hire the people you need, you’re essentially labour hoarding.
Labour hoarding is an incredibly dangerous exercise forcing you to depart with cash you cannot afford to spend. Work with your management team, board and investors and decide which actions you have to take. It’s not going to be pleasant — but it may be necessary. And what makes matters worse is that few people take kindly to being made redundant, which means that once they’re out, they’re out and most likely not coming back.
3. Short-term gains versus long-term output
While it is essential to reduce an underutilized organization, it’s also important not to sacrifice your long-term output to achieve short-term gains. For me, that often comes down to your product organization. We have seen some pretty unprecedented redundancies in Bay Area scaleups, who usually would not fire developers, but usually, it is not a great idea to sacrifice your product organization.
If you’re in a situation where you have to make an uncomfortable decision, your Board is there to help. External resources like Advenio can also help you understand which resources will be easier to replenish and rehire once you’re back on track.