All those founders, and where are they now?
From December 2023 through June 2024, I had meaningful conversations with 180 different startup founders. That's a lot! In some cases, we spent an hour or two together. In other cases, they became coaching clients and I talk with them often. Their companies range from pre-revenue to making tens of millions of dollars annually.
Over the next four weeks, I'm looking at where these companies are today, 6-12 months after our initial meeting. Is there a connection between a team's operational choices and its positive or negative growth? For instance:
- When does hiring outside executives help, and when does it hurt?
- How many managers does a startup need? How big should teams be? Do flatter structures perform better?
- Do more diverse founding teams perform better?
- Do companies that use RACI and similar frameworks perform better?
- And if we get to it, yikes: Do the companies that hired me perform better or worse than average?
You can subscribe to get each weekly installment here if you're not already subscribed to nerd processor. This week, we're starting with two powerful insights about exec hiring.
Positive and negative growth signals
6 or 12 months later, I don't know how every single company I met in the first half of 2024 is finishing the year in terms of revenue. However, there are some events that are reasonable proxies for a company's positive or negative growth, and I used these events to model outcomes for these companies. It's not perfect, but as we say in the data storytelling biz, it's directionally correct.
I counted these as positive growth signals:
- Closing a new investment round
- A material exit event
- Expansion in office space
- Acquisition of another company
- Significant growth in exec staffing and/or total staffing
And I counted these as negative growth signals:
- Layoffs
- Silent but significant reduction in exec staffing and/or total staffing
- Office closures
- Discontinued product or service
- Closing the company
With these outcomes in mind, this week's question: Does it help or hurt to hire a VP of Sales early on? How about a VP of People?
Hiring a sales leader too early costs you
When it comes to early-stage sales, I'm a proponent of hiring from the bottom: hire the BDR to help you with scheduling meetings before you hire the VP. In other words, you hire for the parts that are well-understood, but time-consuming. This gives you the space you need to figure out the parts of the sales process you don't understand yet.
However, this isn't always what founders do, especially if they don't have a background in sales. It's easy for people to think, "I'd better get a sales leader who's done this before" ahead of finding product-market fit. The data shows that this doesn't usually work out.
104 of the companies in this data set had less than $1M in annual revenue when I first met their founders. Of the 104 companies, 26 had a founder leading sales when we met, and 78 had already hired a sales leader from outside. The companies that had a founder leading sales through their first $1M in revenue showed far more positive growth signals.
These results are striking. Early-stage companies with founder-led sales are 2.6x more likely to show positive growth signals 6-12 months later than companies where sales is led by an outside hire. Moreover, the companies where sales is led by an outside hire are also 1.5x more likely to show negative growth signals.
The bottom line: Don't hire a sales exec until you've proven your sales motion is ready for one.
Hiring an HR leader too late costs you
Last week, I talked with the founder of a 75-person company that's closing in on $5M of annual revenue. His favorite thing about their journey so far is how they've done it "without HR." When I asked what that meant, he said they had no HR staff, no performance reviews, no standard compensation, and no promotions. At 75 employees. YIKES!
With $5M in revenue this is a bit of an extreme case, but take a look at the growth outcomes for the 104 early-stage companies with less than $1M in annual revenue; 41 had brought in an HR leader, and 63 had not. The companies with HR in place showed more positive growth signals than those without it.
In other words, the companies that hired an HR leader are 3.4x more likely to show positive growth signals 6-12 months later than the companies without HR in place. The companies without HR leaders are also 2.3x more likely to show negative growth signals.
The bottom line: Your misperceptions about HR will bite you. Getting a strategic and analytical HR leader on board by the time you're crossing $1M in revenue is a huge competitive advantage.
Next up: Flat organizations or deep ones?
I also compared the performance of companies with a COO and without one. This was a little trickier to disaggregate, because early-stage COOs are more likely to have been founders than early-stage VPs of Sales or HR. We're going to dive into that next week.
We're also going to answer the age-old question: How many managers does it take to successfully grow a company?
Thanks for reading! If you like this kind of insight, check out the founder coaching and advisory services I offer. (And if you want proven activities that build high-performing teams regardless of company stage, here are three of my favorites.)
Kieran
From now through December 31, I'm making it easy for people who want to learn to tell data stories like this one: Viral Data Stories 101 is half-price and includes a 1-1 consult with me to help bring your data story to life.
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