Startups are feverishly hiring right now to scale up their businesses, but could we in fact be doing it all wrong? While many startups expound the virtues of being lean, once the VC money train rolls in, it is off to the races, going on a hiring binge as we have been witnessing of late in our tech bubble.
The assumption has always been that the bulk of one’s investment capital should go into hiring engineers and sales people and marketers. As the product gets more complex, you need product managers and customer support reps. This growth in turn drives the need to hire administrative staff to handle finances and human resources. With all these additional people, there comes the need for structure and reporting and management layers. Lo and behold, your humble little four person startup quickly becomes a hundred plus person corporation in short order.
This is obviously a great result should a startup get that far. But is it the optimum result and does scaling up a startup necessitate an increase in human capital? Or more simply said, could you build a billion dollar company with just a handful of people?
The closest possible startup that comes to mind is Craigslist. With upwards of 30 people, Craigslist has been estimated to be worth upwards of several billion dollars. This would normally seem pretty rich, but in reality is rather modest compared with other Internet stalwarts like Facebook, Twitter, Groupon, etc. As for employees, they seem to keep things pretty lean; no massive sales staff, zero marketing, minimal customer service, and a basic enough product that requires no development or innovation.
Craigslist seems to be the lone outlier, but could the model work for other technology startups? I believe the answer is yes, and here are a few trends that are leading to leaner companies:
If a tech startup were to incorporate all of these strategies while also running a successful and rapidly growing business, it is very likely that we could start to see more and more billion dollar technology companies with the fraction of staff than is typically employed today. While I am not saying that it is necessarily a good thing, especially as millions of people are still out of work and a weak economy, the recent hiring binge is merely a function of investors pushing for growth as opposed to being the best way to scale growth. In other words, we seem to be equating scale and success not by the amount of output, but by the number of hires per quarter, and that is simply not sustainable.