Since founding my first startup five years ago, my cofounders and I have made many mistakes based on many mistakenly-held beliefs. Most of those were avoidable and we had some of the smartest people in the Valley telling us we were wrong at the time (despite that, we went ahead and made those mistakes anyways). However, I've been recently thinking about one particularly toxic mistaken belief that no one forewarned us of: that greater head count means greater company success.
I believe this idea is deeply ingrained in founder mentality. The first question that someone interested in your startup asks you is always "What does your company do?" The second question is "How many people do you have?" In the age of get big, then monetize we use head count as a proxy for revenues and success (or, as a proxy for another fake success metric, fundraising). As we grew Justin.tv's own head count, I used to be proud of the looks of awe I'd get from other startup founders when I told them we had "25, no 30" employees! And I would act in exactly the same way to my friends with 50 person companies (all those people must be executing on something, right?). As far as I knew, we were emulating the giants. After all, the goal is to become a Google or Facebook, and they have lots of people, right?
Wrong. As we've learned perhaps the hardest way possible, adding to the team has a heavy cost and should be done as a last resort, not as a first one. Here is why adding more people is expensive:
- People are expensive. People have to eat, and good programmers want to do significantly more than just food on the table (iPads and gourmet coffee addictions aren't cheap!). The recent compensation arms race between Google and Facebook highlights how expensive it can be to retain key employees, and even though your startup probably isn't paying millions per engineer, personnel costs are usually upwards of 40% of your expenses.
- More people means greater diffusion of responsibility. When the team was six people, it was clear that if something was broken (something technical or otherwise) there weren't a lot of people available to fix it. As your team grows, it is easier for people to shrug their shoulders and think "that's someone else's job," especially if you don't have clear job responsibilities. Which brings me to,
- More people require greater management overhead. This is comes in the form of more managers, and more requirements for clearly defined goals and responsibilities. This can often be problematic for a startup, because often times when you are achieving product / market fit, you don't know what your goals are, and the company management is too busy to outline clear responsibilities for early employees.
- More people require greater communications overhead. This means more meetings, and more people who need to be kept in the loop on a project. When we passed around 12 people, we found it necessary to start doing weekly meetings where we reported what was going on in different sides of the company, because otherwise the left hand didn't know what the right hand was doing. As Fred Brooks outlined in The Mythical Man-Month, group intercommunication increases geometrically with team members.
- It is easier for your company to become politicized. When you have a 5 person company, it is clear that everyone is working on something critical to your success. When you have a 1000 person company, not so much. The line between the two isn't a step function, and somewhere along the line it becomes important for employees to start thinking of how they can demonstrate their value in an organization. Along with that comes empire building, title jockeying and the founders having to figure out how to counter balance these things.
- It is very hard to hire talented, hard working, and loyal team members. Joel Spolsky neatly outlined how good programmers are probably not applying to work for you; they are probably already working at a cushy job with high upside at Google Facebook. People I respect have told me the best practical success rate of adding people that work out is around 50%, and after five years in startups I finally believe them. That means that if you're killing it in hiring, for every one person you add you are adding someone not so great who you will have to deal with later.
- It is harder to pivot. People don't like change. Greater numbers of people means greater institutional momentum. Many team members who were hired to play a specific role have a vested interest in that role remaining critical to the company (even if it might not be). If you want to change that direction, you're going to have a lot of momentum to fight against.
- Learning to manage has a cost for founders. When you are two people dreaming in a garage you don't even think of the practical day to day of organizing a large group of people. It took a long time for us (who had no experience managing teams before starting the company) to figure out how to get a company of 20-30 to work together towards a common cause, and that was after countless mistakes and guidance from more experienced managers. Today I'm acutely aware that we will face challenges between 50-100 that will be very difficult, and I look towards them in anticipation with confidence (knowing that we'll only get that large now if absolutely necessary) and dread (that there will be pain and it is unavoidable).
If you equate head count to success it is easy to get trapped into becoming a somewhat bigger company with less chance of actually being successful. When you are, it is very difficult and painful to reverse. This should be avoided at all costs, and that starts with eradicating from your mind the belief that more people == more successful startup. There is a legendary Bill Gates quote about software: "Measuring programming progress by lines of code is like measuring aircraft building progress by weight." The same is true of head count.
So what *are* good metrics for a successful startup? That depends heavily on your strategy. Revenue per employee comes to mind. For startups trying to go big, I like Facebook's measurement of users per engineer. But whatever you land on, make sure it is something that is core to your business.
At Justin.tv we like to say we're a small company trying to act like an even smaller company. Remember, managing a large team can be a pain in the ass for founders and isn't necessarily something to be racing towards with open arms. When you started your company, was it your dream to spend your days as a bureaucrat, managing conflicting agendas, creating "processes" and running meetings? Of course not. You wanted to create something that people love, that someone will pay you for, and to do it in a culture that you want to be part of. Where in that road map does it say you have to figure out how to organize and pay hundreds of people?