July 16th, 2021 | By: Wil Schroter
Celebrating adding staff is like celebrating the cost of a wedding — it's the liability, not the achievement.
It seems like everyone loves to champion the importance of "scaling our staff," whether it's the media or our local government talking about job creation (when is the last time a startup was successful because it met a job creation metric?) Of course, we proudly announce we're hiring because it implies that our business is doing well, right?
While that may be true, the reality is adding staff still falls under the cost bucket of our income statement, and while those important hires may help us grow revenue, the important distinction is that they are not, in fact, revenue.
They are actually a massive cost, and in most startups, by far our most significant cost. Instead of treating staffing as a sign of success, we need to think of staffing as a massive concern that we take incredibly seriously.
Imagine we were running a bakery, and in order to scale up our bakery we had to order more flour. We know we need that flour to bake delicious treats, but by itself, that flour is just an expense. We probably can't imagine standing around at a cocktail party bragging about how much flour we're looking to buy. That's because, for most of our costs, we recognize them as actual costs.
Our staff is the same line item, but it feels different. We think of our staff as the engine of growth, and they are, but we often lose sight of the fact that unless we're piling on more revenue to go with it, that cost is never anything more than money out of our bank account — a lot of it.
If we were piling up massive containers of flour in the pantry, going on our "flour acquisition spree" and yet no one was standing in the front of the bakery at the register, we'd be hard-pressed to get excited about our growing stockpile of flour. More likely, we'd be looking around saying "Hey we should probably stop buying flour until we're sure some people are going to be buying some doughnuts!".
Where we get distracted with staffing, is while it's hard to do, it's just spending money, which anyone with a bank balance can do. It is the folly of nearly every new funded startup to think "It's time to staff up!" because there's cash in the bank and a fresh round of optimism in our minds.
What's lost in that excitement is the real hard part — making enough revenue to pay for all of these costs. It's easy to say "We'll figure out revenue once we have all this staff!" but a more hard-nosed Founder will think "We need to be really careful how we start stacking up expenses until we've got a better line of sight on how much and how quickly our revenue will support this." That may not make us fun and popular, but it will certainly ensure we're around long enough to care about it.
There's no downside to celebrating as many wins as possible, however, not all wins should be celebrated equally.
Of course, closing a funding round is worth a celebratory dinner, because fundraising is hard and the new funding helps accelerate our goals. Finding some great talent and convincing them to join our band of misfits is a wonderful validation that others care about our mission, and it feels good.
The problem is that none of those milestones validates our actual business. Convincing investors and staff to join our ranks will never, ever pay our bills. It's a great play with positive yardage, but unless that completes with a touchdown, we're still scoreless.
We need to look at all of these milestones as the liabilities that they are, not just steps forward. That investment needs to be paid back, and that staff is eviscerating our bank account. Until we start putting money back into our account, we're not successful at running a startup, we're only successful at spending money.
Let's Define Success By What We Don't Have To Do Anymore Why do we measure startup success by money? Is it the money we're truly talking about or the freedoms that money buys? If it's freedom, then how much of that freedom comes from money, and how much of it comes down to choice?
How Much Should I Be Working? (podcast). Wil and Ryan take a deep dive into the benefits of thinking quality and not quantity when it comes to your weekly punch card.
We Need a Strict Definition of Personal Success Every moment we spend pursuing an undefined goal is a complete waste of time — especially personal goals.
Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.