How do you fit into headcount plans?
Staffing mix and how it changes over time
There’s a saying in startup world:
“You’re either building the product, selling the product, or supporting the people doing the first two things.”
-Maybe Reid Hoffman
The highest taxonomy of departments within a company are Customer Support, Research & Development, Sales & Marketing, and General & Administrative.
CS fixes problems. R&D builds product. S&M sells and markets the product. And G&A is a nebulous bucket of bean counters, recruiters and people who write newsletters like me.
Early in a startup’s life the org chart is typically dominated by people with technical backgrounds - engineers, product managers, and people who prefer talking to computers. And this makes sense. If not, there would be nothing to sell.
When Do you Bring in Sales?
Companies usually reach an inflection point where they need to start hiring sales and marketing bodies at a rapid pace after experiencing some product market fit. Finding PMF typically aligns with a Series B or C fundraise. The influx of cash is used to hire S&M personnel to execute on the market opportunity, which the company now feels is moving towards them.
Initial sales are usually executed by the founder and a couple of engineers timidly pounding the phones. In fact, the first handful of wins are typically to friends of the founder - a.k.a. other small, forward-thinking tech companies willing to do the founder a solid.
And then, the sales process starts to become more defined. And the sales reps invade. And they bring their gongs.
How Do you Benchmark Staffing Mix?
The best way to look at staffing mix is by revenue cohorts. This helps you match up:
a) Capacity: how many sales people you need on board to sell the product and
b) Leverage: where you’re getting efficiencies in your model.
Capacity is a function of how many people you have out in the field and the quota they’ve been assigned. You can read more about the quota setting process here.
Leverage means you’re able to do more with less people over time. For example, you need one general counsel at $20M but you don’t need three general counsel’s at $60M. As the company matures you should see leverage out of all parts of the org, to varying degrees, depending on the department’s core function.
To double click on the evolution of Engineering, Sales, and Marketing, Tomasz Tonguz of Redpoint illustrates how Sales approaches R&D levels once a company graduates past $20M in ARR. There’s an obvious inflection point in staffing mix.
Does This Vary by Company?
Yes, it largely depends on how a company sells it’s product. When a company has a “product led growth” motion, meaning customers can try before they buy, and maybe even “self serve”, meaning buy it with a credit card without talking to anyone, the engineering side of the house can hold serve.
Atlassian is a product led company, allowing customers to self serve within the existing modules they’ve previously purchased. In fact, they claim to have zero sales reps! This is a bit of a misnomer, because they do have folks paid based on sales performance (better known as commission). And if you pick up a phone you can talk to someone who helps you buy stuff (better known as a sales rep). But nonetheless! Atlassian’s ability to sell products within their products frees up resources to be deployed elsewhere, like on more R&D people to build even more products.
If a company mainly sells to large enterprise corporations, like the Oracle’s or Workday’s of the world, they need highly compensated sales reps to sell through a heavy “tops down” sales motion, something we’ll cover in a future issue. This requires more sales horsepower and also more people focused on implementation, which can skew the mix accordingly.
What Does this Look Like Over Time?
Below is a rough sketch of how you might spread those 100 percentage points over time as your company’s topline grows.
A helpful rule of thumb is you typically want your S&M headcount to be approx. 1/4 marketing people to 3/4 sales people. This is slightly different compared to when you look at your budget in dollars, due to marketing programs, which is an indirect cost. The rule of thumb here would be approx. 1/3 marketing dollars to 2/3 sales dollars.
Regardless of how big a company gets, Customer Support usually reaches its “terminal velocity” at about 8-10% of the org. The same range applies to G&A, give or take a few percentage points. Be aware that CS and G&A may temporarily get out of whack during periods of “building” when the company is trying to get it’s core support functions in place. So don’t fret.
Finally, you should have a longer-term target model to reference as your North Star. Not all companies actually ever get here, but it’s good to think about what things should look like once you reach scale and have a predictable business model, firing on all cylinders.
Oh, and you should have at least one gong for every 25 sales reps. And they aren’t cheap. Especially when you beat the shit out of them like this guy.