Mostly research: Following the headcount cookie crumbs (June 2023 report)
Headcount as a leading indicator of future revenue (and ambitions)
The most important decisions a company makes are related to headcount.
There’s a famous saying in the tech world that:
“You either build the product, sell the product, or help the people doing the first two things do them better.”
In fact, +70% of all dollars spent at SaaS companies are on headcount. Therefore, hiring is a leading indicator of future topline growth (or contraction).
In other words, headcount tells you where the puck is going.
And even better, if you can track headcount patterns at the departmental level you can detect more nuanced signals about a company’s future revenue (and ambitions).
Increasing Go to Market headcount (Sales, Biz Dev, CS, Marketing) is a bullish signal on topline forecasts and a validation of management’s confidence
Increasing R&D headcount (Product, Engineering) indicates a company is investing ahead of it’s technical roadmap, and potentially moving into new areas
Increasing IT headcount may indicate a company is undergoing a digital transformation, and could be a big software buyer in the coming months
Here at Mostly metrics we track the headcount patterns of 334 technology companies on a monthly basis. 105 are currently publicly listed and 229 are currently privately held.
More specifically, we tag companies across the following characteristics:
Public vs Private
Sector (e.g., security, development, finance, HR etc.)
Business model (e.g., field sales, PLG, channel)
Pre IPO candidates
In short, there’s a lot of money to be made if you can spot patterns ahead of time - whether that be as an investor, a seller of technology, a CFO benchmarking their own company’s staffing model, or an employee looking to land their dream job.
In this post we’ll cover the top signals coming out of our June 2023 headcount data.
TL;DR: What you’ll find in this report:
OpenAI grew headcount 11% month-over-month
Ramp and Navan, spend mgmt platforms, add HC as CFOs pay for visibility
Only 16 out of the 105 publicly traded companies we track grew GTM HC m/m
Gitlab and Github hit the breaks on hiring
Xero strives for profitability with their new CEO, making deep cuts
Datadog and two other category leaders are hiring lots of PMs and Engineers
A surprise publicly traded payroll player is scaling quota capacity rapidly
Fortinet has over 200 IT roles open?!
Among pre IPO companies, DataBricks can’t hire sales people fast enough
Two recent take privates cut headcount to streamline operations
Among Pre IPO companies, Ramp, Remote, and OpenAI added the most headcount month-over-month
As a simple rule of thumb, growing 6% m/m is equivalent to growing 100% y/y. So all of the companies in the chart above are trending to at least double their headcount this year if they keep this pace up. That’s a bold statement in an environment that prioritizes efficiency over growth.
Rumors are that Notion could be making a leap into the public markets as soon as the IPO window opens back up. They’ve seen a huge increase in use cases (and revenue) since adding AI to their core offerings this year. According to the Cloud Ratings Demand Index, Notion has seen high-intent buyer search volumes increase by over 40% since announcing its AI offering in November 2022.
And unsurprisingly, growing even faster than Notion, is OpenAI, the engine powering both startups and incumbents looking to make their offerings “smarter”.
I also find it telling that both Ramp and Navan make the list, two B2B payment management platforms. Perhaps this signals that CFOs are investing heavily in expense visibility in this economic climate to ensure they keep OPEX under control.
And it makes sense that Remote is growing rapidly - CFOs are looking to hire the best talent at the cheapest rates. Remote has a clear value prop as an international PEO and EOR.
Gitlab and Github hit the breaks on hiring, while Xero strives for profitability
More than 215,000 people have been laid off in the tech sector so far in 2023 across more than 800 tech companies, according to the Layoffs.fyi tracker.
The impact of headcount cuts on run rate performance is hard to quantify for three reasons:
The results don’t immediately show up in the P&L. There are one time costs related to severance that actually cause a temporary increase in spend.
“In terms of severance, [Gitlab CEO] Sijbrandij said that all staff affected will receive pay through the “transition period,” plus a single payout equivalent to around four months base salary. He also said that staff will continue to receive healthcare for six months in locations where that is part of their package.” - TC
The teams who experienced cuts need to stabilize and may not be as efficient in the short term as they reorganize (and re-motivate)
It’s common for orgs to backfill roles they just cut with different functional roles elsewhere in the org as they shift to a different strategy
Net, net: Yes, there should be some sort of OPEX run rate adjustment for companies who make cuts - just probably not as much as you’d think.
Gitlab and Github, two leading developer platforms, both decreased their total headcount by 3% in just one month. With developer hiring thinning at many tech companies, there are potentially less seats to sell into. Github is owned by Microsoft, which is a beacon of profitability, but Gitlab, is still burning a lot of cash.
“I had hoped reprioritizing our spending would be enough to withstand the growing global economic downturn. Unfortunately, we need to take further steps and match our pace of spending with our commitment to responsible growth.”
-Gitlab CEO Sid Sijbrandij in email to employees
In addition, Xero’s decline reflects their emphasis on improved profitability (recently announced 15% overall headcount reductions) under their new CEO.
Cloudflare, who sits in the top 5 in terms of EV / Revenue valuation multiples, was a surprise for me - as they showed up in two seemingly contradictory categories:
Largest decreases in total headcount m/m
Highest percentage of roles open relative to total headcount (see chart below)
This signals to me that they are very much open to hiring people, but it may be a one-in-one-out type of deal. You’ll notice the same statistical phenomenon for Gitlab and New Relic. Tech companies may be taking performance management more seriously, while still being open to new talent.
This chart illustrates public tech companies with open roles representing 10% or more of their current existing headcount (calculated as Open Roles / Total Current Headcount). Hiring for more than 10% of your current footprint at any given time is perceived as a bullish, confident signal by management.
What struck me as a mixed signal is that despite recently laying off 500 employees, or 16% of their staff, Dropbox still has a lot of recs open.
As you’ll see, though, in the chart below, the majority of the roles they are looking to hire for are Engineering and Product related. So it seems as if they are also aggressively shifting their roadmap to incorporate AI, or doubling down on what’s already in motion, like C3.ai:
I do not believe that it's an overstatement to say that there is no technology leader, no business leader, and no government leader who is not thinking about AI daily.
-Tom Siebel -- C3.ai Chairman and Chief Executive Officer, Q4 2023 Earnings Call
More on that trend below