The people you hire is the single greatest investment you make.
Accolo raised a Series B round in June of 2007 from Altos Ventures with three goals in mind:
- Finally get ahead of the hiring curve on the Client Services side of our business (the folks that do all of the recruiting and consulting work)
- Ramp our sales team and build a formal marketing department
- Accelerate the development of our core technology
As I look at where the money is going, at least 60% of it is for hiring full time employees and 30% towards technology development contractors/resources. The other 10% went toward a kegger and new coffee machine (just kidding, Ho – just curious if you ever read this stuff). Anthony Lee of Altos Ventures estimates that 70% to 90% of a company’s expenses in the early days go towards headcount.
Given that level of investment, why do most small, venture-backed companies not have any formal way of spending those dollars? We talk to companies every day that recently closed funding, have a lot of money to spend (and the associated growth expectations) and a short time line, but have NOTHING in the way of a formal process to hire or dedicated resources to get it done. Most either spend a truckload on contingency recruiting fees or assign whoever isn’t in the meeting to run recruiting. It’s a common cliché that the people you hire is the single greatest investment you make.
You know where this is all going, but I’ll proceed anyway. Let’s say you have $5 million to invest and expect a good return. You decide to let me invest it for you. You are aware that I have no formal training in investing, no tools or research to leverage, and stock picking is one of a hundred things I have to do everyday. How confident are you in the returns? If you’re lucky, I’ll pick by throwing a dart at the newspaper stock quotes. Come to think of it, I’m not even sure if they print those any longer.
When Accolo has its multi-bazillion dollar IPO in a few years and I become a rich uncle to startups, the first question I’m going to ask is what plan is in place to spend the 90% of my money wisely? A company that recruits by asking an overworked office manager to post on Craig’s List and then forward resumes to a CTO that is working 80 hours a week is at best the equivalent of throwing darts at the newspaper. What is the cost to the company of a bad hire? What is the opportunity cost to the company of a hire not made? It’s somewhat surprising how many startups make their most important investment without a formal process or the resources to do it well.