The more the merrier is true in many cases, but not when it comes to hiring employees. Wendy van Ierschot’s view on the mistake many fast-growing companies keep on making.
“I wish you many employees”, is a phrase mainly used in Jewish and Arabic societies, said to people who start their own business. Everyone knows: the more employees and the bigger the company, the more money is being made.
Just like profit, revenue and received investment grants, the number of employees on your payroll is an indicator of how successful your business is. But from an HR-perspective, hiring more employees isn’t always better. In fact, in the long run, it could even do more damage than good.
When money isn’t a problem anymore
It happens to many startups that suddenly go through rapid growth, especially after big investment rounds. After some time of turning every penny, all of a sudden there’s money to double the number of employees – finally.
When money isn’t a problem anymore, three things typically happen within fast growing companies when it comes to hiring:
- There’s no HR-strategy, resulting in hiring people without thinking enough about company values, company culture and long term needs.
- Once people are hired, little attention is being paid to their performance –– especially when you’re growing like hell.
- When staff turnover rates are really high, little attention is paid to why that is happening.
Let me give you an example about a company that had three sales people and was finally able to add four extra sales reps to the team. Mind you, that’s an extra capacity of more than 100 percent.
After a few months, we saw that the sales figures did not grow in the same way the sales team did. You’d say that more people can think of more smart ways to do sales. You’d also say that more people in the team have more time to invest in long term relationships. With this extra capacity, you’d want your sales improved by at least 150%.
In fact, the recent European Scale-up Report by the Vlerick Business School states: “On average, a sales team of 2 FTEs is required to generate 1 million EUR of annual sales. In order to then increase annual sales with another 1 million EUR, one additional sales person is needed on average”.
Why didn’t that happen in the above case study?
Surprise: the problem here was over-hiring. There was no strategy on how to use that extra capacity effectively and on the different roles needed for the team to function. The new sales team, consisting of seven people, came to copy the work that was done by only three in the start-up phase.
Over-hiring leads to complaining
Once people in the team started noticing there wasn’t enough work for everyone, the complaining started. Because that’s what people do when they feel their presence is becoming redundant. They started to complain about the sales deck, about the product’s storyline, about their team members’ performance. All to avoid saying: we’re not working effectively, because our team is too big.
How to avoid this? Preventing hiring too many people in the scale-up phase can be challenging, because investors want to see growth rates – often resulting in CEOs extrapolating their current numbers.
However, making your new hires effective afterwards is definitely doable. Have a look at your figures after you hired extra employees. The question you need to ask yourself is quite straightforward: do four extra sales reps lead to four times more sales?
A reflection instrument for looking at your employees and their performance, could be to wonder if you had to fire ten employees today, who would you let go? If the team members you come up with are somehow underperforming – maybe by lack of pressure or by not having an essential position – is there another way to let them thrive?
Happy and well-performing employees are essential for a good and healthy company culture. Even when money isn’t a problem anymore.
Over-hiring is the start up kiss of death. Here's how to avoid it