Entrepreneurs and business owners, for your own sanity, run away from vanity numbers like revenue and staff strength. High numbers make you feel good but don’t represent business viability.
Instead, pay attention to productivity metrics like revenue and profit per employee.
Cash is a reality, don’t make staffing plans when you clearly have no money to fund salaries.
Staff should be hired to do existing work not in anticipation of work hoped for. Surplus staffing is the surest way to unnecessary financial pressure and the demise of many businesses, especially start-ups.
Getting staffing numbers right shows empathy for employees hired, it prevents the difficult decision of laying off staff.
I have studied successful tech firms, their revenue per employee metrics (calculated as revenue divided by a number of employees) depicts high levels of productivity, and is a better predictor of success.
Yes, we shouldn’t compare the likes of Facebook and WhatsApp now that they are successful, but it’s noteworthy that in 2005, in its second year of business, Facebook made USD 48 million, with only 15 staff. When WhatsApp was acquired for USD19 billion they had about 50 staff and for so many years before that, they had less than 20 staff. Paystack was also lean and mean till its acquisition by Stripe.
So, moving on from the unicorns, I have worked with several local tech firms and revenue is on average about NGN400 million to NGN1 billion with on average 15 to 50 staff. Of course, as these are only averages, some firms are doing less and others much better.
Whatever your industry, benchmark your firm against high-performing competitors. Collate their revenue figures against their staff numbers and see how it compares to yours. Do you have more staff than you need?
Analyze your firm’s last 5 years’ revenue per employee figures to determine when your team was most productive. The results could help you understand your next steps in deciding staffing needs. Determine your revenue to staff ratio. Are you becoming more productive? If no, why, and what are you doing about it?
In the early days, focus on building a core team. And as much as you can, every staff cost should be tied to serving the core service of your business.
Avoid putting yourself in tight corners by hiring staff you do not need or clearly cannot afford.
Avoid focusing on just revenue or feeling bad when your numbers aren’t as high. Check your revenue per employee figures, you may not be doing badly at all.
The best company’s are productive, they can deliver a good return without necessarily hiring large teams to begin with.
Once productivity is established there is more potential for high growth scaling and more funds to invest in innovation and future staffing.
God bless your hustle dear CEO, and I wish you, the very best.😀