Headcount management is the number one problem at modern businesses today. While headcount is the only true reflection of a growing company’s ability to execute its business goals, it’s also nearly impossible to manage in real-time.
That’s because all the key data exists in disparate systems that don’t talk to each other and spreadsheets that are unreliable and error-prone. Leaders simply don’t have visibility into whether or not they’re hiring to plan, but they need this information to make critical headcount decisions that affect product roadmaps, sales targets, and ultimately revenue projections.
In other words, not hiring to plan equates to poor headcount management, missed business goals, and delayed revenue. That’s downright scary for growing companies. In fact, it often leads to the grim reality of increased cash burn and, ultimately, layoffs.
How did we get here?
Let’s explore a scenario that’s all too common for growing companies.
The headcount management approach at most companies today
At the beginning of every year, the company makes an annual operating budget. Department leaders are meeting with the CEO, and finance and HR leaders come together to decide the goals and budget.
As a company, they define certain growth goals. For example, they want to grow from a $50 million company to $100 million. In order to do that, they need to build product and sell product.
In order to build product, they need more engineers, more designers, more product managers, and operations. In order to sell product, they need more business development reps, more sales reps, and sales operations. To support the growth, finance, IT, operations, HR and other departments need to add to their teams, as well.
That's how the company comes up with the headcount plan: based on top-down planning and the goals of the organization. The company is 300 people today, they need to get to 500.
Turning the plan into action
At this point, the company needs to take this high level headcount management plan, which is giving a target number of employees (300 to 500), and actually make it into a real world operational plan.
Who are the types of people they are going to hire? How much should they be paid? Which teams will they be on? When should they start?
Companies do this planning mostly in a spreadsheet. The spreadsheet gets passed back and forth between finance, HR, recruiters, hiring managers, and executives as they refine the plan and collaborate to lock it in.
Then, the real execution starts. The company begins to hire. And we all know that in a fast growing startup, a lot of things change; things don’t always go according to plan.
It often takes longer to hire than companies expect
For example, the company may have assumed that, in order to hit certain revenue targets, they were going to hire ten sales reps in Q1. The new reps would ramp by Q2 and start selling by Q3 (aka new revenue in Q3 and Q4).
But what if they cannot hire those people by Q1? That means they cannot onboard by Q2. That means the revenue goals that had been set for Q3 are in jeopardy. Because the company didn’t hire on time, they aren’t going to bring in the revenue they expected and thus need to revise the growth goal.
The big question is: do they still need to hire ten reps or should they only hire five? If they reduce the revenue goal, they probably shouldn’t continue to hire ten sales reps. That would increase cash burn too much. But many companies don’t know this information in real-time. They hire all ten reps even though they are not going to hit the revenue target.
Compensation is outrunning budgets
Let’s look at another scenario, one that’s very real, especially right now. Recently, salaries for certain roles have begun to go up significantly.
Finance might have used payroll data to budget for new headcount in similar roles. But these salaries are no longer accurate, based on the latest market compensation. That means one of two things for our hypothetical company that is hiring ten sales reps.
Either the company will go over budget and continue to hire ten sales reps, or they will hire fewer reps and risk missing revenue goals. Either way, burn goes up disproportionately to revenue, but by the time the right people learn of this, it’s too late.
Stopping mass layoffs is about managing cash burn
Ultimately, that’s why companies need to lay off. When cash burn increases without proportional revenue increases, layoffs are inevitable.
We’ve set out to solve this problem. It affects too many companies that simply need a more collaborative tool. They need real-time signals into whether or not they’re hiring to plan – on time and on budget. They need a single source of truth for headcount so they can execute goals and hit revenue targets.
TeamOhana is a better way to build a winning team
TeamOhana empowers growing companies to plan their headcount management with confidence. By integrating with HRIS, ATS, and compensation data, we unify people, processes, and data in a collaborative platform so companies can achieve their business goals faster. It’s the single source of truth for Finance, HR, Talent, and hiring managers to connect, refine, and grow with confidence.
Our first ever strategic people platform is being built with the help of expert finance leaders, accomplished CHROs, and dozens of executives who have scaled massive teams (LinkedIn, Medium, Salesforce, Gusto, Notion, Postman, Airbase, and many more).
Sign up for a free trial and join us on our journey to knock down brick walls between people and people data to deliver headcount transparency as the superpower for exponential growth.
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