One of the most frequent questions we discuss with portfolio companies is when to make which senior hires. The answer is driven by experience/skills of the founding team, trajectory, cash position, type and stage of the startup. Since the first four are very contextual, stage serves as a common denominator to define rules of thumbs. For simplicity, we can think of stage by revenue run rate in $ARR. For B2B SaaS, this is gross revenue; for a marketplace, net revenue. I think of $0 – 1 M as early product-market-fit, $2-5M as late product-market-fit and go-to-market repeatability, $5-9M as scale and $10M+ as mass scale and focus on achieving market leadership.
Below is a quick cheat sheet by function, role and startup stage for when certain hires are typically made, assuming they are not already on the founding team. The dark green indicates that most companies have the role at that stage. The hashed green indicates some companies have the role depending on other factors. The table implies layering of Chiefs on VPs on Directors. This is more illustrative than practical. You wouldn’t have a CFO, VP finance and controller at a $7M company. You might have a CFO and controller. You get the point.
You will notice some coincidence above between when a director or VP hire might join a function. Often they are interchangeable but with different compensation, experience and “runway” expectations. A director hire in a startup might have 5-7 years of relevant experience and a VP hire 7 to 10. You wouldn’t expect a director level hire to own the function for much more than a doubling or tripling of revenue at this stage. A VP level should be able to 3-5x. “Chief” titles are in a different category. Don’t give out a chief title unless you think that person has uncapped ability and experience to scale. In the end, there can be only one king or queen of the mountain, whereas a penultimate title leaves the possibility of bringing in a more senior “chief” above a strong leader who has reached their cap on scale. Looking briefly at each function:
Technology: If you are a tech startup, you need a CTO… duh. We generally invest in teams with a founding CTO, and in the rare exception a CTO is recruited at or before launch. Many founding CTOs have less experience at scaling large tech organizations (hiring, agile operations, tech scaling) but excel at system architecture, vision and solving really hard problems. That is why many of our companies also bring in a VP Engineering above $5M in revenue
Product: Often founding CEOs are the de facto product leaders. With the right founding CEO, this can scale as high as 5M in revenue, but in most cases establishing a product leader somewhere in the 2-5M range is important in focusing direction amidst customer feedback and an increasingly complex product. This is especially true in enterprise software. Many companies wait too long in formalizing product leadership, which can contribute negatively to finding product market fit.
Marketing: At less than $1M in revenue, marketing is mostly a demand gen game – testing paid acquisition, building SEO, optimizing landing pages and building the top of funnel. This can be done by a marketing manager with 3 to 5 years of relevant experience… or even less. As the company finds product-market-fit and begins scaling, higher level marketing leadership is needed to drive brand, position in a complex market and scale demand gen. This can be done by a director or VP level hire. CMOs aren’t usually needed until $10M+ when a run at category leadership calls for even deeper experience and industry gravitas.
Sales: I’ve written about “when not to hire your first VP of Sales” from our own battle scars. Put simply, we’ve almost never seen anyone but a founder be successful at leading sales at a startup below $2M in ARR. Below that the process, product and target customer are too undefined. For very large enterprise SaaS, that cutoff is even higher in the $4-5M ARR range, meaning enterprise software startups are wise to wait even later to hire a first non-founder VP Sales. Higher contract values mean fewer experienced sales cycles for a given ARR level, so repeatability through practice takes longer!
I’ve been surprised at the increasing use of CRO titles at small startups. “Chief Revenue Officer” implies the leader runs sales, customer success and maybe marketing AND that they have uncapped scaling potential. There are few people who really have that combined set of skills and potential, and they don’t usually work for small startups.
Customer Success: This function should start from day 1 with an individual contributor hired to manage first customers. Once 3 or 4 success reps are in place… somewhere in the $2-5M range, a functional leader is needed. This is a player coach, likely a director. VP level leadership can often wait until upper single digit run rate as long as a director level hire is given a voice at the table to fight for the customer in product and pricing decisions.
Talent: Talent (and HR) are critical functions, but in defining the culture and values of a company, there is no substitute for the founding CEO serving as head of talent for the first 25 hires. Once in the $2-5M ARR range with a staff above 25 people, institutionalizing HR and talent with a recruiter and/or HR operations person makes sense. Somewhere later in the $5-9M ARR, an executive level hire to run Talent (VP Talent) is prudent. The next stage of human scaling requires a devoted high-level player.
Finance: We see a lot of “CFOs” at too small startups. No dedicated financial resource is needed below $1M ARR. There are plenty of outsourced bookkeeping services to use for $1-5K a month. A controller becomes important in the $2-5M ARR range as a startup raises more capital (increasing information demands and frequency of investor communications), expenses increase and customer contracts become more complex. A controller can also be helpful in prepping board decks and managing a financial review or audit. So when do you level-up to director or VP finance? Here’s how I think about it: A controller should be able to answer the question “what are the numbers?”. A director or VP Finance should be able to answer the question “what do the numbers mean?” A VP Finance is particularly important in enterprise SaaS in the $5 to 9M range (or even earlier), where modeling and negotiating of customer contracts is important skill to have in-house. A controller or director level resource will scale further in SMB SaaS where everything is billed through Stripe. The final CFO step brings a true strategic financial leader who can manage a fundraise and diligence process, help the CEO test and analyze business cases/strategy and oversee key business risks (financial, physical, platform dependencies, etc).
*Operations: Many startups don’t need an operations function. Exceptions include tech enabled services, marketplaces (think sourcing and on-boarding supply) and enterprise SaaS where implementation and services are part of the model. Such companies may start with a founding COO. If not, a relatively senior hire is important early. You can’t screw this one up, and often the role requires real experience to avoid the risks of putting customers or suppliers through your own learning curve. Don’t reinvent the wheel when it comes to opps. With respect to “operations” functions like facilities/real estate, legal, or HR compliance, the VP Finance or CFO can handle those.
*Business Development and Partnerships: BD and Partnership hires can wait until later for many startups, except those where ecosystems are complex and busy and/or there is a lot of product value in integration. This tends to be true of horizontal SaaS – think martech, accounting/fin tech and sales enablement – where there is an existing stack of technologies into which you are trying to fit. In these cases, early BD is both risk mitigation (don’t get left in the cold) and a distribution opportunity (sell through the rest of the stack). Of course, the founding CEO is likely the best BD person for a long time.
Key hires are as much about leverage as upleveling experience. A founding team of 2 or 3 people can’t run every function as a company grows. Each member should pick the one or two functions they excel in the most and run with it, filling leadership for the others as the company scales.
Faster growing startups should hire senior levels earlier than slower growing startups. By the time you “need” the hire, it is too late! Make decisions 6 to 9 months ahead to accommodate a 3-6 month search and hire process for Director levels and above. Faster growing companies also have better access to capital and so can afford a higher personnel burn to accommodate this ramp, while they have less time to experientially train and promote from within.
There should be a good reason for having a lot more senior people than the table suggests for your stage. If you are a < $1M ARR startup with lots of chiefs, be explicit about the tradeoffs. What are you getting for the higher burn and likely pain of having to trade people out later? We see two modes of good answers: (1) Extremely experienced teams that have had startup success together before and likely have better access to capital. Their bet is that they can go faster without the on-the-job-training costs; (2) Startups operating in credential driven industries where early team members need “C” titles, long resumes and fancy degrees to convince customer. Healthcare startups are the major culprit here. Those are the only sort of good answer we’ve seen.
3 thoughts on “When to make senior hires from $0 to 10M in revenue”
I will propose a counter idea using a sports metaphor. It all depends on the kind of team you are building. The plan above is really designing a team by putting in place all of the coaches. I argue that an agile team needs fewer coaches and more players. The coaches stand on the sidelines and as we say in Texas “point and hollar.” A football team has many specialized teams and many coaches. A futbol(soccer) team has many fewer coaches. And at UT Texas, Eddie Reese, the Men’s swimming coach has 13 national NCAA titles and more Olympians than any other coach and manages his team with one assistant coach.
First, define the type of team and then find the best head coach you can, and then build your team of players. Only build out more coaches when you need them. This will help keep your burn rate down and will ensure have enough players on the field.
Dan, thanks for joining in!
Your thoughts make sense and is not all that different than my POV in that the cheat sheet reflects the empirical manifestation of what you are describing. In other words, this is the trend that we see evolve in fast growing startups under a similar philosophy you describe.