I’ve been the Head of Finance at Novo for over four and half years. The company has evolved significantly over the course of that time.
When I joined, we were about 12 employees, and now we are north of 300.
A lot has changed, both in terms of the way we do our job in the day-to-day, and in the way we hire. Over the course of my time at Novo, helping it scale more than 25x, headcount management has become an important process, especially as the team grew larger and larger.
It’s a really good time to reflect on headcount management, given what’s happened in the market the last few months. It affects people’s lives when you get headcount wrong.
In startup environments, Finance leaders have to be much more strategic because you have influence over headcount decisions unlike what you might have in later stage companies.
As you think about how to do headcount management at your own company, here are my top three tips for Finance leaders to create and execute a better headcount management process.
The first tip is to do headcount planning on a yearly basis when thinking through a three year view.
Most people get this wrong. They only think of the yearly view.
They think, “I'm going to hire these people for the goals in the next 12 months.” But that's what causes the kinds of layoffs we're seeing in the market now.
That three-year view should drive the way you hire in the upcoming 12 months.
This longer term view also will help you plan for unexpected situations. For example, what if you're running out of runway at month 18? You want to be sure that you plan for a scenario where you’re not able to raise at that time, and possibly have to maintain operations until month 24 or 36, when you can raise. How can you get there?
That doesn't mean that you always need to have 36 months of runway, but it's very important to keep that view in mind when doing headcount planning because it will drive better decisions.
My next tip is something that we've started to implement at Novo in recent months: linking hires to outcomes.
I think you reach a point in organizations where you just hire because you know you have to hire and there is tons of work to do. But then you get into a lack of focus; you're ultimately hiring people to do things that may not matter.
It's very important to be clear about what your new hires are going to do as it relates to the goals of the organization. For example, you’re hiring 20 people in the engineering department to drive these three specific OKRs.
This way, when it's mid-year and you have everyone making adjustments to their plans to potentially request more headcount, you can then look at department heads and say, “Hey, I gave you 20 roles for this year. You hired 10, but you only achieved 10% of what you expected. Maybe I didn't give you enough roles, or maybe you are mismanaging the current people that you have. Are you actually going to be able to achieve this or do you need more people?”
The goal is not to make people feel bad or imply that they are bad managers. There are many cases where department heads just didn't get enough people and thought they would be more efficient, but they need some help. The goal is to be prepared for these inevitable re-planning conversations and give your leaders more focus around their hiring plans.
Headcount management is not just one department’s job – it requires collaboration and shared responsibility across the organization.
With increased collaboration comes more touchpoints, so it’s crucial to set up good templates for folks to use and run good meetings that are productive.
For startups specifically, a lot of department heads are doing headcount planning for the first time or for the first time at the current size of the organization. Give them good templates and headcount tools to use that show them exactly the kind of information you need.
This will enable them to be successful and make your job easier.
In addition, conducting productive headcount planning meetings is very important. Everyone has different perspectives that matter, and Finance should leverage all of them, including HR, Talent, department heads, and other leadership to organize around a shared plan and vision.
When you build a strong agenda for these meetings, it opens up the floor to collaboration. In my experience, the most collaborative headcount processes lead to the best results.
As Novo has grown by more than 25 times during my tenure, I’ve learned how important it is to have strong headcount planning processes. The tips I shared in this post are things I’ve learned about how to plan and manage headcount more effectively.
Ultimately, there’s a lot at stake. We see what happens when tech companies get headcount management wrong: layoffs happen.
So we want to make sure that we hire the right people at the right pace so that we can raise the next round and continue to grow in a responsible and meaningful way.