The TIM Multiple: A Startup Hiring Framework for Your First Hires
One of the top questions I get from first-time founders is about who and when to hire in their startup's early days. In many cases, this question stems from the founders’ experiences in traditional companies where hiring occurs within the framework of departments, teams, etc. This prior experience makes founders assume they’ll replicate a smaller version of this in their new company. The reality couldn’t be farther from the truth if you want your startup to succeed.
Hiring serves a different purpose in an early-stage startup and requires a different mindset. In the early stages of a startup, say, pre-seed and seed stages and especially before product-market fit, hiring is not the act of filling out an organizational chart but instead the first step and a critical part in derisking a startup.
Introducing the Talent Impact Multiple (TIM): Accelerating Talent In Relation To Growth
Hiring too fast is one of the biggest reasons for startup failure. Your hiring pace should not outrun your derisking pace. If it does, your burn rate will significantly outpace your revenue growth. You’ll end up with a failed startup that might have had a chance for great success if not for the imbalance between the talent acquisition speed and derisking the business.
To help you plan, I’ve created the Talent Impact Multiple (TIM). Remember, your team is determined by your TIM (pun intended) in the early days.
Your TIM is simply the ratio of Annualized Talent Spend to Net New Revenue.
TIM = Prior Month Annualized Talent Spend / Net New Revenue (ARR)
For example, if your talent spend is $50,000 in January, and your MRR (monthly recurring revenue) goes from $1000 to $3000 in February, your TIM would be:
TIM = ((50000)*12) / ((3000-1000)*12) = 25
With a TIM of 25, you are spending $600,000 in talent to make an additional $24,000.
Context matters, but I recommend you watch the TIM trend for a few months. The goal is to trend downward over time. You want to see the $24,000 annualized become $30,000 and on and on. Before making drastic hiring expansion decisions, see what TIM will be and where you want it to trend over time and use a guide. Remember it’s a guide and the trend is the focus key. It breaks for much larger startups but still a good gut check. If you’ve also raised a lot of money, you can live with a higher TIM for longer but you still need to be careful if consistently higher than 25.
Remember this is just one metric. Use it in tandem with other key metrics in the business.
Hiring Is About Derisking Your Business (Hint: this doesn’t mean personally derisking yourself).
Your hiring journey should begin with a clear-eyed analysis and answer this question: “What area of business execution currently poses the biggest risk of failure to me?”
Your biggest risk is whatever is standing in the way of what you need to survive and thrive on the way to your next milestone. That milestone may be building your initial minimal viable product, getting your first ten referenceable customers, or key metrics you’ve committed to hitting before raising your next round.
Then ask yourself, to prevent failure from happening, what skillset do I need to have in the business? Who can help me mitigate or eliminate by number one risk of failure?
Note that this is about the business, not your personal risks. For example, needing cash to pay your rent is not a risk to the business. Your personal risks may have different solutions than your startup's biggest risks. For example, you may need to do some side gigs to make rent, but that is not directly related to solving the business's risk.
Confusing your personal risk with business risk can even lead you to make the wrong decision for long-term business growth. An example is founders with great product ideas who have suddenly found themselves stuck in an hourly consulting business because they solved the wrong risk of generating current personal income from the business.
Typical Talent Risk Areas to Address
It is good to be reminded that just because a functional area is familiar doesn’t mean you have the right skill set to address it. You may be a marketer, but your company’s biggest risk can still be customer acquisition because you don’t know how to acquire customers in the industry your product is addressing or your marketing skillsets do not translate. For example, being a general marketer in a Fortune 1000 medical device company doesn’t derisk demand generation in a SaaS business focused on creatives unless you can quickly learn and execute the skills you need to attract your customers.
Product is usually the most significant risk for non-developer/non-technical founders. However, once you get past the initial product-development stage (you have the minimum yet delightful and value-creating version of your product), the biggest risks are in customer acquisition and customer experience.
I could write software when I started TheraNest and had written software for many consulting clients. Hence I was not too worried about my ability to build the initial product. In my view, the biggest threat to TheraNest’s success was customer acquisition in a space I knew little about and my lack of funding to hire a growth marketer.
So what did I do? I needed to learn demand generation and growth marketing fast. I offloaded almost all development to a software developer I trusted and had done past successful consulting projects with and focused on product management. This decision allowed me the headspace and time to delve deep into growth marketing, competitor research, and continuous customer validation. I learned SEO, Google Ads, and several growth frameworks and tactics and quickly iterated and executed on driving customer acquisition while knowing the product momentum didn’t grind to a halt.
With my focus on growth marketing and product ownership, we started acquiring customers, and the next big risk came into focus: customer onboarding, experience, and happiness. I needed someone to stay in close contact with existing trials and customers in their product journey. This role needed to onboard them and continue delivering happiness, so they don’t churn. The customer experience position became my first full-time hire and helped us quickly become a net revenue retention business within a short time. While we were growing fast, the close and constant onboarding interaction then made it clear we badly needed user interaction and experience design skills. Guess what our next area of hiring focus was: a designer. We didn’t think of salespeople (came not long after) in this early stage because it wasn’t where we were at risk. I needed to lead sales at this early stage.
In full transparency, because it’s not always so clear cut, a part of me sometimes wonders whether I made the right choice spending a chunk of time learning and iterating on demand generation. If I had the funding, I would have hired a great growth marketer to accelerate the business. But since I didn’t have enough funding to hire, I had to take advantage of my ability to learn to derisk the business. In hindsight, I sometimes wonder if I could’ve stretched to hire a growth marketer with a great track record and references and whether that would have accelerated results faster. Results compound, so time matters, and money buys you time by shrinking your growth cycle. Either way, I think it all worked out great, and I built a business that grew with less risk of failure. Today it’s easier to quickly experiment with sites like marketerhire.com, dribbble.com, and other skills-vetted sites.
Remember Your Needs Are Unique
Your skill-derisking journey is unique – your journey as a seed-stage company differs from a late-stage company or another startup. Don’t simply replicate what you see in other businesses. It will likely make no sense for your seed-stage startup to have multiple C-level team members in your first ten hires. Most teams probably don’t need a VP of Engineering or VP of Product, or CTO within their first ten hires. Your engineering team should be very small, and all players should be direct contributors. If you’re not technical, you may hire an engineering team lead to derisk the product sooner than usual. The head of product is probably not a position you need to be hiring for this early. If your product leadership is putting the company at risk, find help fast and default to action. It’s important to remember that your initial hiring doesn’t have to be full-time. You can take advantage of part-time employment or project-based work before hiring for a full-time position.
Do More with Less
Your early days are when you build your team’s productivity muscle by doing more with less or, as Andrew Chen calls it, hire T-shaped people vs. specialists. Instead of a separate front and back-end developer, consider a full-stack developer. Your initial hires are very critical to your success. Optimize for doers who go above and beyond. Is your customer experience person able to do sales demos? Run with it. We did exactly that at TheraNest before hiring a dedicated sales talent, and after an initial learning period, we had great results doing this. The more your small team can do, the farther your resources will go.
I hope this has been helpful. Let me know your thoughts, and please subscribe and share with anyone this information can help.
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