Is 2017 The Year Of Flat Headcount?

If you are growing at a rate of less than 50% year over year, you should consider viewing 2017 as the year of flat headcount.

As budgets are settling down and getting approved for many of the companies I’m on the board of, I’m seeing a general trend of much less headcount growth in 2017 than in 2016. In some cases, companies got ahead of themselves. In others, they need to integrate all the people they’ve added. In some, they feel like they have a critical mass of people and want to march to get profitable on current headcount. And still others are profitable and have realized significant operating leverage in the past two quarters that they want to continue.

While there are different reasons, many of these companies are being a lot more targeted and selective with where they are adding people. These are generally the companies between 50 and 200 people who have growth rates that are 50% or less. But I’m also seeing it in companies with larger growth rates (100% year over year – yup – we can to that and only add 10% new people.)

I hadn’t really thought of it as a trend until I reviewed a board deck this morning and it’s called out as a feature. I agree that it’s a feature. A company with $10m+ of revenue that is growing at 50% or more can often get profitable within 12 months if it focuses on its operating costs. Headcount is almost always the largest increasing operating cost.

I see a nice second order effect in all of these companies. Given the focus on getting profitable, they are now clamping down on other discretionary costs around the system. That money you’ve been wasting on a PR agency – delete. That extra space you thought you might need, but don’t – sublet. The outsourced recruiter you’ve been paying a retainer to – gone. There’s a long list of operational efficiencies that go along with the focus on getting net income and ultimately cash flow positive.

While this isn’t a universal truth, nor should it be, it definitely feels like a trend, especially as companies start putting a lot more focus on ICDC as part of their growth strategy.


Also published on Medium.

  • DaveJ

    ICDC?

    Proposed rule of thumb: if you use an acronym and all of the first five Google results for the acronym are not what you intend, you should write it out parenthetically.

    • I’m using all my SEO magic to try to make it appear in the Google search. It’s “Increase Conversion, Decrease Churn” from the blog post I linked to. It’s an attempt to be cute and play off of AC/DC.

    • Rule of thumb: click on the link.

  • Steve Breitman

    Headcount is a good general number to watch, but it only tells half the story if you’re in the cost watching mode. I think it would be better to look at FTE’s in conjunction with head count. You may have lots of employees, but those that are part time may not receive all or any benefits the full timers do. That spread between head count and FTE’s likely represents cost savings.

    • Good point. Also, Revenue / employee and Gross Margin / employee are good numbers to measure / track on a monthly basis (and obviously should be going up each month …)

  • I don’t know the investing side well, but one thing I noticed from inside VC-backed startups is that accelerating sales / marketing / PR for software / platform co’s before Series B is generally not worth burning cash on unless you hire one person internally who’s really versatile and can work directly with a product manager. Have seen that twice myself and watched other people go through it dozens of times.

  • These are new years defined in the chinese calendar. The new year of flat headcounts follows the year of no IPOs. 😉

    • There were a couple of IPOs last year. I enjoyed the Twilio one!

  • FYI, something to keep an eye on: http://www.reuters.com/article/us-usa-economy-inflation-idUSKBN1521US It’s been A LONG time since the bond vigilantes had their way with the US Treasury and US Stock market. Rising Fed interest rates will have exogenous shocks to the system that we might not be able to predict-even though historical rates are very low. There are a lot of bubbles that we don’t see right now that have built up via 8 years of 0% interest rates. Rising rates, a significantly lower corporate tax rate will really make the waters choppy which will affect startups in one way or another.

  • Here is something I’ve really been thinking about: What if you say it’s ok if I grow less than 50% this year?

    I know you can’t really do this in the VC business.

    But maybe technology is maturing.

    There will always be great opportunities and green fields.

    But it’s almost if you say you are going to grow at less than 50% you are a spineless wimp that needs to be replaced. (I can’t think of a good word)

    I watch so much money get wasted at companies big and small that go chasing after growth, not efficiency.

    I know saying I’m going to make money is not a “sexy” story.

    Just interesting I spent an hour talking about this today.