2 minute read / Nov 29, 2017 / management /data analysis /benchmarks /
How Quickly Does Headcount Scale in the Fastest Growing Software Businesses?
How quickly do the fastest growing software companies build their teams? The answer is incredibly quickly. In fact, this data bolsters the notion that management team’s top priority is recruiting, especially after the business has reached product market fit and capitalized itself well.
Above, I’ve charted the headcount growth rate for 10 of the fastest growing software companies in recent history. I’ve normalized the years for when all the businesses were roughly at the same headcount - fewer than 50 people. This is a proxy for when the business established product market fit.
There is quite a bit of variance in the growth rates of each of these companies. The fastest grower scales to more than 600 people in 30 months. Another business nearly surpasses 1000 employees and four years.on the other side of the coin, one of these businesses takes four years to reach about 200 employees. The business circumstances, environment, funding opportunity and many other dynamics contribute to hiring decisions.
One interesting question that I would like to answer is how these hiring growth curves correlate to revenue/ARR curves. I would presume that they are very highly correlated. Another interesting analysis would be to break down hiring by function. Unfortunately, that data isn’t available.
What does the “average” hyper growth software company look like in terms of headcount growth? They start around 25 people. A year later they are about 60. At year two, they reach more than 150, and double in year three. Average is a harsh word here and that all of these businesses are exceptional. And as I always say, there many different ways to build a business so this is not a prescription for success by any means.
To be able to grow at this rate requires an expertise in recruiting and the commitment to building out the people function. It also requires developing a layer of management in between the executive team and the rest of the employees incredibly quickly. That transition from managing individual contributors, to managing managers, to managing managers of managers of managers is not an easy one to make.
For many of these companies, that transition comes awfully quickly, in 12 or 18 months. During this time period, an executive team learn to handle these challenges on the job as they develop. That’s why executive coaches and chief people officer/head of human resources are so critical in high-growth companies.