I worked with a startup client in recent months who was in search of a senior level Java developer. Early on, they set their expectations for what competitive compensation looked like, determining that the market should be yielding $110K – $115K for high level candidates. In reality, the going rate for senior level Java developers in their region started at $130K, with some markets yielding as high as $200K for the right talent. Despite this information, the company was insistent that the offering would attract what they needed.
For startups, this is a common mental pitfall, and can be a difficult one to escape. Companies will take one data point from an existing candidate or employee, and latch on to that number as the basis for their offering. Although this may reflect an accurate offering, there are many instances where this data point is based on an underpaid employee or a less experienced candidate. For cash-strapped emerging companies, it can be difficult to stray away from a low number once the expectations are set. Founders can easily get anchored to an attractive number that is unreasonable in reality. Yet for today’s startup, trying to attract needed top talent while competing with a below market rate can ultimately lead to failure.
Sometimes, companies get tunnel vision because of an unreasonable data point. Yet many founders simply have difficulty determining the market rate for the talent that they need. After all, too low of an offering simply won’t attract what you need, but too high an offering can be a waste of resources, and in itself can also cause some candidates to opt out.
Thus, the real question: How do you set your salary offering to get the talent you need?
1. Research setting salaries for comparable positions: This makes sense as a starting point, since this almost literally defines the ‘market rate.’ Be sure to look into positions requiring the skill sets, technology exposure, and experience level that your company requires.
2. Research the going rate in the job’s locations: The salary for a senior level Java developer in Kansas City will be dramatically lower than one in Palo Alto. Even within the internal geography of the Bay Area, there will be salary differences based on location.
3. Ask your candidates: The talent that you already interact with can be a great source of data. Gather information about what they make with their current work and what they are seeking at their next venture. If you can get a straight answer, you can also inquire about other positions that they are researching and/or applying to, and put research around the compensation for those positions.
4. Consider what it will take to lure top talent away from their current position: The fact is that top talent is rarely out of work. Thus, your market for top performing employees is mostly passive, and has the option to simply stay where they are. Although salary is only a small factor in choosing work among top talent in most cases, especially for those looking to work at startups, it remains a component that affects every candidate’s decisions nonetheless.
5. Compare what you can afford to the importance and long term impact of the position: As mentioned, emerging companies are inherently strapped for cash. Yet early on, any new hire will have a significant impact on the bottom line and on both the short and long term growth of the organization. This should not be a strong factor in setting salaries, but may help you determine whether you are hiring for the right position at a given time.
You may be cringing at the market rate that you just recalculated. But consider this: If you don’t get top performing talent with the right skills and experience for your needs, what kind of damage will that do to your startup’s progress in the long term? If your compensation doesn’t compete in the talent marketplace, you will have difficulty getting what you need, and hinder your company’s growth. So don’t anchor yourself to a number, and stay open minded. Get multiple data points from a variety of sources, and figure out where you fit within that mix. And if you still have trouble justifying the cost for the benefits of the position, then you might want to reconsider the hire altogether. After all, your company’s talent will be its most valuable resource and its highest yielding investment.
Sales Reps & Startups
Something I’ve come across all too frequently is the young company who, in an effort to scale, hires too many salespeople in a short time frame. After what is always a difficult process of raising funds, this tech startup quickly jumps into building a large sales force. Yet the company often does so without considering its ability to support this expansion, nor does it predict the consequences of hiring too many, too quickly.
I first encountered this issue years ago while working at a tech startup. Sales were growing strong in the Northeast and the company was looking to expand. With the assumption that existing success could be replicated in other regions, the management team began hiring sales reps in California, Texas, Florida, and Chicago. But what seemed like a sound decision ended up holding back progress over the next few years. In reality, the business couldn’t support such a rapid expansion of its sales force.
Now, as a recruiter for tech startups, I see this happen repeatedly. When building a new sales team, startups should determine if they are expanding too quickly, and consider the impact of such a move. The way a business scales its sales team impacts the success of those hires, and affects how you allocate resources in other important areas of the organization.
Hiring too many sales people early on will have an impact first and foremost on the success of the hires themselves. The notion of building a larger sales team often fails to account for the ability of the business to handle such a large addition of employees. The issues begin with the capacity for the company to train these employees, which is a large undertaking, even for a small sales team. This especially comes into play for the early stage startup, where the product and strategy may lack full conceptualization or definition. In such conditions, it will be difficult to shape a single sales rep, much less an entire team.
The management of a large sales force early on can prove difficult as well. With no prior learning experience to draw from, and a relatively young support and management staff, addressing critical issues with the sales team can be incredibly challenging. Working through obstacles with a small team early on allows for lessons to be passed on to future hires, and for more senior salespeople to become mentors in the long run.
And don’t forget the impact that scaling your sales force too soon can have on that group’s quality results over the long term. Early stage startups know too well that their early hires need to be top performers. And for sales professionals, top talent is drawn to where the action is. Yet startups must work hard in the beginning to generate demand and awareness for their product or service. If there isn’t enough demand to go around, what could have been your top performers might jump ship for better opportunities.
The financial impact of unnecessary hiring is apparent for early stage startups. In a process that is already time and resource intensive, attracting the right talent can be difficult early on, and can result in even higher costs. Given the financial constraints that most tech startups face, wasting capital on unnecessary hires can have a significant impact. An unnecessary hire also means that the hiring manager’s time is wasted, along with the training party’s time.
Beyond the direct cost of hiring, consider the opportunity cost of unnecessary hires. The capital needed for both hiring and paying employees is obvious, but consider where that capital could have been better utilized. Early stage startups have several areas of business that require focus and resources. Using resources in one area often means sacrificing in other facets of the business early on. Scaling a large sales team can be a distraction from other areas that should be receiving the focus otherwise. Consider what your hiring and training manager could have been working on had they not been focused on unnecessary hires. Consider where else the capital put towards hiring would have gone otherwise, and the returns that could have been made. It may seem like a sales team lacking in size would hinder your growth, but so can a lack of development and progress in other areas.
Looking back on my time with my former employer’s tech startup, a more pragmatic approach early on could have saved them valuable resources. Perhaps adding a single additional location or vertical would have improved the development of the company’s business structure. Rather than hiring 15 new sales reps, they could have expanded more slowly, focused on branching into a single marketplace, and used the knowledge from those successful expansions to provide direction in new markets in the future. They also could have avoided the unnecessary hiring and subsequent loss of several sales professionals, leaving themselves with resources to be used elsewhere. Had there been more focus on minimal hires rather than a larger team, the company could have focused on hiring the right quality and fit for their needs.
Hiring too many salespeople in the early stage of a company can have an effect on several aspects of the business. The number of people you need and the timeline for hiring will vary from startup to startup, but the benefits of maintaining a practical hiring pace will be apparent, regardless of the company.
Steady growth allows for executives to gradually monitor the needs of a sales team and adjust accordingly. As I have experienced, expanding too quickly can cause an unnecessary waste of resources. Early stage tech startups should focus on the quality of salespeople hired, and not necessarily the quantity. Hiring top sales people at a steady pace can not only help ensure the substantial growth of a quality sales team, but can save a company time and money in the long run.
Mark Cergol, a senior executive recruiter at Millennium Search, has over 20 years of experience in software sales. Working with a variety of companies, including early to mid-stage startups and large publicly traded organizations, Mark has developed a deep understanding of the tech industry. The knowledge and network of long-term relationships Mark has built through the years gives him an edge on the competition, making him a top recruiter for technical sales and marketing positions.