23 June 2020
Startup Flight #7: 72% of my total costs are personnel costs. So yes, I invest in my team during COVID-19.
Hi there! My name is Charlotte and I’m Co-Founder & CEO of Equalture (a hiring software that leverages gamification to debias hiring for SMBs) and living in the most beautiful city in the world: Rotterdam. Being an entrepreneur for 4 years now and building my second company together with my twin sister, I get a lot of questions from other founders and people thinking about starting their own company.
Since I believe that every single founder experience can be helpful to other founders, I decided to translate these frequently asked questions into a blog series: Startup Flight.
In this seventh blog: Why I think that not investing (financially) in your team is the worst decision you can make during this coronacrisis.
72% of my total monthly costs.
That’s how much we spend here at Equalture on personnel on a monthly base. And although we should call it ‘costs’, I prefer calling it an investment — because that’s what my team is in my opinion. An investment in our amazing company.
72%. Quite a lot, isn’t it? Well, just to provide you with some frame of reference: The average percentage for scaleups ranges from 63 up to 81%.
Now that my company Equalture raised €1M funding from two VCs last February, I learned how to deeply analyse our cost structure and calculate the ROI (i.e. create a business case) for all potential costs made before actually making it. So that’s why I call it costs.
The three principles of analysing costs
So costs should have a forecasted ROI to make it an actual investment rather than just spending money. Of course this means that our personnel costs should represent a pre-calculated ROI as well.
Before even starting to calculate the potential ROI of a potential investment, I always take three cost principles into consideration:
- It should be ‘easily’ possible to calculate how long it takes for these costs to pay back;
- Costs should not only turn into a break-even scenario, but there should also be a high chance of making profit;
- The larger the costs are, the more focus there should be on these costs — and this focus needs to be worth our time.
So this is how we approach hiring decisions as well. I know, it sounds like we only focus on costs, but in fact it’s the opposite — I really want my team to provide us with a great ROI, because that means that they help us grow this company, which means that their future is ‘safe’ and fun as well!
‘’HR burns. It doesn’t earn.’’
And then reality hit us. COVID-19. Don’t worry, I won’t spend too much time of explaining how it hits the economy, because people are tired of reading about corona impacting companies. It’s time to wake up from this ‘being-sad-mode’ and start facing reality.
And this reality comes in two different ways: (i) saving the rights costs and (ii) spending money on the right investments. So yes, the logical consequence of this is of course to start taking a critical look at your biggest costs. ‘’Hi HR, it’s time we have a chat.’’
Being a founder myself and having a team of 13 people now, I still can’t get my head around the thought that way too many people have when it comes to HR. It’s a burner department. It’s the first big cost item to cut. It can survive without investing in it.
If that’s what you’re thinking, you couldn’t be more wrong.
How did you grow your company? What costs did you make to grow your company? If you reached the point where your company has more than 10, 20 or even 100 people, you grew successfully. So that means that your costs provided you with a solid ROI.
In case you have all your annual accounts stored somewhere you can easily find, just go check them out. And you will see that your biggest costs are personnel costs.
Not despite of. Because of.
Your company didn’t grow despite of making that much personnel costs. It grew because of these costs. Because your team has enabled you to grow, proving you to be the very best investment you could have ever made! And yes, of course mistakes are made as well in hiring and people development. But hey, there should always be some room for errors and iterations, also in cost structuring.
So this is what we did with our costs as a response to COVID-19.
We started hiring new team members and training our current ones. This is why.
Growing the sales pipeline: Marketing budget vs. personnel costs.
We were planning to spend a lot of money on online marketing (LinkedIn advertising) this year, in order to create awareness internationally and ultimately translate this into inbounds. But the word ‘ultimately’ already indicates that this is a long-term investment.
COVID-19, however, forces everyone to pivot on the short term. And therefore to also focus on short-term investments. So that’s why our Management Team sat down two weeks ago, analysing the following business case: What if we use €X marketing budget to pay the salary of a Sales Development Representative? And in 5 minutes we already concluded that this was a way smarter investment to make in order to ensure a solid ROI on a short term.
So, yes, we are hiring!
Cutting costs vs. carefully investing in ROI items.
Another thing that we did was redetermining our goals — since of course our goals for Q2 changed. We rewrote our product roadmap, agreed on a new pricing model and are now launching a very cool new product next week.
So priorities change. And goals change. But these changing goals should also be translated in actual milestones to be achieved. Therefore our next step was to determine what we would need in order to achieve these goals.
Well, we needed a lot actually. We needed a brand-new sub-product. We needed a new website. A new pricing model. A new sales methodology. A new customer success strategy. And new content.
So where to begin? What investment would be the smartest one now in order to make this happen? Because it makes sense that you need to invest in all these new plans.
Our investment: our team. Why? Well, if you approach this financially, our team already costed us a lot of money, but is also proving its ROI. So by focusing on our team, we can both ensure that all costs that were already made were useful, ánd we can ‘easily’ increase its ROI.
So, my advice as a founder? Don’t destroy your company through obsessively cutting costs. Don’t act in a panic mode. Instead, be aware of your costs, know your ROIs and let the numbers help you determine where to focus on.
I bet it will be your team. After all, you can’t make your dreams come through yourself, right? At least I can’t.