Founders of growth stage companies face plenty of dilemmas while deciding on allocating precious resources. Particularly while hiring their senior management team. Often, to save money, they end up hiring smart people who may not have the relevant experience but are willing to experiment and learn. At a stage when the company is trying to take off, this can be an expensive experiment.
I recently attended a Board meeting at one of our fast growing portfolio company. New sign up rate was at all time high but so was churn. A deeper dive into causes of churn revealed that it was mostly during onboarding phase. Once onboarded properly, with a human touch, customers stayed for long. It quickly became apparent that we needed to hire more people in support for new customers. The fact that this discussion happened at the Board level worried me because CEO himself was trying to solve the problem. His deputy who was responsible for customer success was in that role for 6 months and yet the fast growing company was experimenting with support. I questioned the experience and skill set of the customer success manager and was explained by the CEO that such experience is not available locally and would be expensive to hire someone with relevant experience.
Founder was obviously concerned about the marginal burn that the company would incur if someone with relevant experience was hunted and hired. But the founder had quietly accepted the opportunity loss that the company would have to bear because that was not clearly visible. Company's monthly burn was S$150K and hiring someone relevant would have costed additional S$10-15K.
This was not the first time. Last year, one of the startup was looking to hire a COO to share the burden with Founder and during the search process, I saw the Founder to be very cautious with COO salary range. They were lucky to get smart people at the price but not many of them had relevant experience. The new hires had to test and learn from scratch and eventually costed the company more.
Dilemma of marginal burn can also be seen while deciding on marginal marketing spend. Founder of another startup was not prepared to experiment with increasing the marketing burn. Their marketing budget was about 10% of their monthly burn of S$80-90K. And, they would not experiment burning another S$20-30K in additional marketing/PR.
I understand that it all adds up when you increase marginal spend in all areas simultaneously. But a decision has to be taken considering - "Marginal burn is visible but Opportunity Loss is not."
Are you going with the safer option? Be mindful of the opportunity loss.
I recently attended a Board meeting at one of our fast growing portfolio company. New sign up rate was at all time high but so was churn. A deeper dive into causes of churn revealed that it was mostly during onboarding phase. Once onboarded properly, with a human touch, customers stayed for long. It quickly became apparent that we needed to hire more people in support for new customers. The fact that this discussion happened at the Board level worried me because CEO himself was trying to solve the problem. His deputy who was responsible for customer success was in that role for 6 months and yet the fast growing company was experimenting with support. I questioned the experience and skill set of the customer success manager and was explained by the CEO that such experience is not available locally and would be expensive to hire someone with relevant experience.
Founder was obviously concerned about the marginal burn that the company would incur if someone with relevant experience was hunted and hired. But the founder had quietly accepted the opportunity loss that the company would have to bear because that was not clearly visible. Company's monthly burn was S$150K and hiring someone relevant would have costed additional S$10-15K.
This was not the first time. Last year, one of the startup was looking to hire a COO to share the burden with Founder and during the search process, I saw the Founder to be very cautious with COO salary range. They were lucky to get smart people at the price but not many of them had relevant experience. The new hires had to test and learn from scratch and eventually costed the company more.
Dilemma of marginal burn can also be seen while deciding on marginal marketing spend. Founder of another startup was not prepared to experiment with increasing the marketing burn. Their marketing budget was about 10% of their monthly burn of S$80-90K. And, they would not experiment burning another S$20-30K in additional marketing/PR.
I understand that it all adds up when you increase marginal spend in all areas simultaneously. But a decision has to be taken considering - "Marginal burn is visible but Opportunity Loss is not."
Are you going with the safer option? Be mindful of the opportunity loss.
I think the key problem is that it is harder to quantify the opportunity loss compared to the additional marginal burn. Do you have any insight on how that could be done? In your first example it was clearer since the churn % was smaller for people onboarded through human touch v/s low touch. However for the second example on which is on marketing/PR spend, the lost opportunity is much harder to quantify.
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