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Running a Billion Dollar Startup with Twenty People

 

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Right now, startups are feverishly hiring in order to scale up their businesses, but could we in fact be doing it all wrong? While many startups expound the virtues of being lean, once the VC money train rolls in, it is off to the races, going on a hiring binge as we have been witnessing of late in our tech bubble.

The assumption has always been that the bulk of one’s investment capital should go into hiring engineers, sales people and marketers. Then, as the product gets more complex, you need product managers and customer support reps. This growth in turn drives the need to hire administrative staff to handle finances and human resources. With all these additional people, there comes the need for structure, reporting and management layers. Lo and behold, your humble little four-person startup quickly becomes a one hundred plus person corporation in very short order.

This is obviously a great result should a startup get that far. But is it the optimum result and does scaling up a startup necessitate an increase in human capital? Or more simply said, could you build a billion dollar company with just a handful of people?

The closest possible startup that comes to mind is Craigslist. With upwards of 30 people, Craigslist has been estimated to be worth close to several billion dollars. This would normally seem pretty rich, but in reality is rather modest compared to other Internet stalwarts like Facebook, Twitter, Groupon, etc. As for employees, they seem to keep things pretty lean; no massive sales staff, zero marketing, minimal customer service and a basic enough product that requires no development or innovation.

Craigslist seems to be the lone outlier, but could the model work for other technology startups? I believe the answer is yes, and here are a few trends that are leading to leaner companies:

Outsourcing Everything – There is nothing that cannot be outsourced these days. Whether it is tech infrastructure, business processes or corporate functions wholesale, there is a market and provider for outsourcing the work.

Componentized Work – There are numerous short-term or non-core tasks that can quickly be farmed out to independent contractors, including larger tasks such as design work or mobile app development.

Virtual Distribution Channel – As an Internet based company, there is no need for brick-and-mortar locations or armies of sales people and business development executives. The Internet itself is the platform for corporate scale.

Technological Advancements – Technology is also rapidly innovating the process of creating technology. What used to takes months now takes mere weeks or less to make more robust and intelligent apps across multiple platforms.

Leaner Management – With lower numbers of staff, come lower number of professional managers and tiers in the organization, meaning things get done faster and better.

If a tech startup were to incorporate all of these strategies, while also running a successful and rapidly growing business, it is very likely that we could start to see more and more billion dollar technology companies with the a fraction of the staff than is typically employed today. While I am not saying that it is necessarily a good thing, especially as millions of people are still out of work due to a weak economy, the recent hiring binge is merely a function of investors pushing for growth, as opposed to being the best way to scale growth. In other words, we seem to be equating scale and success, not by the amount of output, but by the number of hires per quarter, and that is simply not sustainable.

This article was originally published on Strong Opinions, a blog by Birch Ventures for the NYC tech startup community.

Image credit: CC by Startup Mena

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About the author: Mark Birch

Mark is an early stage technology investor and entrepreneur based in NYC. Through Birch Ventures, he works with a portfolio of early stage B2B SaaS technology startups providing both capital and guidance in the areas of marketing, sales, strategic planning and funding.

  • Nelson Nigel

    I do not no many business models that could work like Craigslist.

  • @jgrossibank

    99% of startups that succeed don’t get VC money and build themselves exactly as Craigslist did and is suggested above. It was how VC funded companies were built also prior to the 1999 Internet bubble. Maybe tech investors have finally lost enough money to go back to doing it the way everyone that everyone else builds a company.

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