Should You Hire Full-time Employees or Work With Contractors?
Startups worldwide are wrestling with the following question: should I hire full-time employees or
work with part-time contractors?
Last year, COVID-19 forced leaders everywhere to tighten their budgets. In many cases, this
meant letting go of full-time workers and plugging gaps with freelance contractors. As the world
recovers, startups are now wondering if they should hire back up to pre-pandemic levels.
After all, many companies have found success bringing in part-time help for specific needs. And
more workers are choosing flexibility over job security. In 2019, 57 million people were doing
freelance work in the U.S. alone.
So, what should you do?
The truth is, there is no clear answer. However, there are certain things to keep in mind as you
determine the best path for your business. We’ll cover all of those here. As always, we want to
make sure you have everything you need to be successful.
The Case for Full-Time Employees
As a startup, there is no substitute for building a talented and passionate team. You need the
absolute best people on your side who are willing to jump into the trenches and bring your
company’s vision to life. Even better, you need partners who are excited by the idea of taking
ownership in a groundbreaking company that may or may not be around in 3-5 years.
It’s hard to find this level of enthusiasm in a contractor. If you want your startup to be the one in
ten that survives, you need all the enthusiasm you can get.
With full-time employees, you can also foster long-term relationships that will produce
exponential returns over time. In other words, you have the ability to create a strong foundation
of institutional knowledge that will transfer seamlessly to new hires.
In addition, teams consisting of full-time employees have the potential to tackle big, ambitious
projects that would otherwise be beyond reach. You can invest significant time, money, and
energy into a multi-year endeavor that could ultimately differentiate your business.
Full-time employees also buy-in more to the cultural side of startup life, which is really important.
They tell their networks about how excited they are to be working for an innovative organization
and help spread the good news about what you’re doing in the world. On the other hand, contractors often work for multiple companies and don’t tend to advocate for any single
To summarize this section, there are still many advantages to recruiting full-time employees.
The Case for Contractors
Now, the case for contractors.
It’s easier than ever to hire top-notch talent located anywhere in the world. Startups can search
far and wide for specialized skill sets that meet their exact needs. They can hire the best of the
best for short-term, tightly scoped projects, knowing that they don’t have to pay exorbitant
salaries and benefits over the long run.
Startups that are comfortable working with contractors can employ a “plug-and-play” model, only paying for certain skills when needed. If money gets tight, working with freelance contractors can be a great way to keep costs down without pausing projects.
On top of that, some contractors are open to full-time employment should the right opportunity
come along. So...when companies find an awesome contractor who is a great cultural fit and
ready for the startup life, they can confidently make a full-time offer.
In this way, working with contractors can serve as a trial run for your business. You can
minimize the risk of making a bad hire and evaluate people based on real work that they would
be doing for your startup.
So, there are compelling reasons to go the contractor route, even outside of trying times.
The Right Choice Depends on What You Need
At the end of the day, there is no one-size-fits-all answer. In fact, a single startup may take a
hybrid approach and hire full-time employees for some positions and contractors for others. You
may even fill the same position in multiple ways over time, depending on your needs.
The great thing about living in an interconnected, remote work-friendly world is that you can
adapt when circumstances change. Recruiting and hiring is more fluid than ever, which means
you can fulfill your business requirements without worrying about whether or not you’ll make a
major hiring mistake.
To that end, we can help you strategize around the best path forward for your startup. Our team
of experienced recruiters, business mentors, and former entrepreneurs understands how to
build organizations that thrive in the modern world.
Want to talk about your hiring needs? Contact us today.
Startup recruiting patterns give us a glimpse into what the most innovative people and companies in the world are interested in right now. Using these trends, we can predict what services, products, and business models are likely to shape our lives in the near future. We can also estimate how demand for certain skills will evolve over time.
As a job seeker, it’s important to keep tabs on these developments so that you can position yourself well for the next great opportunity whenever it arises. In this post, we look at which industries are rife with startup disruption and highlight the roles that are most important to today’s startup leaders. With this knowledge, you can adapt your professional development efforts and home in on exciting sectors that want top-notch talent.
What Industries are Hiring?
There are several ways to identify which industries offer the best opportunities for startup job seekers.
First, we can look at the list of the world’s most valuable startups, AKA “unicorns,” to see what services and business models are most prominently represented today. In 2019, there were 393 private companies across 15 categories valued at more than $1B. Of those, 12% operated in the Fintech sector, the biggest category. After Fintech, the next largest categories were Artificial Intelligence (AI), Internet services & software, and E-commerce.
We can also look at what types of startups are most valuable in terms of their funding and profitability. From CB Insights’ research, we know that Bytedance (AI), Didi Chuxing (transportation), JUUL Labs (consumer products), WeWork (co-working), and Airbnb (travel) were the most valuable companies in the world last year.
Although not startup-focused, IBISWorld published findings on the fastest-growing industries based on 2019-2020 revenue growth, which is also helpful to consider. Unsurprisingly, online grocery sales and over-the-counter cold medicine sales led the pack due to consequences of the pandemic. 3D printing, online pet supplies, and hydraulic fracturing services rounded out the top five.
Keep in mind that value doesn’t always translate into demand for talent. With modern technology, companies can scale to astronomical heights with small teams.
Fortunately, one VC firm in Silicon Valley sent out a Google Form in April asking startups about their hiring needs during the pandemic. Nearly 180 companies indicated that they wanted to join a job board and bring on new employees. Startups focused on developing enterprise technology (50%), consumer technology (30%), and healthcare solutions (15%) were the best represented among respondents.
Pulling out the key theme, technology plays a big role in many of the fastest-growing and most valuable industries today. Now let’s dive into the specific skills that startups want.
What Skills are in Demand?
At a high level, the most in-demand talent today is technical talent. Tech and non-tech startups everywhere are trying to fill technical roles in order to develop new applications, leverage modern cloud technologies, strengthen IT security, and enhance customer experiences.
More specifically, software engineers are the most sought after. According to the U.S. Department of Labor, the demand for software developers will grow 22% between 2019 and 2029. Outside of software engineering, programming, platform design, web and mobile development, and quality assurance professionals are also in high demand.
Recruiting for data scientists is also increasing at an alarming rate, given the abundance of data that needs processing today. Companies of all sizes are ramping up big data capabilities and leveraging machine learning models to discover valuable insights. In this infographic from Quanthub, we can see that data science job postings far outweigh job searchings for data science roles. The site estimates that we currently have a shortage of 250,000 data science professionals compared to hiring needs.
Outside of software engineering and data science, operations and sales talent are still crucial. Startups have to improve customer retention, increase operational efficiencies, and outsell competitors to stay afloat. Many businesses also need search engine optimization (SEO) and search engine marketing (SEM) talent to increase their online footprints for the digital age.
Where to go From Here
We hope this post can help you refine your job search strategy and inform how you should invest your time in the coming years. Although landing a job at a startup isn’t easy, we believe there is ample opportunity for hard-working and talented people.
To maximize your chances of getting hired, consider building out your skill set around one of the industries or roles mentioned above. When you’re ready, give us a call and we’ll find you the job of your dreams :)
Startup Jobs: The Hottest Industries and Roles Right Now
COVID-19 upended so many aspects of our lives, including where we work. Now, one of the biggest questions on many startup leaders’ minds is what to do about their commercial office spaces.
Thanks to advances in teleconferencing technology, many businesses have learned they don’t need to operate out of a building to succeed. Employees are still productive from afar, and many people enjoy the flexibility that comes with working at home.
On the other hand, there are benefits of having your team in one place. It’s easier to build relationships, brainstorm, and communicate. In-person interaction is often less exhausting than sitting on Zoom for hours at a time.
So, how should we think about the future of the workplace?
Should startup leaders plan for remote work...forever?
Or, do we wait for a full return to the office?
These are tricky questions that we’ll try to tackle in this post.
Although several companies have embraced work-from-home arrangements forever (e.g., Twitter and Facebook), it’s highly unlikely that the physical workplace will disappear for several reasons.
First, many people thrive and feed off the energy of being in an office. They enjoy engaging with coworkers and maintaining separation between their working and personal lives. Meetings and brainstorming sessions are also more fluid when people can work off one another’s verbal cues and body language.
Second, we’ve learned that working from home is isolating and lonely for a lot of people. As the novelty of remote work wore off, depression and anxiety increased during quarantine for those who otherwise leaned on the daily social contact provided through their workplaces.
Furthermore, working from home is difficult for parents when children aren’t in school. They either have to hire outside help or enroll kids in extracurricular activities, which can be hard depending on the social distancing mandates of a particular region.
For these reasons, it’s hard to imagine a permanent transition to remote work. Many leaders and workers have come to appreciate what they once had in the physical workplace. Consequently, what we’re likely to see going forward is a hybrid model in which commercial office spaces serve as a central hub for workers to gather when needed.
Companies like WeWork, Industrious, and Knotel set the stage for flexible and shared professional workspaces. Before COVID-19, many startups leased offices from these coworking vendors to take advantage of shared infrastructure, such as high-speed WiFi, bathrooms, and common spaces, without having to invest their own capital.
In a post-COVID world, we’re likely to see many companies downsize their commercial real estate holdings and convert to a coworking-like model where offices are reserved by employees who need to come into work. Workplaces will be more fluid and serve as physical spaces for those who want access on a part-time basis.
Additionally, some predict that companies will swap their expensive, downtown real estate for smaller satellite offices as workforces spread out to the suburbs. Rather than ask all employees to commute in every day, companies can instead provide regional hubs that workers may visit when they want to be in a more professional setting.
The new “normal” will consist of a hybrid of approaches in which workers are given flexibility over where and when they work. In many cases, this will mean smaller commercial footprints and in-office workforce rotations. Fast-growing startups need to keep this in mind as they grow.
Of course, the right answer depends on your specific needs and business. If you value having a globally diverse workforce, you may never need to lease physical office space again. You can embrace remote work and invest in practices that help you ensure success along that path.
If your team values in-person engagement and appreciates having a unique work environment, it may still make sense to lease commercial space. Be mindful of your growth projections and how your employee count needs to ramp over time.
When you become big enough to justify developing or buying your own building, remember that you don’t have to have desks for every individual. Thanks to modern technology and shifting expectations, you can plan to host only a proportion of your company at any given time and implement a reservation system to manage who comes in.
Ultimately, the decision is yours. We trust you’ll make the right one for your startup!
How to Think About the Future Workplace
Fall is in full swing, which means the end of the year is fast approaching! Although it may feel far off, 2021 is right around the corner. You and your team must finish strong, which can be hard with holidays, vacations, and end-of-year celebrations.
In this post, we share a few strategies to help you accelerate, rather than decelerate, towards December 31st. By taking these to heart, you can capture key learnings from 2020, despite all its challenges, and set yourself up for success next year.
Many business leaders want to treat 2020 as an outlier marked by exceptional circumstances. While this may be true, there is still a lot we can learn. Resist the temptation to dismiss the hardships you have faced since the spring. Instead, dig in and study how you managed your team throughout the pandemic:
Getting to the bottom of these types of questions will help you grow significantly. Depending on the size of your group, it might make sense to set up one-on-one meetings with every person to gather feedback. Or, you can host a series of bigger meetings to reflect as a team on successes and failures that were specific to the year.
Get started on this now, as it only gets harder to make the time for such conversations. End-of-the-year goals can be all-consuming!
Separately from evaluating performance in 2020, you need to develop a game plan for 2021. Don’t enter the year without clear goals and well-articulated strategic priorities. You may feel like such efforts are pointless, given how fast things can change with COVID-19. However, going through the process will ensure your entire team is aligned and rowing in the same direction.
Reiterate to everyone why your startup exists and what value you bring to the world. Remind the team of what makes your business unique and why it’s so critical that you succeed. Furthermore, make sure everyone understands the key performance metrics and quantifiable goals you are chasing over the next 12 months. It’s important to assimilate these tangible goals into the broader vision you have for the startup.
Another way to inject your team with energy before the end of the year is to bring in exciting talent. Now is actually a great time to recruit and plug any gaps you have on staff before sprinting into the new year.
At a time when productivity typically dips, new team members can provide a jolt of momentum, even when they are still ramping up. The right hires will bring fresh ideas and perspectives with them, freeing your team from any ruts that developed over the last few months.
Additionally, you may find that you have enough time to properly train and onboard recruits if your business generally slows down the holiday season. Keep in mind that such a luxury vanishes as soon January hits, so it’s vital to get this done while you can.
Need Help Finding Your Next Great Hire?
At Funded.club, we work with startups all over the world to help leaders find the perfect hires for their businesses. While you focus on preparing for 2021, our team can identify and vet high-quality talent from all over the world who would fit right alongside your existing team.
Want to learn more about our fixed-fee recruiting services for fast-growing startups?
Schedule a free 30-min call with our founder and CEO, Ray Gibson, today.
How to Push Strong to the End of the Year
How to Re-energize Your Startup Team
2020 has been an exhausting year in so many ways. Those of you who run startups know this all too well. Dealing with the challenges of the current pandemic, along with keeping a business afloat, is tremendously hard.
Trust us, we understand.
However, at Funded.club, we’ve been able to stay positive and push forward by keeping our team energized, despite the uncertainty in the world. We thought it would be helpful to share tips on how you can re-invigorate your team and end the year strong. By finishing 2020 well, you will build positive momentum to carry you into the first part of 2021.
On top of that, you will be able to offload some of the burden you carry and empower others to step up. You can’t afford to burn out now, which is why we recommend implementing some of the strategies below ASAP. Let’s dig in.
Recognize Your Team’s Hard Work
One of the best ways to boost your team’s spirit is to recognize their hard work. Fortunately, you can do this in many ways. What’s important is that you are open and transparent. Acknowledge that it’s been a difficult year and that you appreciate every person for sticking with you through the thick and thin. Don’t dismiss or minimize what your startup has had to go through to survive.
Send out company-wide emails that highlight specific achievements and recognize individual employees who have been especially engaged. Host a meeting in which the only agenda item is to celebrate what you have accomplished. You could even schedule one-on-ones with every person to make sure they know you see their hard work.
For workers who haven’t been as motivated, have honest conversations about what you are seeing. Allow them to articulate their concerns and work with them to set short-term goals to re-energize their spirits. Doing so will go a long way towards letting others know you are there for them, which is especially important at a time like this.
Gamify Mission-Critical or Boring Tasks
If performance across a few crucial areas is waning, think about how you can “gamify” your team’s efforts. In other words, incorporate elements of game design into your workplace that encourage people to reach higher in enjoyable, low-pressure ways.
For example, you can create a point-tracking system that encourages consistency by monitoring “streaks'' for certain behaviors completed within designated periods. Or, you could give out “badges” when people hit specific milestones and dole out surprise rewards for exceptional results. When your whole team crosses some performance threshold, cater a nice lunch, or take everyone out to dinner.
If you go this route, you need to design a way to monitor progress and see how others are performing without explicitly encouraging competition (more on this in the next section). Through gamification, you can convert the mundane into the exciting and change how people approach their least favorite responsibilities.
Promote Friendly Competition
Instead of or in addition to gamification, you could promote friendly competition. However, be careful about how you approach such schemes, as you may inadvertently create tension within your team. Experiment on a small scale, at least initially, until you know how to foster healthy competition.
For example, design day-long competitive sprints where winners receive relatively inexpensive items (e.g., a single free coffee), and set up goals so that different people have the potential to win. If you want to expand the scope of your competitions, don’t let too much time lapse between rewards, as employees may lose interest.
Closely monitor how your team responds to such competition. If you have a group of highly competitive individuals, this approach may work wonders for your startup.
Invest in Fun Swag
People love swag. Come up with a gift idea that creates visual cohesion across your team. For example, you could invest in matching pullovers or jackets that people would actually wear (don’t be afraid to share mock-ups before ordering!). You could also design t-shirts that feature a company-wide inside joke or buy everyone a unique coffee mug. Even the smallest of gestures can send a positive message that livens your team and lets them know you care about them.
Furthermore, you could go above and beyond by investing in gifts with real monetary value. Consider getting your team members high-quality headphones, smart watches, or gift cards to a favorite local restaurant where they can take their families out for dinner. When finances are tight, this route can make a huge impact on morale.
Take a Step Back to Re-energize
These are just a few examples of how you can re-engage your team amid an unprecedented year. To choose the best path for your startup, you need to pick your head up from the grind and take a second to breathe. Then, you can conduct a pulse check on your team. If morale and energy are low, try implementing a few of the strategies above.
Best of luck!
Use Sprints for Much More than Software Development
As a startup leader, you’ve likely heard of “sprints” and “scrums” before, especially if you operate in the tech sector. Both are related to agile methodology, a project management process by which nimble, cross-functional teams complete tightly scoped projects. In agile development, rapid iteration and constant feedback are key.
Fortunately, the agile approach can be valuable outside of software development as well. By creating short sprints around specific business problems, you can manage non-tech employees in a similar way.
For example, your marketing team could use agile methodology to design a new funnel for an untapped customer segment. Your business development team could plan a sprint around identifying which market to enter next. You could even use a sprint to choose a new CRM or plan your annual company outing.
Sprints work so well because you can quickly incorporate feedback into whatever process you’re running. And when something doesn’t work, you can easily move on or pivot. As a startup, this type of flexible project management can help you respond to trends and organize limited resources around open-ended questions.
Below, we provide an example of how a startup might organize a week-long sprint. Of course, you could adapt this model to your unique needs, team dynamics, and business.
An Example Business Sprint
For a week-long sprint to work well, the problem you are trying to solve should be small. Don’t bite off more than you can chew. Otherwise, your work will be difficult to assess and progress will be hard to appreciate.
For example, only dig into one niche industry that you are considering entering or evaluate a single customer segment you are trying to win over. Anything more will feel overwhelming and impossible to dissect.
Orient your team to the new goal or objective. Encourage everyone to conduct research and familiarize themselves with the problem you’re trying to solve. Search for case studies or stories that highlight how other startups have approached a similar issue. Set clear boundaries and expectations around what you are hoping to accomplish by the end of the week.
On Tuesday, ideate around possible solutions. By now, your team has had time to think about what your startup could reasonably accomplish. Continuing with one of the examples above, if you’re trying to find a niche market to enter, have individuals present one idea each, choose a frontrunner, and go with it. Don’t try to evaluate several niches at once.
With your plan of attack set, build a draft prototype, presentation, or proposal. Invest an entire day in creating something sophisticated enough that you can reasonably study. If you are trying to build a business case around entering a niche market, gather the most important data points first to get an early sense of what the “right” answer is.
Test your ideas, solutions, proposals, and prototypes with the team. Run through different scenarios, pressure test assumptions, and fill in apparent gaps with collective brainstorming. Acknowledge what information you are missing and what you would do if you had more time.
At the end of the week, gather feedback from others in the company. Bring together a group of diverse teammates outside of the sprint who can provide a wide range of perspectives on your work. They can point out issues you may have overlooked or validate the potential of what you are pursuing. After Friday, you should know whether to start fresh the next week or press on with whatever hypothesis you want to test further.
Experiment with Sprints Today
Before the end of the year, try a few week-long sprints to see if approaching other business problems in an agile way works for your startup. You have little to lose and a lot to gain by applying agile methodology to tackle ambiguous problems.
You may discover that you and your team like working in such a manner where iteration and feedback are paramount. After all, your software developers shouldn’t have all of the fun ;)
Worried About Building a Company During a Recession? Don’t Be
The current pandemic has upended the lives of millions of people across the globe. Companies of all sizes are struggling to stay afloat as governments aim to strike a balance between containing COVID and keeping businesses open. Unfortunately, there is no playbook for how we should navigate such uncertain waters.
However, history tells us that there is ample opportunity for startups in times of crisis. Those who survive turbulent seasons tend to emerge stronger and more resilient overall. You can still accomplish great things over the next year, though your success might look different than how you originally anticipated.
In this post, we hope to encourage you and reinvigorate the optimistic spirit that initially pushed you into the startup world. At Funded.club, we sincerely believe you can overcome this pandemic.
Many of Today’s Strongest Companies Were Born in Recessions
We often forget that many of the most successful companies in the world were founded during major crises. According to this Business Insider article, General Motors, Burger King, Trader Joe’s, Microsoft, Uber, and Airbnb, to name a few, were all born during recessions. Most of these companies have now survived multiple worldwide crises.
Companies that get through recessions have tremendous staying power because they learn how to fight through adversity. On top of that, those who make it to the other side have fewer competitors to outmaneuver. The playing field opens up significantly, leaving plenty of room for survivors to innovate and grow.
Furthermore, recessions create attractive buying opportunities. Real estate, office equipment, and acquisition targets tend to get less expensive as companies shed inventory and grow more desperate. High-quality talent is also available at a discount because people are willing to accept less money in exchange for job security.
Over the last 100 years, we’ve seen so many examples of smart and savvy leaders taking advantage of recessions to build foundations upon which to grow great companies. Keep this in mind as you battle anxieties related to running a startup under COVID.
Trials Force Leaders to Innovate
“Necessity is the mother of invention.”
This quote rings true across many areas of life, including in business. It is times like these that force leaders to be creative, efficient, and careful - a curious combination of traits that often yields positive results. Those who recklessly push forward without adapting quickly to changing circumstances are the ones who often don’t survive to see better days.
When cash flow is tight, startups have to hunker down and find ways to create the same or more value with fewer resources. Rather than take on additional debt, think first about how you can achieve your startup’s objectives without borrowing more money. You might be surprised at what you come up with when you’re backed into a corner. You’ll also be much more thoughtful about every dollar that you spend.
Keep in mind that your production doesn’t have to slow, even if your team shrinks. Consider how you can automate manual tasks that currently consume too much of your team’s energy, and drop activities that aren’t absolutely necessary. Say “no” often and focus intensely on your most important goals.
In doing so, you may realize that you were stretched too thin when times were good. When you look back on this season a year from now, you may discover that your most innovative and important ideas surfaced out of such dire circumstances.
Remote Work Is Effective
One of the biggest revelations to come out of COVID is that remote work can be highly effective for many types of businesses. Although remote work can’t replace every element of the in-office experience, it is keeping many companies alive. Embrace remote work while it’s here and cut ties with expensive commercial real estate. You will be able to find another office space that you love.
What matters most right now is your ability to conserve cash and maintain productivity with your workforce scattered all over the city, country, or world. Take the time to study what experts say on how to keep employees motivated when they can’t share physical spaces. No matter how unnatural they feel, implement these strategies.
Of course, there are startups out there that don’t have the luxury of working remotely. But for those who can, remote work is a luxury that many businesses in the past could not take advantage of when they were struggling through past crises. Lean into remote work.
You Can Do It
To be clear, we aren’t dismissing the difficulty of building a startup right now. We understand how hard it is to stay motivated and encouraged. But, we are all fortunate enough to be able to look back at history and see how today’s most impressive leaders were able to get their companies through various trials and tribulations. And you can be someone others look back on one day for inspiration. Keep fighting.
What are the Most Important Metrics for a Young Startup to Track?
For any business, understanding revenue, expenses, and profitability are crucial. However, there are more nuanced metrics that companies should track.
Early-stage startups, especially, should measure themselves against certain benchmarks to ensure they are progressing in a positive direction. Many times, founders will focus only on one or two statistics and lose sight of other critical parts of the business. As a result, they discover major problems in their operating or financial model after it’s too late to pivot.
Below, we discuss the 8 most important metrics for early-stage startups to track regularly:
Each of these can be calculated in a slightly different way, depending on the nature of the business. Startup leaders must ensure their teams understand exactly what to measure, what the goals are, and what levers to pull to be successful.
1. Total Addressable Market
Total Addressable Market (TAM) is a measure of how much revenue opportunity exists for a particular product or service. Calculating TAM is important when going into fundraising conversations, as investors want to estimate their potential return on invested capital.
TAM can change over time due to disruptive competitor offerings, new technologies, or government regulation. For this reason, it can be valuable for startups to revisit TAM often.
Anyone with a basic understanding of business knows that monitoring revenue is essential. In the startup world, there are several helpful ways to measure revenue.
Leaders can calculate recurring revenue on a monthly, quarterly, or annual basis. They can track revenue per customer or dig into deferred revenues to ensure cash flow is stable. The most important takeaway here is to fit revenue calculations to fit the underlying business model.
Margin is most commonly calculated by subtracting cost of goods sold (COGS) and operating expenses from top-line revenue. If your startup’s margin is not positive, you either have to increase revenues or decrease costs. Otherwise, the long-term sustainability of your business is in jeopardy.
4. Cash Burn Rate
The Cash Burn Rate (CBR) is a reflection of how quickly a startup uses its cash and cash reserves. In other words, it shows how much money a company loses (AKA “negative cash flow”) over a defined interval.
The burn rate is crucial for early-stage businesses that have yet to turn a cash flow corner. It helps founders understand how much time they have left before they run out of capital.
5. Customer Acquisition Cost
Customer Acquisition Cost (CAC) measures how much money a startup has to spend to win a new paying customer. Businesses typically calculate CAC using the formula below:
(marketing + sales spend) / new customers gained over specified period
Generally, the lower CAC is, the better. For early-stage startups, keeping track of CAC is important because it helps founders quickly assess whether they can attract new buyers easily enough to justify the cost of delivering a product or service.
6. Retention Rate
Retention Rate calculates the proportion of customers that stay with a business over time. Determining retention rate depends on the startup’s business model. However, one broad way to think about the metric is with the following formula:
(total customers - new customers) / customers at the start of the measurement period
Calculating churn may also make sense for startups to measure how frequently the company loses customers. By increasing retention and minimizing churn, startups can boost the lifetime value of their accounts, which is the next metric!
7. Lifetime Value
Lifetime value tells leaders how much value they can expect to earn from a customer or account throughout the entirety of a relationship. “Value” can take on different meanings. Some startups prefer to look at how much revenue a customer generates, while others prefer profitability.
Understanding lifetime value can inform decisions around how much a startup can spend to acquire new customers (re: CAC). Additionally, lifetime value may be an indirect indicator of how much customers value your product. A low lifetime value relative to the product’s price might mean customers don’t think they are getting enough for what they pay.
8. Viral Coefficient
The Viral Coefficient is used to measure a startup’s organic growth. It captures how excited and satisfied users are by quantifying their willingness to share a product or service with others.
Startups that want to calculate the viral coefficient can do so by taking an initial pool of customers, counting how many invitations they send to others, and tracking what percentage of those invitations convert into new customers.
Overall, there are many other ways to measure the financial and operational health of a young startup. However, these eight are essential for founders to understand. Customize them to your unique model and make sure your teams have everything they need to track them successfully!
4 Truths Fintech Founders Need to Know
Financial technology, or “fintech,” is one of the more active niches in the startup world today. According to CBInsights, 12% of all unicorns (private companies valued at over $1B) are characterized as fintech businesses. The third-largest unicorn is Stripe, which is currently valued at $56B.
Entrepreneurs are attracted to fintech for many reasons. It’s an extremely fast-growing space with tons of disruption potential. Fintech businesses everywhere are challenging long-standing models around how money is exchanged, borrowed, and managed in the global marketplace.
In 2020, nearly two-thirds of global consumers use fintech products or services, up from one-third in 2017. And 96% of global consumers are aware of fintech offerings.
Adding an interesting dynamic to the equation is the fact that many non-financial service organizations are entering the sector. Companies like Apple and Uber are offering credit cards, thereby altering our conception of what a financial institution is.
However, being a fintech startup does not guarantee you success. There are challenges to growing a successful business in this area, some of which are out of the founding team’s control.
If you are a fintech startup or are considering starting a fintech venture, always keep the following four realities on your radar.
1. Pivoting is Common
It’s not uncommon for fintech businesses to pivot or tweak their offerings to align with demand. There are many possible areas for disruption, but not all are equal. A founding team might set off to solve a problem for one specific target market and realize there is an even bigger unmet need elsewhere.
Don’t be scared to reevaluate your initial business thesis . As you learn more about the space, technological possibilities, and consumer desires, you may find your energy is better spent in a different, but related lane.
2. Regulatory Changes Can Change the Game Overnight
Government regulation can impact fintech startups significantly. As the global economy adjusts to new dynamics in this field, officials have to update laws to protect private citizens. How officials go about implementing changes can make or break certain business models.
As a founder, you must engage with regulators in your markets to understand their priorities and goals. Build collaborative relationships with leaders and share your expertise in a way that moves the sector forward. Don’t try to circumvent existing laws or design an offering to exploit a loophole that will likely be addressed in the future.
By taking a seat at the table with public entities, you can make sure your voice is heard in any conversation that could impact your business dramatically.
3. Relationships Matter
Because the nature of fintech is to disrupt the status quo, there will be forces actively working against you. Don’t expect incumbents to simply roll over and accept defeat. Be aware of who your business model will affect and how.
Think carefully about how others might respond if you directly threaten their existence. A wall of resistance can come up quickly if established companies with lots of cash work together to keep new entrants out. In many situations, it may make sense to partner with existing players, in which case, you might want to tread lightly when you first enter the scene.
Relationships always matter. In fintech, especially, leaders need to be thoughtful about how they approach the opportunity in front of them.
4. Premature Launches Are Tempting
The iterative software development approach makes it easy to deploy updates and improvements once offerings are already on the market. As a result, it is tempting to launch fintech products prematurely. On top of that, founders want to get to market before a similar, disruptive service beats them to the punch.
As a founding team, you should always set goals and timelines. But, it’s okay to push dates back if it means making crucial improvements to your product so that you can enjoy a stellar launch.
If you come out with a half-baked, buggy application, you’ll quickly lose confidence in your investors, the media, and the public. You only get one shot at a first impression, so make it count.
Prepping for Big Investor Meetings?
For founders looking for funding support, Funded.club provides consulting services to help teams prepare for crucial investor meetings and presentations. We’d love to discuss how we can set your venture up for success, whether you operate in the fintech space or another exciting area.
To learn more about our service packs, visit Funding page.
Is Outsourced Recruiting Cheaper Than Managing an HR Team?
In young startups, there comes a crossroads when business leaders have to decide whether to build out a full in-house recruitment function or outsource to a third-party service.
Founders can’t afford to spend their limited time on recruiting when there are more pressing matters at hand, like building a minimum viable product or finding customers. So, the question becomes what path leads to the best possible candidates for the least amount of money.
By going down the in-house route, founders retain 100% control over recruiting and can ensure that every potential candidate meets their high standards. However, this runs counter to the goal of freeing capacity to focus on other areas.
On the other hand, it can be scary to hand over the reins to an external party. They haven’t been with you in the trenches over the years. They are unfamiliar with your culture and may not fully understand the type of person your startup needs. And given the reality that 90% of startups fail (independent of COVID-19!), there is no room for hiring mistakes. Every new teammate should be stellar without exception.
At Funded.club, we believe the right partner alleviates all of these concerns and more.
Outsourced recruiting can be cheaper and more effective overall than managing an HR team. The challenge lies in finding an agency that specializes in startup hiring, which differs from corporate recruiting in many ways. Those who have expertise around startups recruiting can manage costs well without sacrificing quality.
Below are three economic reasons why outsourced recruiting can make more sense than building an in-house HR team.
1. Optimizing Recruiting Cost Buckets is Hard There are many cost buckets within recruiting.
On top of labor expenses, startups have to pay for job board advertisements, background checks, and technology platforms, like applicant tracking systems. In general, it is difficult for young, fast-growing businesses that have their hands full to optimize performance across these areas. In-house teams typically struggle with duplicative tasks, delays, and premium prices associated with acquiring their own suite of technologies.
Outsourced recruiters will typically offer these features at a price that is less overall than the startup would spend to get a comparable function up and running. Dedicated outsourced firms can achieve lower cost-per-hire and time-to-hire metrics by streamlining recruiting processes in a way that young businesses don’t know how to do.
Additionally, as tech skill shortages persist, recruiting is growing more competitive. Those who choose to build an in-house recruiting function may not realize the ROI on their investment as they are competing with recruiters with extensive experience.
2. In-house Recruiting Can Distract From the Core Business
Anyone who works in a high-growth venture is familiar with the idea of wearing multiple “hats.” When companies are small, employees often have to take on responsibilities that fit in various lanes. Job descriptions tend to be more fluid, and workers have a broader range of influence.
The same dynamic applies when it comes to in-house recruiting. Oftentimes, in-house startup recruiters will be tasked with cultivating a healthy candidate pipeline, in addition to executing essential HR activities. Startups that want to attract the best possible talent can’t expect to do so if their in-house team is distracted by two sets of priorities.
In this scenario, either recruiting quality or HR services suffer, which drain company resources in different ways. Bad recruiting leads to poor hiring decisions, bringing down the long-term potential of the organization. Neglected HR workflows can leave current employees feeling undersupported, leading to increased turnover. With outsourced recruiting, leaders don’t have to choose.
3. In-house Teams Can’t Scale with Business Needs
Startup recruiting needs can expand or shrink rapidly depending on the success of the business. Those experiencing high growth may need to ramp up quickly in certain areas to keep up with demand. On the flip side, a company may need to scale down to cut costs to survive tough times, like what we are experiencing right now.
Startups that have an in-house recruiting team can’t respond to volatility as effectively as outsourced firms can. Fast growth can quickly overwhelm a small team of internal recruiters, which means the business can’t respond to demand and take advantage of valuable revenue opportunities. Stagnant growth, or even contraction, can lead to startups paying for recruiting labor that they aren’t using.
An outsourced firm can easily align resources with need. Startups can take advantage of “pay-as-you-go” pricing, only incurring charges for recruiting activity that is needed at any given time. As a result, businesses don’t miss out on growth opportunities or waste precious resources on underutilized human resources.
Funded.club: the Best of All Worlds
As an outsourced recruiting partner, Funded.club helps startups all over the world build exceptional teams over the long-term. But, what differentiates Funded.club from other agencies is our fixed-fee recruiting model.
Our clients benefit from the efficiencies of outsourced recruiting without having to worry about racking up charges that are independent of results.
Want to learn more about how we work?
Ray Gibson is founder and CEO of Funded.club. He brings 20 years of experience in recruiting across Europe, North America and Asia and 5 years running his own startups.