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New Employees: The Elephant in the Room

For the first 12 months of my sales career, no matter how hard I worked, how many leads I followed, the end result was fixed: zero sales. But after about a year something changed; the floodgates opened, and all my hard work started to pay off. From there on in I was flying, hitting the top of sales league tables and comfortable in my role.

But this blog isn’t about gloating over my time as a salesman. It’s about acknowledging that before my success, I spent a year at the bottom of the sales tables – in effect, nothing more than an outgoing cost to the company.

Why was this? The reason is obvious, but little spoken about. Employees take time to ramp up. It’s a big deal, especially for early-stage companies where time is precious, yet often goes unspoken. By talking about it, we can start to mitigate the challenges it brings.

How long is the ramp-up?

Once I’d established myself as a sales leader, whenever a new salesperson joined the team the first thing I’d tell them was not to worry if their sales weren’t great for the first six months. “It’s going to take time – probably a year”. But founders of early-stage companies tend to neglect this truth and make the easy assumption that doubling the sales team means an immediate doubling of sales.

A quick bit of research, from industry magazines to the Harvard Business Review, is enough to dispel that complacency, and bear out my own experience: those who study the subject agree it takes anywhere from six months to a year for an employee to become fully productive. Let’s put that into context.

Anyone that you hire today is unlikely to be fully productive until 2024!

Ignoring common sense

Given the wealth of literature supporting what many of us have learned through direct experience, it seems surprising that businesses assume that salespeople will immediately equal new sales, developers will immediately speed up the product roadmap, and a new marketing officer will immediately drive new leads.

In truth, I’m not sure founders think about employee ramp-up time too deeply. It’s fair enough – they have plenty of other things to worry about – but my concern is that in an early-stage company, this problem is more serious than in a more mature business. For starters, at a start up it’s unlikely that there will be a structured onboarding programme. Middle management is likely to have both less experience and less time to spend training up new starters. The company will also be far too dynamic to be in a position to start building the processes that are needed to bring new starters up to speed quickly.

The problem is broadly true across all departments in a business, but it’s my old stomping ground – sales – where the issue is most acute. In an established company, new members of a sales team will typically go through a three-month training programme, followed by another three months of on-the-job training, including a period of shadowing with an established colleague. In an early-stage company, chances are a new sales starter is only working one level down from the CEO. Instead of a three-month training course, the new sales executive is expected to bring themselves up to speed immediately, at the same time as bringing in new business. A company at this stage will be is desperate to maintain its exciting growth rates, so the new starter can forget shadowing – it’s all hands to the pump.

I’ve seen it time and again: the sales executive in the early-stage company fails, whilst also losing a lot of sleep. Sales growth starts to slow, and before long the CEO is landed right back in the sales function, trying to get the growth back to where it needs to be. All the new salesperson has done in this scenario is spend some of the cash from the hard-won investment.

Why this matters more to early-stage companies.

Early-stage companies face another problem that larger companies can swallow: they have a much lower tolerance for getting hiring decisions wrong, and can’t afford to wait twelve months to find out if a new starter is the right fit.

A larger company with deeper pockets has the luxury of being able to wait around, offer the benefit of the doubt and discover whether an employee becomes productive. For an early-stage company, one or two wrong decisions can mean the death of the business. The skill of the founder doesn’t just lie in the capacity to acknowledge that an employee will take time to ramp up, they also need to be able to read the situation and assess whether there are enough early indications to divine if the employee will get there – or not. If it takes 12 or 18 months to discover that a new hire doesn’t have the capabilities they need, the business hasn’t just lost the salary of that individual – it’s still a year away from having a productive colleague.

Economically we’re in a very different place than we were 18 months ago. Companies need to be more ruthless not only with hiring and preserving cash, but also making changes to the current organization so as not to carry dead weight. While companies may have been planning for continual fundraising each year, many are now having to revise those plans for 24-months-plus of cash runway.

What can an early-stage company do?

At Octopus Ventures, our dedicated People + Talent team is on-hand to help all of our portfolio companies with their hiring needs, from refining processes through to inputting on employee development. But for early-stage companies without access to a resource like this, three steps can be taken to offset the worst effects of the problem of employee ramp-up times:

  1. Acknowledge it. Understand what the ramp-up times are in each of your departments and, where possible, put the necessary processes in place to speed them up. There’s no point spending time on hiring another colleague if the last starter isn’t productive! In sales, it’s vital that new hires enter a structure that is already working. All too often I see early-stage companies bringing new hires into a sales structure and process that’s already failing. In these circumstances, it’s the process that needs revision – new hires are never the solution.
  2. Plan cash accordingly. Map cash burn honestly against ramp-up time. Assume, for example, that a new salesperson won’t have an impact on sales for at least six months and will therefore be a cost the company needs to carry for those six months. It’s likely that when you do this you’ll quickly slow down your hiring plans, rather than accelerate them.
  3. Be ruthless with hiring.  Make sure the talent you’re attracting and hiring has what it takes to enter the unstructured world of early-stage companies, and doesn’t mind getting up to speed quickly by getting their hands dirty. A start-up isn’t often the place for someone who likes the time, comfort and pace of a large corporate, and you’ll likely be better off with a proven grafter with war stories of working in similar environments.

Concluding with a VC’s viewpoint

It’s clear to me that we as VCs have our part to play in this. When we invest, we need to acknowledge that the money we provide will not necessarily have an impact on growth in the short-term, especially if the investment is predominately based on hiring new heads.

Is it so radical to assume that the impact of any investment made this year will only occur next year?! It’s time to start looking at things differently: planning in this way may very well make all of us think more about the long-term, and alleviate our disappointment when our investment doesn’t create immediate short-term growth.

If there’s one takeaway here, it’s that founders need to acknowledge that people take time to become productive. Hiring decisions taken today are unlikely to have an immediate impact tomorrow – but given a chance, the right hire may well blossom into a serious value generator.

Edward Keelan is an Investment Principal in the Octopus Ventures B2B Software team. He focuses on investments into SaaS companies with ARR of €1m to €10m, and making investments of between €3m and €10m.

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