Welcome to something new: an occasional podcast from PreSeed Now, bringing you conversations about the UK startup ecosystem.
Today, let’s talk hiring. Specifically, what to think about as you look to exit the pre-seed stage and move into seed and Series A.
What will you need to plan for? What’s ahead? Let’s find out…
Tap the orange button above to listen.
This episode is supported by Santa Monica Talent:
At the pre-seed stage, putting together a hiring strategy can seem like something you don’t need to worry about. You’re deep in the weeds of building your product and figuring out the beginnings of a business model.
Building a top-quality team might seem like something you can forget about until after you’ve raised a seed round. But it’s never too early to be ready.
And if that seed round is in the works, it’s definitely worth considering not just what roles you’ll create, but how you’ll attract the right people and incentivise them to do their best work. And what should you have in mind as you work towards Series A?
To help you prepare, we’ve been talking to Ellis Seder of Santa Monica Talent about the startup hiring landscape in 2023, how to plan your first hires in fields like sales and marketing, and business operations and some of the pitfalls startups make as they bring in their first key hires.
Listen to the full conversation above. You can read key takeaways and a full transcript below.
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Santa Monica Talent creates explosive growth for game-changing brands. They have 10 years’ experience working with leading challenger brands and scaleups, building exceptional Sales, Marketing, Software, HR, Product, Ops and Leadership teams.
They also have a successful track record in both C-level headhunting and diversity planning, strategically supporting companies with their D&I initiatives. More than 63% of their hires are BAME or female. They also provide a Salary calculator for salary benchmarking.
Santa Monica Talent has a successful record of C-level hiring across the technology industry - including fintech, insurtech, crypto, healthtech, HR software, SaaS, A.I., and social impact.
And if you don’t have any in-house hiring support, they have extensive experience in managing dedicated interim scale-up projects for high growth companies. They can also provide on-demand access to interim leadership talent for the world’s most ambitious challenger brands and scale-ups.
If you’ve just raised a funding round and need to scale the business, or are hiring a key leadership executive, book a free 30-minute call with Ellis today.
Key takeaways:
it’s a good time to bring talent into your business before the competition heats up in Q1 2024 when everyone starts hiring again.
Interim talent can be a good way of ‘trying before you buy’.
The tips below are all about getting from late Seed to Series A.
Sales:
You need someone with experience–ideally in your startup’s subsector–to come into the business early to drive revenue in a sales role. Depending on how early the business is, someone to build the playbook is ideal. Someone to actually lead from the front, meet potential clients, and put processes in place.
For a head of sales role, there's quite a healthy talent pool that's available, especially this year.
Senior sales leaders gravitate to jobs where they can double their income with on-target earnings. In an early stage business where product-market fit might not be quite there yet, this can be offset with additional equity, up to 1%.
Hiring the wrong salespeople early can damage your brand.
Marketing:
Don’t try to find a ‘jack of all trades’ senior marketing hire - focus on your growth needs for the next 12 months and look for someone experienced at generating revenue, who operates at a high level but can go hands-on
Outside of a small in-house marketing team, hire freelance creatives on a project basis
Consider part-time ‘fractional’ talent - highly experienced people can bring great value part time
Avoiding common pitfalls:
Bring in someone full time as an HR lead when you get to a headcount of around 50, but it might be something you’d benefit from earlier, even if it’s just a part-time, highly experienced person.
Hire a diverse team. Too many people from a similar background risks groupthink and can limit your success.
Review the org chart at every funding round. Are the current staff (including your initial hires and co-founders) still the right people for the next stage of the business?
Consider a strong interim CFO quite early on
Transcript
(Lightly edited for clarity)
Martin: So, Ellis, thanks for joining us.
Ellis: No, thank you for inviting me.
Martin: You're definitely one of those people I would talk to if I wanted to find out what's happening in startup recruitment land. So let's start there then. What is the startup recruitment market like at the moment? What are you seeing?
Ellis: It's obviously a challenging year, I think for everybody. Especially if you're in the tech ecosystem. We've always predominantly worked with VC-backed digital scale-ups. And I think we've all seen the same thing, venture capital are being exceptionally cautious. And unless you're in a very specific space, they're not going to invest at the moment.
So I think that has a huge knock on effect across the landscape. I mean, from one extreme, there's obviously been a huge amount of redundancies, which started with the big tech companies last year. And it's trickled down across the industry
What we're seeing are lots and lots of companies in London that have got interesting business models, but the venture capital firms don't want to invest until they've come back to them with revenue and a proven product market fit.
So that's really been our focus for the last probably 12 months, helping companies increase revenue by bringing in more experienced sales people by finding strong product leads and also marketing to help drive revenue. So on one side, there is a bit of negativity with redundancies and the funding drying up. But on the other side, I think there's still lots of really great companies, especially in London. And as long as they can hang in there until next year, which I think is probably when the VCs start spending again, then they'll be fine.
And also the reality is it's a good time to bring people into the business because you've got such a great choice at the moment. It's difficult to try and think ahead like this, but if you can, it's a buyer's market. So rather than competing with all your competitors, let's say in Q1 next year, when everyone starts investing and hiring again, for the rest of the year, for this year, you've had a great choice.
This happens every down cycle, some companies take advantage of it and they bring great people into the business. So remember, it doesn't have to cost a fortune. You can bring interim talent in as well at the moment. So even if you just secure someone on a part-time, interim basis, at least you've got a 'try before you buy.'
And then next year, you've brought extra revenue into the business, you've raised your Series A and then you can offer them a full time role.
Martin: A lot of the startups that read PreSeed Now and are engaged in our community are either expanding their team or they have an eye on doing that once they've raised.
So it'd be great to get your insight on some of the tactics they can use, some of the strategies they should approach this with. So maybe we should start with sales then, because like you say, investors are very much looking for revenue, rather than promise of revenue down the line.
They're a lot more demanding now, so you're looking to bring in good sales people to make those numbers go up. So how do you approach that?
Ellis: Yes the golden question. How do we increase revenue? We did actually bring a report out earlier this year. It's on our website. I can send you the link.
It's 7 Tips To Building The Ultimate Sales Team For Growth 2023. We interviewed 10 chief revenue officers from scale-ups So it's a really interesting article. The one thing that came out, which surprised me, was there's not one consistent answer,there's no magic wand on this.
It depends on what your business is,, is it B2B or B2C? Does it have a SaaS model? Do you have product market fit?
My big conclusion out of those interviews and speaking to the chief revenue officers: you do need someone with experience to come into the business early to drive revenue. I think that's probably one mistake that you do see a lot: undervaluing the need to bring in a Head of Revenue early, either a VP Sales, or CRO
So I think it's making sure you've got someone in charge of revenue with experience, ideally in your subsector. And someone that's going to be able to roll their sleeves up. Obviously in an early -stage company, there's no side office or ivory tower. It's very scrappy.
Depending on how early the business is, someone to build the playbook is ideal-world someone to actually lead from the front, meet potential clients, and put the process in place.I think that's the one thing that will be needed quite quickly is the playbook with the repeatable process.
And then once they've figured out what the target clients are and brought in some revenue, then it's hiring–as strong as you can–an account executive (an AE) and then to partner with the AE, the SDRs [sales development representatives].
I think the one thing with the head of sales, whether you call them chief revenue officer or VP sales or sales director, probably depends on how much experience they have. You can bring them in part-time interim as well.
So there's quite a healthy talent pool that's available, and especially this year, of highly experienced people that are maybe in-between roles, or they just like the idea of joining the company part-time or interim before they commit to a full time role. So that does exist. It brings down the cost of bringing the person in.
But otherwise, obviously the rule of thumb for hiring the head of sales is base salary with a double OTE with equity. Just to give you some ideas of some of the salaries VP sales: £120k to £150k, and then CRO, £150k to £200k. And again, double OTE.
Martin: For anyone not familiar, OTE is ‘on target earnings’.
Ellis: Yes double on target earnings is really what they're looking for.
Now, obviously, it depends on how early the business is, and have you got product-market fit? Because what can happen is, and again, I think everyone just needs to be transparent as early as possible: “we haven't made revenue yet. We're still figuring out the product market fit. So we don't think you're going to get your double OTE in the first year.
“But we need you to come along on the journey and we think if you help us along on this journey, you should get to that soon. But in return, we'll give you a much bigger equity stake. Anything up to a percentage point, I think, for the right chief revenue officer. But that's what they're expecting, that type of salary.”
And then when you're trying to hire them, you've got to keep in mind that typically they will gravitate towards where they think the highest chance of their double earnings will be. That's why it's a lot harder to hire them in an early stage company because the risk for them is, “I don't think we're going to hit our bonus here because it's a product that's never been sold before.”
So you just have to keep that in mind. But again, the price can come down if you bring someone in part-time interim and then it's a day rate, Then the AEs, the good ones, £65k to £90k and then the SDRs, which essentially the SDRs will be lead generation high KPIs on either outbound calls or emails or InMails, £30k to £35k with a small bonus.
So it gives you an idea of what they're expecting. Now, you can always cut back and offer less and you're always going to get someone. But what I would say with hiring the wrong salespeople early, it's quite dangerous because they can do damage to your brand.
So yes, it might seem cheaper on paper, but if you have to replace them in four-to-six months, because it's just not gone well, or they haven't delivered on what they said they could do, you're back to square one.
And they've maybe tarnished the brand as well. So it's just keeping that in mind. It's not easy, that's for sure. I do feel that with building sales, it's underestimated probably especially by the technical founders as well. I think the technical founders, I mean, I don't want to alienate anyone, but I think sometimes they begrudgingly bring in the head of sales because they feel that the product's good enough to sell itself
You typically find second, third time business owners will put full resources behind this early.
Martin: So a couple of things just to drill into that, then. So you mentioned salary and full compensation. These are London prices, would that be right?
Ellis: They're London salaries a hundred percent. And I do realize the salaries drop significantly outside of London.
So that is something to take into consideration, but it's also worth taking into consideration when you're scaling up your business. Do you need to be in London and pay premium salaries? That's a broader question. Obviously you can get an awful lot more value for money and pretty much pick any area you want outside of London.
Martin: Some founders listening might say, well, does equity count for anything here? Shares, anything like that? Would salespeople be interested in a lower salary, in return for equity in the company?
Ellis: I think the tech scale-up industry is now mature. Even if we say in its current format, let's say the start of modern scaleup London started in 2010. So we're 13 years into this scaleup ecosystem, the way it's currently built. People have been burnt with shares previously and most people have at some point taken a much lower salary in return for equity on the day that they all sell and sail off into the sunset after it becomes a unicorn.
Now, the reality is, as we both know, the chances of that happening are fairly low, but it does happen. And the cost of living in, again, London and just simply keeping yourself above water, you need a certain amount just to survive.
So the question will go back to the person that you want to hire. Do you want to take this risk for the promise of, at some point in the future, things could work out versus “hey, look, the reality is I have a family. It is very expensive for me to exist in London. I need this bottom line base salary just to continue.
“Now, I'm perfectly happy to forego the on-target earnings for 12 months. That's, I think, where probably the trade off is. And sure, I am interested in equity, because I do believe in the company, but I can't survive on that.”
I think sometimes we forget that, outside of our scale-up, startup, exciting world, the rest of the market are mature businesses who can pay market salaries, so you're always still going to compete with those types of companies.
And so I think the long answer to your question is no, I don't think equity in exchange for a much lower salary works and especially for sales.
Martin: Well, let's look at marketing then. Because that's, that's another part of the same side of the coin, I suppose, in terms of bringing in revenue and attracting people to the product.
So what should you consider when hiring for marketing roles?
Ellis: Yes marketing's interesting. We brought out an article earlier this year. We interviewed Michael Williamson, a highly experienced CMO who's built many marketing teams for scale-ups, and blue chips as well. The article is How to Build your Marketing Team in 2023.
I think with marketing, I would focus on bringing in your new head of revenue, plus a VP marketing type, hands-on, that will focus on revenue, lead generation and very ROI driven. The challenge you see in marketing, especially of early stage companies is they need a lot and they try to put all of the different marketing functions under the one headcount.
It's very common. There'll be a 10 page job spec with everything a company needs in marketing, which includes brand, social, lead generation, growth, a LinkedIn specialist, plus the person will need to to help sit with the board and investors.
And, and the reality is this person never exists; you're describing a whole marketing function. So I think it's very important to focus on what the company needs for the next 12 months. And ideally it's an experienced scale-up executive type that's still very hands -on even to the point they're going to have to do their own copywriting and going to have to get into the weeds.
That's probably your first hire. And then I would say the next few hires should definitely again be revenue focused. So lead generation, digital marketing, growth marketing. So they're going to be working with the sales team with a focus on bringing in top-line revenue.
And I think the good thing with marketing is you can outsource and bring in freelancers. London and the UK have a very strong talent pool for copywriters, social media managers, brand, PR, events. So I would say you hire marketing people for specific projects, and you'll have a very healthy choice to choose from, and usually fairly cost effective on day rates.
So put all your heavy budget behind your VP marketing to sit with your head of sales. And then obviously, the golden question is, what's the budget for the VP marketing to actually spend on marketing to help you with growth? Because I think that sometimes gets forgotten about.
Post hiring your VP marketing, which is going to cost, let's say £120k, then they're going to need a budget to try to grow the marketing function. They can't do all this themselves. And then you can put as much as possible towards freelancers.
This all changes by the way, once you've raised your Series A. Series A comes in 12 months and then everyone goes back to the drawing board and says, ‘right, we need more in house. We need an in-house CRM Manager, copywriter. Or social media manager,’ whatever it is that the business needs.
But I think what we're talking about here is getting you from right now, August 2023 through the next 12 months, to increase revenue, show the investors, ‘we are a viable business’.
Investment comes in, then you rebuild your sales and marketing team, especially marketing. But I think it's important not to try and do everything under this one poor person gets dragged in 20 directions in marketing. And then they're the first person that everyone points at if it's not all going exactly to plan.
The cycle seems to repeat itself quite consistently with marketing. Even if you've made a brilliant hire and it's the right person, they're always the one that gets blamed if it's not going to plan, but then look at the responsibilities you've given them. They're being stretched far too thin.
Martin: One thing that you mentioned earlier was interim roles and fractional roles; these people who are happy taking on a short-term role or working with a number of companies, rather than going straight into another big job, which they could do.
Obviously these are often very experienced people who are doing this. So what's driving that in the market? And let's say you're just raising Seed and you're out there to spend it, what should you be looking for in those kinds of people?
Ellis: I think the good thing about fractional consultants–there's various different terms for them–‘fractional’ is the US term, portfolio career, interim… it's all essentially the same thing. It's someone to come in part-time rather than full-time.
You have a large group of people, especially in London, that have had corporate careers and they've worked in the startup world, maybe they have gone through a trade sale with a previous company and financially they're independent.
They don't want a full-time job, but they'd like to work across a variety of companies. They’re a great resource to bring into the business. There's a day rate that's agreed, sometimes there's a reduced day rate for equity, at its most extreme they can possibly offer sweat equity, which is more common in Silicon Valley.
It’s relatively affordable to bring in a part time executive and then again in 12 months time, maybe you've got on really well with each other. There's a big Series A or B fundraise and then there's another conversation around ‘look, we'd like you to join us full-time’. That happens a lot.
Martin: If you're a founder and you're thinking ahead to ‘this is what's coming down the line for me shortly’ you might be thinking, ‘It sounds like there's so much that could go wrong here. So many mistakes I could make.’
Are there any particular pitfalls you see founders making when they're making these first big, important hires outside of the founding team?
Ellis: I definitely would say you've got to have good advice around you. Whether that's your investors, now they wanna protect their money. The stuff that they're saying you should be listening to and have them involved with the interview process. So once you get down to a final two or three people, bring the investors in for a meeting specifically for a key C level role.
The other pitfalls as well, it's just not something people talk about as much apart from inside the HR world. You have to bring in someone extremely competent within HR to run your people function and as early as you possibly can. Again, I think it's often dismissed by first time founders, but it's not dismissed by people that are second, third time business owners.
They know that this could be a real problem unless you deal with this early. You could bring in a highly experienced, head of people, and they come in two days a week, one day a week, even, and you just basically share with them everything that's going on and they can review what you're doing.
I would say your first full-time people lead should be about 50 headcount. So it's probably Series A. But before that at Seed, you definitely can have someone in, I'd say, from about 10 headcount onwards in a part time role.
And again, there's a large pool of experienced HR folk that are available that can come in and just give you some very good advice. They can be involved in interviews and planning. There's obviously talent partners that can help you as well.
But I think if you have a trusted talent partner, and an experienced head of people, I think it will de-risk you. Think of it as the same as hiring an experienced accountant or lawyer, leave it to the functional experts. We have seen examples where companies have left HR and Talent until they have 100 or so staff and there's so many problems by the time that head of people comes in, it's terrifying. There's just problems everywhere.
So you've got to deal with this early.
Martin: There are plenty of very famous stories of founders who shape the company culture and, and their hires up to, you know, hundreds maybe of people where it's all shaped in their image
but because they're not necessarily experienced at growing a team to that size and they've just hired people just like them to act just like them, you end up with yeah all sorts of problems. Uber springs to mind.
Ellis: It’s quite common, but the good thing is you can spot it early. And actually, the investors are very conscious of this, so they'll look at the pitch decks and if they see everyone looks exactly the same, “young bros in hoodies who went to the same school”, they will flag it and they will advise to think more broadly about talent, and look at different backgrounds to help foster greater ideas and experience.
But it still does happen. When we get brought into companies, I'll go into the office straight away. And if I walk around and see that, I'll raise it immediately and usually they're aware of it and slightly embarrassed, but then they have to be made aware of it and accountable. Also another reason to bring an external HR or Talent advisor into the business early, most founders appreciate the neutral feedback.
Martin: It's very tempting. When you’re starting a business you hire the people you know, don't you? And so those first hires are probably people like you.
Ellis: Nothing wrong with that to bring in the first group of co-founders as people that are in your network, it's totally sensible, but I think quite quickly you have to say, ‘okay, look, this is who we are. We've got to now make sure that we're not that going forward.’
Probably the other pitfall as well, which is a bit controversial, but it's a difficult one, but it's keeping hold of your original management team longer than is productive for the business
It's very difficult because they could be your friends or long term work colleagues that you brought in. They might be great for that first 12 months or even the first three years. But they're not suitable going forward after the business grows and matures into a larger company.
You need different skills. And holding on to that person that's the Chief Product Officer, that's been the Chief Product Officer from day one, it's very dangerous and could literally kill the company Maybe the company's raised a big Series A and ‘there's no way that person should be the CTO, they could be totally out of their depth.
Very difficult, but it needs to be done and quite early, maybe an audit or benchmark to what's available in the market every 12 months. .
So through each stage, I would say, there has to be a review of the org chart. Are they the right people to take the company forward? They might be the right person to start the company, but it's not the person that's going to help take it to a much larger company.
Martin: As a manager in my career, I think one of the most difficult things I ever had to do was to tell someone we were going to have to let them go.
I think anyone who's empathetic, has a dose of empathy inside them, is going to feel that challenge. But once you've done it once and you understand how to do it in the right way. It's maybe less problematic. But yes, when it's those people who've been with you from the start and come with you on the journey, but they're not right for the next stage, it must, must be really difficult.
Ellis: I think as long as you're fair about it and they keep their equity, and they get a great reference, and on their CV and their LinkedIn profile they're part of a founding team that's been successful, there's always going to be good options for them to move on to the next early-stage company. They may be an early stage expert, which there's obviously a massive demand for.
So then they move on to their next early-stage company using all the experience they've had, and then frees up the space for a more experienced person to replace them
Martin: Not everyone is Mark Zuckerberg, able to go from a dorm room to long-time public company CEO through so many challenges. And I don't think everyone would want to be Mark Zuckerberg, let's face it.
Ellis: No, but that's also a different conversation again. A topical conversation and never goes away is: ‘what do you do with the founder that is the startup junkie and entrepreneurial high risk taker, and is brilliant at starting companies, raise money, but is definitely not the person to take the company into a listed company or even into a £200 million, 500 people company. It’s just not their skillset.
That is a difficult conversation. It's never been resolved because the founders themselves are never going to let go, but everybody can see if it's still under their control, the company's going to go down.
Mark Zuckerberg was very smart, early on the Facebook journey he hired Sheryl Sanderg to take on Business Operations, a 20 year tech executive veteran. This was a great success and a good case study for first time founders, This eliminated the call for his removal by investors.
Martin: A difficult one, isn't it? And the whole idea of favorable shares for founders where they have control, it probably felt like a good thing, especially in the US maybe 15 years ago, but we're maybe seeing that it's not always a good thing.
Ellis: I was going to say, some of the other fractional roles that I think are worth considering, or let's call them interim management roles. I think having a strong COO early, on an interim basis seems sensible. And again, there's a nice talent pool out there that you can bring in experienced Operations directors from.
I think we've talked about heads of people, interim marketing heads of interim… There is even a debate about whether your COO needs to be full time. I think probably yes. But I think it does go back to the founding team. What's the profile of the founding team?
So two technical co-founders clearly need revenue management to come into the business quickly. So they'll need commercial revenue people, but if the two co-founders are from business and are not technical, then their first key hires have to be a CTO or even a CPTO, so they can get the chief product officer and the chief technical officer under one roof.
The CPTO is quite a common hire. Difficult to hire for, but they exist. But if the two founders don't have the technical background, it's essential because again, what's the alternative? The alternative is everything's outsourced to an offshore developer or another software company, and then you don't really know what's going on with how much they are spending.
So you need that person inside the business., I think it does go back to, what's the background of the founding team?
Martin: Well, thank you very much for all these insights, and hopefully lots of food for thought for founders out there.
If anyone wants to get in touch with you how can they get in touch? What's your, what's your kind of call to action here? What would you like founders out there to do if they, if they need help?
Ellis: Well, I think probably a good start is we have quite a few of these interesting articles on the website. We regularly interview thought leaders in the industry. And feel free to reach out to me on LinkedIn and email. I'm happy to have a chat, we can share with you what some other companies similar to yourselves have done, and share with you what other org charts look like, or how people go about building their teams.
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