Growth paradigm: What do start-ups spend the most money on

19.03.2015

Why does a start up need a lot of money?

This is a common question, which does not always lead to a logical and understandable answer. Here it is: people. Doubters argue: that people should be hired only after some growth has taken place. You can’t build a team quickly or easily. It is possible to handle the product development, but do not combine it with the growth of the team, that could lead to problems. This is something we are learning at Energomonitor.

This point is a difference between a start-up and normal small company.

A start up is designed for a massive success. It is not one cafe, but a chain of ten, hundreds or thousands cafes. It’s not an e-shop, but the concept of how to sell over the web tomorrow, for billions. You cannot go through such growth alone. The team is crucial. Coders, marketers, authors, sales teams, people who make sure that business cards have the correct font and you always have the correct template in the PowerPoint presentation. Consider just the basic staff, organizational chart of the company business, marketing, financial, personnel and product manager – just that is five people. Our conservative Czech nature dictates that these positions doubled up and one person does more things. The business manager is actually a marketing director, so he could do both. CFO could actually do HR and the product manager can be the company director. We just reduced six people to three and saved a lot.

It works well to the moment when you start growing massively.

At that point you need the salespeople to be supervised and marketing to be performing well. You need to hire new people and address complex financial issues. The owner needs to meet and greet and deal, and also define the product to the smallest detail.

A startup has to grow rapidly, and personnel issues can cause you to come to screeching halt. Instead of the growth of the company, it can suddenly be a struggle to solve operations rather than growth.

We were hiring a lot of people with the following the method: when we see somebody great, we go for them , there’s always work to do. At beginning of 2013 there were around three of us. By the end of that year seven. Earlier this year around twenty-five. Pavelsuggested that at the end of next year there will be either 50 us or we will be bankrupt.

Ready for shipment…

To give you some examples. Late last year, we realized that we need to produce for our partners a relatively high number of texts: manuals, product sheets, business proposals, and internal documents describing commissioning of the devboard API for developers. And the quality of this output is deciding on success because of intuitiveness of these materials is crucial. The search, negotiation, from this month’s “documentarist” as I call it, is Martin Malý. This is an example of a new position that has to increase output quality and relieve me because this was still my job, I did not manage it and along with it, I did not manage other duties from my accumulated positions. The process of filling that position lasted almost half a year, it will take another two months before the new person “moves in” – it means the loss of nearly three quarters of the year at a time when we really needed this position filled.

What for is a logistics manager?

Then there are positions that give us an option to regroup. For example, a logistics manager. I never knew that such a position could exist. Couldn’t a secretary can handle a call to the delivery company, to get a package picked up? So when we were preparing our hardware production in Valašské Meziříčí, we made it a little more low-cost than was advisable. The workshop based on the ground floor of the villa where we work and the purchase of parts and processing of papers was handled by one of the developers from the hardware development. It should have been a couple of papers, since our partners around the country should do a large part of production. But production grew and it turns out that the amount of paper work is significantly burdensome. There is a need to buy parts (and for a good price), you usually deal with people from production on how much of what is in stock, when it has come where it should leave who has to deliver the stock and so on. We have one or two shipments daily.

Moreover we make all sorts of fixturesand gadgets that help in the production. It is necessary to accept parts and send out large consignments. So the developer was taken by this paperwork couldn’t do anything else and besides, he does not want to do this any more. Finally, we did not save by doubling up the position, rather it was a problem for the future, so there is a logistics manager is starting in April. He will take care of all this and free up the hands of the developer – to develop and devote time to what he wants to do, and what he can do best. It is clear that it is not the last position, which I would have thought that anyone could handle it beside his or her usual work.

Well, there is a happy ending. Production does not fit into the ground floor of the villa any more, fortunately next to us a factory closed down, so we are renting part of its old hall to make our product, which are not produced by any specialized assembly company.

The truth is that if we addressed the issue properly in the American way, before we started to sell, it would save us a lot of energy and delays. In any case, I’m starting to understand better why the normal American start up has always ten or twenty people. You just need to do it in order to grow and serve the growing demand. Saving on people so your product is a few dollars cheaper won’t doesn’t make sense if there is no demand for the product. You are always betting on a team and with out a team you have nothing.

One thing that scares me is a mistake I made. Quick lesson, unfortunately without me to find definitive lessons in how to recognize compatible people and if you happen to get a toxic person then deal with them right away. Of course, to have someone who resolves our “HR”, although I hate that word.
Start-ups are a great thing and you can save in many things when investing. One place you shouldn’t save is people. Your team defines your start-up.


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