Warm Intro #04 - Richard Hughes and the Trend Toward Leaner Teams
We spoke to Richard Hughes at Gutter Capital about how early stage companies are successfully building leaner teams, and what to learn from it.
Early stage startup teams have always been small by design, but in the past 3 years, teams have been getting even leaner. We spoke to Richard Hughes, Operating Partner and Head of Talent at Gutter Capital, about the forces in the startup ecosystem that are causing this shift.
Gutter Capital is an early-stage venture capital firm based in NYC, backing mission-driven software businesses. Richard has advised hundreds of founders through hiring decisions and has read thousands of resumes annually over 15 years as a recruiter and Head of Talent for high-growth companies.
Richard shared with us how early stage startups are approaching building leaner teams, and offered incredible advice on how to do it well.
(Plus: after Richard’s interview, we share some of the latest searches on Liftoff, exclusive to our community.)
— Eleanor
Q: What shifts have you seen in early stage companies’ hiring patterns?
Early stage companies are betting on fewer candidates who can stay with them longer through Seed and Series A.
Before the pandemic, engineering teams at seed-stage companies often grew to 8 people. Today, it’s closer to 3 to 5 people. In our 25-company portfolio, it wouldn’t be uncommon to see a company at $500,000 in annual recurring revenue with fewer than 5 engineers.
This is very different from what it was 10 years ago. The number of engineers needed to ship products was just higher. But another root cause of today’s lean teams is that in the years since 2020, companies raising Seed and Series A rounds have needed to hit maturity milestones that are farther along than they were before. As a result, funding rounds have also moved farther apart, meaning your runway needs to extend longer. And that means you’re more conservative on team size.
The other trend we’re seeing is that companies are spending more time upfront to get the right person to be on for the entirety of that journey. Related, we’re seeing teams sticking together for longer. Across Gutter, we're actually seeing over 80% retention rates of employees lasting 18 months, which is much higher than industry standards in the low 70s.
It takes time to learn how to collaborate with your team members. If your time between Pre-Seed and Seed is 18 months, and from Seed and Series A another 18 months, it’s really important to have 10 people who can work together really well and stick together. And if they’re only going to have one Customer Success Manager to get them to $1.5 million in recurring revenue, then the initial scoping of that role is so important. So is the initial interview process. Teams are spending more time upfront finding alignment between a candidate's core skills and career goals. In tandem, they are sharing the current state of the business and the vision. There’s a lot of familiarity on both sides before Day 1, after a successfully run process.
Q: If companies are being more careful about scoping roles, what differences are you seeing, and are they taking a longer time to hire?
Founders spend more time with candidates, but can make bigger investments.
The double-edged sword is that in the early days of a startup, you can move quickly on hiring decisions. There’s not a lot of red tape, there are fewer stakeholders. In theory, you can make the decision in an hour, after one coffee meeting. But now that founding teams have gotten smaller, hiring better has become more important.
When founders come to me saying they’re ready to make an offer, I ask, “How many hours have you spent with this person so far?” I would hope it’s at least five. Founders are spending more time upfront, vetting prospects for not just functional expertise, but critical signals on whether the person can handle early-stage work. Things like systems building, context switching, and dealing with ambiguity.
The upside of thorough early vetting is that you can invest in talent in a way that gets them excited to join and potentially can keep your team together longer. For example, I'm working with a founder right now who is looking to hire 3 engineers. He's been on his own for 4.5 years building the business with a no-code solution. He's finally transitioning it, and he's giving outsized founding equity to these engineers because his belief is the engineering team of the future is going to be smaller.
Q: Do you think teams are feeling great about being smaller, or are they feeling the pinch of leaner resourcing and more work to do?
Being forced to be leaner means less noise and debt when the team has to pivot.
An early-stage startup is under-resourced by design, and is always in a difficult position because they're allocating resources in a way that's a little bit below where they want to be. But tighter teams have enabled companies to move quickly when they have to pivot.
It can create a lot of debt when you hire for roles that might not get you to where you need to be in the future. I think about the Chief of Staff role, which was the hot job for a seed-stage company to hire four years ago. By 2022 or 2023, that started to fall off because it doesn't necessarily roll up into growth goals or product goals.
So one of the benefits of leaner teams is that founders have to be very honest about the goals they want to hit and just resource directly to that.
In the early days of company building, there are really just three jobs: You either sell it, you support it, or you build it. The jobs that have been most common in today’s lean teams are the “build it” and the “sell it” jobs. The “support it” exists but has been light.
Q: Are you seeing teams leverage more contractors or fractional work instead of full-time roles as a way to staff more leanly?
Permanent freelancers who are set up to contract have been the most successful contract hires.
There have been more people trying out fractional work over the last few years, but with more full-time positions opening up in the last 12 months, a lot of these people have been recruited away from contract work. So founders have been a little reluctant to work with that kind of fractional talent.
The trend that I’m seeing is that contractors who are really set up to contract successfully are not the same people who are just dipping their toes in contract work for a temporary time.
One of the nice things with Gutter is that we have some really experienced, permanent fractional people in our network. If you can find a venture firm or community that has known entities, it can be a tremendous unlock.
Q: As companies hire fewer people, are you seeing them hire more senior and experienced talent?
Yes, I'm seeing there's an opportunity to get more senior talent, especially senior people who know they want to be in an early stage environment.
I have seen engineering teams be opportunistic in finding engineering leaders who miss coding, who miss the programming and being hands-on-keyboard.
I recently recruited an engineering leader who, candidly, felt burned out from being an engineering manager in the pandemic, dealing with so many personnel issues. He couldn't wait to get back to coding, and he joined one of our portfolio companies as a CTO.
So I don’t necessarily subscribe to the idea that “this person’s worked in a large company, so we can’t bring them into an early-stage startup.” I actually think it matters more where you are career-wise and what you want at that moment. I believe people are ready for different stages of company building at different stages of their careers.
That’s why listening and picking up on a person’s intentions is so big. A few years ago, I met an engineering leader with a 40-person team, and I pitched him on a startup just to see if he would be interested. The weekend after, he told me he’d been on YouTube looking up the business and talking about it to someone. He became interested in the industry. Just because he was most recently leading 40 people doesn't mean he wasn’t qualified to do the engineering work. He joined, and he's still there and has been doing a great job.
Q: What does all of this mean for people evaluating startup roles right now?
Just as startups are being more intentional about fit, so is talent.
In the last few years in tech, people have had shorter stints at companies. We had the pandemic and a drawback in startup funding. We had the Great Resignation period. So now people are looking for longer stints, making sure they find the right match, and approaching the interview process with more intentionality.
The most successful talent in this leaner market have been the ones that are proactive product managers for their own careers. They have the ability to say, “This is the talent that I bring to a team and this is how I want to grow.” If you lack the clarity on the criteria for what you expect in your next position, how your mission, talent and culture apply to an organization, it will be hard to get signal in this market.
They are also carefully taking the bet with the company – that it will scale so their career can scale along with it. With the readjustment in venture, there’s a lower rate of success for a startup. You have to really believe in what you're doing so that you can scale along with it.
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Previously on Warm Intro:
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