The essential guide to startup headcount planning

Published on Nov 28, 2023

The essential guide to startup headcount planning

Managing headcount is the most impactful thing founders can do to preserve runway while driving growth. With employee compensation being a startup’s single biggest budget item in an operating expense plan, the difference between success and failure comes down to clarity and discipline on how many people to hire, when, and for which role. It’s even more important in the current rocky fundraising environment, where investors favor financial efficiency and resourcing debates dominate board meetings.

In this guide written by SignalFire’s expert talent team, we’ll break down:

  • Actionable steps for headcount planning, forecasting, and headcount management
  • Role prioritization
  • Building an adaptable organization
  • Why to use a hybrid top-down/bottom-up headcount strategy
  • Which leaders need to be involved in headcount planning cycles
  • How to run scenario and skill-based planning
  • Where to apply data across the process

You’ll come away with a ‎headcount plan document that’s the single source of truth for when to hire how many of which roles and on what budget.

Flow chart of stages and process for defining and prioritizing a hiring plan

‎Headcount planning for high-growth startups 

Strained resources, burned out teammates, and delayed launches are the hallmarks of a company lacking a strategy for headcount planning. I felt these pains while working at a bustling startup that consistently missed opportunities because headcount was managed haphazardly. It's not just about filling roles promptly; it's about curating the right hiring blueprint and assembling a team that can adapt to the company's changing trajectory. That requires staying closely attuned to the business’s metrics and dependencies so you see slowdowns or growth spurts coming and plan accordingly.

The growth at all costs era is over. Now it’s about finding the right balance between agility and sustainable growth, aligning headcount with fluctuating budgets, and ensuring that each new hire delivers value where it counts.

Headcount planning is typically performed annually, with planning starting in Q3, actual workflows in Q4, and finalization ideally before the end of the year. However, it’s also a continuous process that must adapt to business disruptions and employee departures.

The underlying principles of great headcount planning are:

  • Take inventory of your current team's capabilities by performing a talent review.
    • Evaluate your team's strengths and areas for improvement to identify essential skill gaps. Consider factors like core competencies, domain expertise, and knowledge, as well as performance toward business goals. Regular evaluations are important for promptly replacing underperformers and attracting and retaining top talent that aligns with the business's needs.
  • Forecast future needs based on long-term goals, not just current gaps.
    • How clear are the dependency ratios based on the business's needs for success? This could include ratios such as product managers to engineers, salespeople to onboarding specialists, and so on. For instance, a traditional industry standard is to have 5–8 engineers per product manager, but what truly matters is establishing the right ratio that suits your specific business.
  • Prioritize roles by strategic impact, not which departments ask the loudest.
    • Incorporate a straightforward prioritization model into your hiring plan using a model of Priority 0 (essential immediately) to Priority 3 (helpful if possible). Map the tradeoffs of choosing role X over role Y and how these choices will impact overall business performance and success. Lay out the dates by which you need certain hires in place.
  • Determine your budget, taking into account runway and fundraising.
    • Using compensation benchmarks, determine how much you’ll have to pay to meet your hiring goals, and make sure that aligns with your overall budget determined by your cash burn, R&D strategy, customer acquisition costs, and upcoming fundraise plans.
  • Develop a flexible staffing model that can adapt to changing conditions.
    • Staff your team with recruiters who have the most adaptable skill set—usually technical recruiting efficiency—though they may be required to support hiring in other areas as necessary. By building a team mix of full-time employees and contractors or utilizing an RPO or recruiting on-demand service during periods of high growth, you can better navigate market and business fluctuations.

An illustration defining priority roles, from P0 (critical) to P3 (not crticial)

Hybrid bottom-up/top-down headcount planning

Should leadership tell their teams where they can add headcount that aligns with company strategy, or ask each department who they need most? The best answer is usually a combination.

Top-down planning begins with companywide objectives that leadership uses to assign headcount to individual teams. It enables fast decision-making for fast-growing companies, and leverages perspective on overarching goals. But it can cause overgeneralization and a lack of specificity on each role’s requirements because it ignores ground-level input.

Bottom-up planning involves asking department managers and team leads to assess their specific needs and give input on how many hires are needed to achieve their goals, sometimes within a given budget. It offers detailed understanding of why teams need headcount from those closest to the work and fosters a collaborative culture with ownership and accountability. But it can lead to department silos, inflated requests, and slower decision-making. 

Hybrid planning (recommended) combines the best of both by taking input from individual teams while deeply considering leadership’s birds-eye view of company goals, market conditions, and upcoming growth milestones. It encourages teamwork and transparency without letting decisions get bogged down. To succeed at this approach:

  • Establish clear organizational goals: Leadership should communicate goals to each team so their own input is in sync with the larger strategy.
  • Gather insights, then move decisively: Run a tight process to collect department owner and line manager input while keeping it clear that leadership makes the final call.
  • Keep your datasets organized: To ensure that the functional hiring plans align with the strategic objectives of the overall business, it’s important to consolidate and reconcile all datasets into one primary hiring plan approved by leadership. Create a game plan to maintain the cleanliness and alignment of all this information feeding into the primary headcount ledger. The primary ledger tracks the overall hiring needs and informs the final headcount plan for a specific year.

A chart describing details for how to headcount plan by org size

‎Assembling your headcount planning team 

Effective headcount planning sessions require the concerted effort of various stakeholders including people ops, recruiting, department leads, finance, and the executive team. Each brings a unique perspective, contributing to a more holistic view of the organization's needs. Here are the core people or teams you need represented and their role in the process:

  • Finance: Often the owner of annual planning and financial modeling, of which headcount is typically the largest line item. Finance plays a critical role in the process. They are responsible for establishing the overall budget, which serves as the foundation for hiring. Their role is to ensure that the headcount strategy aligns with the broader financial targets and goals of the organization.
  • Department leaders: Functional leads provide ground-level insights on their department’s objectives, existing hiring initiatives, and upcoming challenges.
  • Executives: In collaboration with finance and people ops, the responsibility of executive management is to present the headcount strategy to project stakeholders and gain their support. They establish the overall direction and goals for the company, ensuring that the headcount strategy aligns with the company's strategic targets and objectives.
  • People ops and recruiting: This group, typically comprising HR business partners and recruiting, supports department leads and executives by establishing clear roles, objectives, and KPIs for each position, which are aligned with business priorities. This ensures a strategic approach that considers the span of control and leveling to guide thoughtful submissions for new headcount. Recruiting advises on the hiring sequence using forecasting and staffing models to optimize recruitment and address potential challenges. They also define the level of recruiting support for each hiring priority and coordinate with finance to account for variables that may affect the plan throughout the year.

Once you have your team together, use a RACI-style frame to ensure you know who’s responsible, accountable, consulted, and informed as you build your headcount plan.

Scenario and skill planning

You’ve learned how to assess your needs, assemble your team, and plan headcount for today, but how do you stay ahead of future fluctuations to the business? Scenario and skill planning help you model what comes next and what staff you’ll need to meet those challenges. 

  • Scenario planning helps startups visualize potential organizational developments or changes that will impact hiring plans, such as dependent fundraising activities or budgets for hiring in general. Some applicant tracking systems (ATSs), like Ashby, now have built-in modeling capabilities for scenario planning, creating hiring models that can be compared side-by-side to assess the tradeoffs in each model.
  • Skill-based planning becomes especially important for companies experiencing significant transitions and growth periods, such as evolving product offerings, entering new markets and verticals, responding to competitive pressures, or navigating regulatory changes. The ultimate goal is to have the appropriate talent and skills to meet or exceed short-term and long-term success. It’s also important to conduct comprehensive intakes at the beginning of each recruitment cycle to ensure that the right talent is hired for your company, with the required skills to support your unique and evolving business objectives.

Executing headcount planning

Once you have assembled your headcount planning team, it is crucial to establish a regular meeting schedule and organizational structure that promotes ongoing alignment and effective communication among team members until the project is complete. Here are the steps to follow:

  • Initial kickoff meeting: Begin by conducting a comprehensive kickoff meeting to align everyone on the objectives, timelines, and roles of headcount planning. This meeting should be led by the finance leader and the people/talent leader. It sets the tone for future collaboration and ensures that all team members are on the same page.
  • Regular progress check-ins: Schedule regular progress meetings, such as biweekly or monthly, to discuss updates, review progress against goals, and address any challenges. These meetings help keep the team aligned and focused on the headcount planning objectives. It is usually best to have a mix of asynchronous and live updates.
  • Executive check-Ins: Schedule quarterly or biannual check-ins with executive management, who are responsible for finalizing the headcount plan and making any changes as needed throughout the year. These meetings are crucial for keeping leadership updated on progress, receiving feedback, and aligning the headcount strategy with the broader organizational goals. Again, a mix of asynchronous and live updates is the best approach.
  • Ad-hoc problem-solving meetings: Be ready to hold ad-hoc meetings with functional leaders and the recruiting team to address specific challenges or changes in organizational priorities. These meetings promote agility, responsiveness, and action in your hiring plan. 
  • Review and strategy sessions: Hold a comprehensive review session at least once a year to evaluate the effectiveness of the headcount strategy in relation to the organization's performance and goals. This is an opportunity to refine strategies and make adjustments for the upcoming year.
  • Dedicated communication channels and feedback loops: Create dedicated communication channels, such as a shared online platform or regular email updates, to keep team members informed and engaged between meetings.
  • Documentation and reporting: It is important to ensure that all decisions, strategies, and changes are well-documented and accessible to all team members in the primary ledger. Regularly reporting on key metrics and progress helps maintain transparency and accountability.

By establishing these structures and practices, you can ensure that your headcount planning team remains cohesive, focused, and effective in achieving the organization's staffing and financial objectives.

‎What your headcount plan should look like

So what’s the end product of this process? It’s a headcount plan or primary ledger that can be as simple as a spreadsheet, or a more robust output from dedicated planning software. For example, you can use SignalFire's Headcount Plan Template here. Just go to File → Make a Copy, and get started.

For most early-stage companies, Google Sheets, Excel, or Airtable should be sufficient. This spreadsheet displays all the relevant roles, time-to-hire dates, role priority ranking, and compensation information. Throughout the year, this plan is referred to by the talent team, finance team, department leads, and executive leadership as a mechanism to manage agreements and track progress. It serves as a living document that all parties can refer to.

A preview of SignalFire's Headcount Plan Template

However, as companies grow, managing access to different parts of the plan can become messy. Not every stakeholder should have access to all the information. For example, a hiring manager may not have access to other teams' compensation information. This is why several companies have developed productized solutions like TeamOhana, Anaplan, and ChartHop with more access control.

With this document in hand, you can confidently hire knowing you’re perfectly in sync with where your business is today and for quarters to come.

Gone are the days of blitz hiring. By adopting an informed approach to headcount planning, utilizing appropriate techniques, and fostering collaborative stakeholder partnerships, startups can position themselves to not only survive but also thrive in this competitive startup landscape.

*Portfolio company founders listed above have not received any compensation for this feedback and did not invest in a SignalFire fund. Please refer to our disclosures page for additional disclosures.

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