“Our team of 12 just reached $10K ARR.” This is a huge red flag. Here’s why…

Before you hit product-market fit, your company should be just the founders. That’s typically 2 to 4 people, all of whom own at least 10% of the company.

You want this team to be at least half technical — ideally 100% technical.

Why Are Companies Overstaffed?

Startups often overstaff because the founders don’t have the necessary skills.

They don’t know how to build product. They’re not comfortable doing sales.

So they hire out for these jobs.

This is the wrong way to build a company. You need a founding team with all the necessary skills to reach product-market fit.

If your team doesn’t have those skills, you need to develop them, Or, you need to change who’s on the team.

Too Many Mouths to Feed

Say you have 12 employees. If you pay them $10,000 a month in total compensation, you’re looking at a wage bill of over $1.4 million a year.

This is a ton of money for an early stage startup.

Even if you hire in the developing world, you’re probably still paying a minimum of $3,000 a month. That’s an annual wage bill of over $400,000.

Don’t take on liabilities like that unless you have to. The higher your burn, the more likely your company goes bust.

Paying People to Scroll TikTok

In an early-stage startup, there just isn’t enough work for a big group.

When you only have a couple users, what will half a dozen engineers do? Why would you need a customer success department when you barely have any customers?

You will be paying people to scroll TikTok.

Don’t Build a Bureaucracy

Big groups of people don’t just cost you money. They cost you time.

It’s harder to coordinate 12 employees than 4 founders.

Every decision will take more discussion. This is time you don’t have.

The only way a tiny company like yours beats the big guys is by moving faster. The more people you have, the slower you move.

A Tale of Two Startups: Chubbycorp and Leancorp

Let’s compare two fictional startups: Chubbycorp and Leancorp.

Chubbycorp has 3 founders, but they’re all “idea guys.”

They don’t know how to build product. They don’t like doing sales.

So they hire 6 engineers and 6 sales guys. Now they have a seven-figure annual wage bill.

Meetings multiply. The company moves more and more slowly.

And they keep losing sales to this annoying startup: Leancorp.

Leancorp has just 4 people, all founders. They’re all deeply technical.

Content with their equity, they’re taking minimal salaries. The company’s burn is close to zero.

Leancorp has almost no meetings. They just ship product and sign customers.

Who do you think is going to win?

Wrap-Up

Be Leancorp.

Build a team of strong technical founders. Move fast. Avoid hiring until product-market fit.

You’ll leave Chubbycorp in the dust. They’ll be running out of money, wondering what happened.

And with any luck, you’ll be sending a big distribution to your first investor, Francis. 😉

More from the blog:

In the AI Era, Technical Founders Are Running the Table

You Finally Closed Your Funding Round — Time to Panic?

The Best Founders Take Time to Rest

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