What Scale Does a Startup Need to be Independent of the Founder

Two weeks ago a couple of entrepreneurs were in my office asking for advice on their startup. Their revenue has really accelerated in the past six months and they’re debating between investing more in the business or putting money aside for a rainy day fund. After asking how many employees they had (less than 10) I asked if the business was dependent on them. Yes, unequivocally.

I sensed that growing the team to the point that it wasn’t dependent on them was a near-term desire. Of course, you could do a budget and come up with that number. From my experience with software/software-as-a-service startups, the business would be spending about $1.5MM on salaries, benefits, and infrastructure (e.g. office space) to be large enough to not be dependent on the founders. Here are some items to think about with respect to size of business:

  • Gross margins will influence whether spending $1.5MM on team member occurs at $2MM of revenue or $10MM of revenue
  • Founders are often decent at multiple things and really good at one thing — that one thing is often the last type of talent brought on the team, and typically expensive because the founder has high standards for the role
  • Redundancy or scale is needed for positions that are critical to operation of the business (e.g. number of software engineers, support people, etc) so that the founders and team members can take vacation without worrying if the business will continue to operate
  • One strategy for a founder is to take a two week vacation, forcing the issue of what is, and isn’t, dependent on them (banks like to make every employee take one two week vacation per year to see if any fraud is taking place with that person)
  • Depending on the size of the startup, some investment in people will have to take place in advance of growth to be self sufficient from the founder

Reaching a size and depth of business to be founder independent is a huge milestone. I’ve found that ensuring the business isn’t dependent on the founder (e.g. through a long vacation) provides great peace of mind and sense of progress — it should be a goal on every entrepreneur’s list.

What else? What are your thoughts on the necessary size of a startup to be independent of its founder?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.