Headcount: The worthless vanity metric of scale?

In the ambiguous world of business metrics, fixating on headcount as the ultimate measure of growth is akin to chasing a mirage in the desert. The mere swell in numbers doesn’t guarantee the treasure trove of success. Business leaders need to align their workforce with their goals, emphasising quality over quantity.

The impact of AI, the potential disconnect among remote employees and declining job satisfaction, challenge the traditional notions of workforce management. What is the ideal number of hires prior to your Series A? In the seed stage, how many employees are typically hired? What is the pivotal number of hires every quarter?

Vanity metrics

Beware of vanity metrics. Majid Bahi, CEO of Socially Powerful, acknowledges that it may be nice to massage your ego because you employ 100 people, but are they working at full capacity? Are they what the business needs quality-wise? And, are they hitting their goals?

These are important questions given that headcount is frequently cited as the key growth indicator.

“Headcount can be a quick snapshot of performance, but you also need to consider other metrics – not least as numbers of people can often be deceiving. What really matters is the brands you work with, the revenue coming in and the business’s profitability. Having more people in our labour-intensive world smashes the bottom line drastically,” adds Bahi.

According to Ahmad Al Khatib, Founder and CEO of Qudo, headcount is neither a vanity metric nor a measure of success.

“Headcount is a reactive factor in a business and not the other way around. At least, that’s how I view it. If you need more, you hire more, and if you hire well, then you’ll know whether you’re hiring more because you need it or because you’ve messed up,” he says.

The focus needs to change once business leaders start patting themselves on the back because their business has reached a certain headcount. Instead of getting caught up in the low-hanging fruit, do more numbers really equal more success?

Size matters

Without question, the size of a business is an indicator of company growth. Execs fight tooth and nail to attract and retain the best talent and be the most cutting-edge firm in their sector. However, businesses fail by placing too much focus on bums on seats. Effective headcount management techniques and resources can significantly impact businesses, especially in the current unstable labour market.

The best method to figure out how many people your business requires is to thoroughly evaluate the work that needs to be done and the abilities of the people who are currently employed. You can use this information to calculate the number of extra employees you’ll need and the particular talents they should have.

Go big or go home

The long-held differences between large and small companies are true to some extent, however, the myths that huge organisations have more growth potential or that start-ups are less bureaucratic may not hold true in practice.

Dan Laurence, Founding Director at creative agency Unite and Create, acknowledges that more staff is not always better and can often hinder results and business growth.

“Working in the creative industry for many years, I’ve seen first-hand the limitations that traditional businesses which employ a large number of permanent team members can face. The quality, volume of work and speed it can be delivered is restricted by the size, capacity, skills and experience of the core team.

“We knew there had to be a better way, so founded our own creative agency Unite and Create three years ago which operates with a core team of seven and over 200 freelancers, so we can provide a bespoke team for every project no matter how big or small,” he adds.

Little by little

Small businesses are just as likely to be dysfunctional, as micromanagement may exist, hindering growth. However, Dr. Someit Sidhu, CEO of NASDAQ-listed biotech firm, Zura Bio is a big advocate for keeping the headcount low and only adding people to fill a real need in the business.

“Establishing a clear workload requirement and then finding the best people to do the exact job is, in my opinion, one of the most vital elements when trying to scale your business.

“There are those who believe in building the team first in anticipation of the workload and while you certainly need people in place to withstand a ramp-up, efficient forecasting and preparation at the top should allow you to do that at a cost-effective and efficient way,” he advises.

One thing is for certain, in the dynamic arena of modern business, adaptability is paramount. Thoughtful planning not only equips organisations to navigate changing market demands but also empowers them to swiftly align their workforce with evolving customer needs and industry trends, ensuring lasting competitiveness.

Bahj goes on to say that having more people also complicates communication and decision-making – requiring a solid team to manage everyone.

“Often, you see high headcounts go hand-in-hand with high staff turnover because people are not managed well, or the workplace is in chaos operationally. Retaining and developing talent should be the priority,” he warns.

Impact of AI

AI is pillared to create new jobs, though, in reality, it may slow future headcount growth while enhancing the productivity of a shrinking workforce. Big companies will learn to do more with less.

Big or small, employers who step outside the box will come out on top. Al Khatib places emphasis on agile teams and structures.

“With everything going on right now and AI making things easier to do by the day, I would rather be nimble and navigate changing waters quickly with a lower headcount, than have to navigate that with 1,000 extra employees that are now not necessary for the business to function,” he says.

The great gloom

According to new research from BambooHR, job satisfaction has suffered a steady decline since 2020 and has taken a sharp drop this year. Unreasonable workloads and lack of support from coworkers and bosses are common complaints. Furthermore, new Gallup research shows that remote employees, in particular, feel increasingly disconnected from their workplaces’ mission and purpose.

Big or small, a business is only as successful as its employees. In the ever-shifting landscape of scale-ups, the adage ‘bigger is better’ no longer holds true. The focus has shifted from the quantity of the workforce to the quality of their talents, the clarity of their purpose, and the robustness of their well-being. This innovative approach forms the bedrock of success and sustainability, painting a clear path towards a prosperous future.

“To set headcount as a target, I think you’ve already failed,” warns Al Khatib.