They have the latest headlines It has been overshadowed by massive headcount reduction announcements by the tech industry and particularly by the likes of Meta, Amazon and Twitter. But it’s not just the big names that are pulling back on headcount – private SaaS companies are similarly taking semi-annual cuts and headcount cuts.
That’s not surprising, as VCs began pushing for greater focus on capital efficiency and the “Rule of 40” earlier this summer, saying that the “grow at all costs” mentality was out of whack and the goal was to extend it. Runway to withstand the storm.
To get a better understanding of headcount fluctuations in the private market, we programmatically tracked the headcount of 150 private Series A to Series C B2B Enterprise SaaS startups across industries over a 24-month period.
Here are the main points of our study:
Companies are reducing headcount growth to extend the runway.
Over the past four months, monthly headcount has increased by an average of about 2%, compared to the 10% we’ve seen in the past. Additionally, the 25th percentile of startups showed a decline in headcount, indicating that many companies are taking drastic measures to extend their startups.
For companies with strong balance sheets, strong supporters and low burnout/product-market fit, now is the time to make a critical hire.
This is a bearish indicator as beginners favor more macro headwinds and retracement events.
Another round of cuts is likely early next year.
If the macro environment does not improve, we expect another wave of jobs after companies’ fourth quarter board meetings (usually in January or February).
Many companies discuss their CY’23 forecasts, and headcount is always a controller for extending the runway as it can cover up to 80% of startup costs. As many companies maintain their headcount, we see them having to cut people to reduce burnout.
Strict recruitment begins in early May 2022.
In May 2022, private firms began tapping the brakes and many firms began to consolidate, as evidenced by the tight headcount interquartile range, which compressed sharply but is now stable.
Staffing companies and procurement saw the biggest declines.
While these services are shrinking across the industry, companies that provide technology aimed at HR and procurement professionals have experienced the greatest decline in headcount growth. However, all tracked customer profiles tend to reduce recruitment efforts.
There is a lot of talent available.
On a positive note, this is a great time for companies with product market savvy (and supportive investors) to hire the right talent, as big tech is reducing headcount and the market is flooded with exceptional talent.
From horrible head growth to flat holding
As of April, most companies were hiring strongly, with headcount increasing more than 10% month-on-month, and the 75th percentile at about 20%.
In contrast, the current median is +1% and the 75th percentile is +4%.
This downward trend started in May and continues today. The median quartile range continues to compress, with the median eventually flattening out to a flat head count (ie, replacing natural behavior but not employing more). The 25th percentile fell into bearish territory around August, but both the 10th percentile and 25th percentile have since pulled back.
Image Credits: Eddie Ackerman
Now we have set the stage:
