The 5 Superpowers of the Fastest-Growing Companies, With Talent Expert Daneal Charney
What a new analysis of 86 venture-financed companies tells us about the people benchmarks setting the groundwork for hyper-growth
Everyone wants to understand the secret sauce of a fast-growing startup. And as a prospective investor, it can be especially tempting to boil decision-making down to a few key financial metrics, but it is rarely so simple.
When looking for the next unicorn, a comprehensive evaluation of the founders, the team, and the people engine isn’t just important — it’s mission critical. On the flip side, it’s good practice for founders to compare their people metrics to industry benchmarks in order to identify opportunities for growth and set better goals.
To explore these people benchmarks more deeply, we had the opportunity to sit down and chat with the wonderful Daneal Charney, talent expert and Executive in Residence at MaRS Discovery District, about the findings of the report she co-authored, “2021 People Benchmark Report: High-Growth SaaS Companies.” It can be accessed using the password benchmark.
The report looked at 86 companies, mostly at the Series A Stage, with $5M to $20M in revenue, broken down into cohorts based on % of YoY growth (>50%, 50–100%, 100–150%, 150%+).
“The reason we focused on companies by growth is because there did seem to be a correlation between high-growth companies and a number of other metrics. Of these, there appeared to be 5 key superpowers that stood out for the 150%+ growth cohort when compared to the slower-growing companies.”
Although the official report contains 11 key insights (and is worth a read in full), we highlighted the 5 superpowers of hyper-growth companies identified by Daneal, and finished our conversation off with 6 key action items that can be applied immediately to a growing company’s people and talent strategy.
So, what sets these fast-growing companies apart from the rest? Let’s dive in.
1) They’re 100% Founder Led
Sometimes a founder wants to take a step back, or simply decides that the company requires different leadership as it enters a new stage of growth. Whatever the reason, it is not uncommon to see new companies no longer being led by the founder.
The first insight that Daneal noted about the companies in the 150% cohort was that 100% of them were still being led by their founders.
“It does make sense, employees are attracted by founder-led companies, and founders tend to have the passion and the purpose that gets people excited.”
According to Daneal, the average cost of turnover per company per year was found to be $5M, or 1.5x salary/employee. This can be an extremely expensive and compounding cost for a growing company.
Daneal believes the passion of a founder may keep employees motivated and excited for longer, which helps improve employee retention, reduces the cost of turnover, and supports stronger, more efficient growth.
2) They Outperform on Gender Diversity
One of the most interesting findings of Daneal’s research, (we’ll admit, we are a little biased), was that the highest-growth cohort was the closest to achieving gender parity. It’s hard to say whether this was because better cultures attract more diverse teams, or because more diverse teams are conducive to higher rates of growth — although there is research that supports both hypotheses.
Daneal believes that the high rates of growth may be possible because diversity is present in the DNA of these young companies, who build diversity from the start instead of trying to retrofit later.
A report by Openview partners reaffirmed that diverse teams tend to be both faster-growing, but also have less capital invested.
But of course, diversity does not equal inclusion, and companies will need to build strategies that address both to retain top women talent. As Daneal explains, just one or two women isn’t enough.
“All of these things work in combination. You definitely see that companies that have more gender diversity are better at attracting talent that are female, are better at keeping that talent, and are more likely to both hire, promote, and have women on boards. But it also can’t be just one or two women for them to have both the numbers as well as an inclusive workplace.”
3) They Build Leadership Teams Earlier
The next superpower that Daneal noted for the fastest-growing companies is that they hired onto their leadership teams earlier than the other companies.
These findings paralleled those from a report by Notion.vc; ‘The Unicorn Trajectory.’ This report included 50 B2B startups that eventually became unicorns, along with a “control group” of 50 B2B startups that did not become unicorns. Startups in both groups were followed over the first 5 years after their first VC raise of between $3M and $15M.
During the first 2 years after raising the initial rounds, the unicorns in Notion’s data hired 6x as many leaders onto their teams as the control group.
When churn was factored into the picture, the difference became even greater between the two groups. Unicorns hired 26 leaders in the first 5 years, whereas the control group hired just 8.
These differences start to become obvious as soon as Year 1 — where unicorns hire 2–3 leaders, and the control group hires just one.
4) They Invest More in Sales & Marketing
In Daneal’s sample of product-driven businesses, both the 50% and the 150% invested most heavily in engineering, with all 4 cohorts investing in engineering more than any other function. The average engineering team percentage across all samples was 37%, with the <50% cohort shooting slightly above this and the 150%+ landing almost exactly on this number.
The next most-invested in category for the highest-growth categories was Sales, with the highest-growth cohort investing 5% more in Sales than the group average (and more than any other cohort) at just above 21%.
The companies invested similarly across the board in marketing — but another differentiator was that the 150%+ cohort invested less than any other group in the customer category, the least in the corporate category, and the second-least in the “other” category, indicating their hyper-growth may in part be attributable to lean core functions.
5) They Utilize Data-Driven Talent Strategies
The final superpower that Daneal noted about the fastest-growing cohort was that they were more likely to be employing a data-driven strategy when it came to people and talent.
The fastest-growing companies were more likely to:
- Collect data
- Focus on the data (since they collect it)
- Achieve better metrics for eNPS (Employee Net Promoter Score)
This makes intuitive sense — you can’t change what you don’t track!
In 2020 the average salary for tech in the US was $177k, the average salary globally for tech was $158k, and the average salary for Canada tech trailed at just $109k.
With the dawn of remote work and the entrance of large players into the Canadian market (Amazon, Netflix, etc.), Canadian startups will need to be strategic about people in order to stand a chance at competing in the talent market.
Daneal offers a few actionable items that can help Canadian startups win this war and achieve the high-growth seen in her 150%+ cohort:
1) Pay in the 75th percentile for premium roles, using larger technology companies as a comparator set.
2) Open new positions to remote locations in Canada or in talent-dense locations (within 3 hour time zones). Current offices should become collaborator hubs and workspaces for those who need it (ex. Clio).
3) Guarantee movement after 2 years in specific roles when milestones are met.
4) Build an employer value proposition that attracts new hires.
5) Develop retention plans for top talent.
6) Build excitement around growth goals with annual ESOP grants sized at 1-year targets that vest entirely in one year (ex. Coinbase).
We thank Daneal for the informative and proprietary research, as well as for taking the time to talk with StandUp. We expect there is great potential for this report to be used tactically when developing talent strategies that promote high-performance and growth.