This is the first in a series of articles that looks at individual data points from The Unicorn Trajectory, in more detail.
The Unicorn Trajectory is a data project that compares the leadership hiring patterns of B2B software Unicorns, and B2B software companies (the ‘Control Group’) that raised the same amount of VC money ($3m-$15m) at the same time as Unicorns, but have never been valued at more than $100m. The dataset includes 50 Unicorns and 50 Control Group companies, and from within those companies it includes 1,442 people with VP/EVP/SVP or C-Level titles in Unicorns, and 514 people with VP/EVP/SVP or C-Level titles in Control Group companies.
The full report can be downloaded using the link on the left on desktop or at the bottom on mobile.
Businesses that become Unicorns hire leaders at 7x the rate of businesses that don’t become Unicorns, during the first 5 years after raising between $3m and $15m.
As you can see in the graph below, at the 5 year mark, Unicorns have almost 20 people in their leadership teams, whereas Control Group companies have just over 5 on average.
And when we look at how these numbers play out in terms of years of prior experience in the leadership teams, the difference looks even bigger.
Why is this important? Largely because having at least one leader in charge of one function each (or as a minimum, two functions per leader) allows you to move so much more quickly than if you have people across multiple areas. When you have one person per function, you can ensure that they are world class at that one thing.
“Every company has two or three or four, hopefully no more than five really core things that you have to conquer and solve to be successful... And so you want to decompose each of them and put a name against each of those five things, and that person [whose name you put against each thing] - you better have conviction is about as good in the world as you can get to solve that specific problem. And if you don’t have a name or you don’t have conviction around that person, you better go find one.” - Keith Rabois, General Partner at Founders Fund
That said, it’s worth pointing out here that growing a leadership team from five people to 20 people in a five year period is exceptionally difficult, for a few reasons...
Hiring VP and C-Level leaders is hugely time consuming, and it’s virtually impossible for Founders to delegate it. It involves multiple meetings with executive search firms, candidates and board members, and it ends up taking somewhere between 3 to 12 months, per hire. With that knowledge in hand, we can assume that Unicorns went out to market to start hiring leaders as soon as they closed their $3m-$15m (or possibly even before that). These were Founders who did not delay in adding to their leadership teams as soon as they possibly had the means to, but they were also most likely Founders who realised that finding the right people for leadership positions is a very difficult thing to do, and takes a lot of time to get right.
Sameer Dholakia, CEO at SendGrid, believes that taking time over leadership hires is not only necessary, but also a requirement for success: “This is not [something] I’m going to go fast on. I believe getting these hires right will be the determiner of success or failure for our long-term. So I said, “I’m going to do one per quarter for the next two years.”
Because to actually do that kind of a search well for one of your executive leaders, who you expect to then come in and help transform that function, to go find the best in the market, not just in caliber and talent but in culture fit with your team, boy, that takes a lot of time. You’ve got to kiss a lot of frogs. If you get that wrong, I tell you, you pay the price. When you get those wrong you lose years of your company’s life.”
Getting to almost 20 people in the leadership teams after five years, as we see in the Unicorn data, requires hiring 5 new VP and C-Level employees every year during that time when staff churn is factored in. So, if you’re in the early stages of your career as a Founder, locating an executive search firm that you enjoy working with will make the whole thing a lot more fun because you’ll be spending a lot of time with them.
The Control Group companies raised - on average - the same amount of cash as the Unicorns, from similar investors. In other words, they weren’t slow in hiring leaders because they couldn’t afford to, or because they couldn’t leverage investor brands to make big hires.
If you’re a Founder of an early stage business, don’t be hesitant in getting in touch with your investor to ask for advice about how to hire people, what compensation to offer them, and how you should get the most out of them. Investors may not always have the answers to these questions, but they usually know someone who does.
"Founders should lean on their VCs to support them on the toughest and most important challenges, and few challenges are more important than hiring a game changing executive. Your VC may not know the best person right away, but the good investors are incredibly well connected and endlessly resourceful! Use them remorselessly to get what you need. They can also play a very important role in helping you reference and then close candidates. - Stephen Millard, Chief Platform Officer and Partner at Notion Capital.
Getting comfortable with the cost
These hires cost around $300k each. That’s serious money to be putting down, even after you’ve raised $3-15m in one go, and each time you do it you’re reducing your runway by some magnitude. Based on this data, and from watching leadership teams grow in the Notion portfolio, it’s absolutely the right thing to do… but it requires nerves of steel, and time to adjust to being able to do it. The Founders in the Unicorn dataset often went straight from bootstrapping to having a minimum of $3m in the bank; they went from bargaining with office landlords and hiring interns to save cash, to deploying $300k on one hire. That’s a massive mental gear shift to make in a really short space of time, and it is not easy to do, at all.
“Spending that amount of money on one hire is something you absolutely need to do, but you can’t ignore that it cuts a chunk out of your runway. I tend to think of it like how a kid plays with a paper plane - when you drop a paper plane out of a window it has to pick up a lot of speed before it takes off and gains height. Committing £150k+ to one hire is similar - you’re pointing yourself at the ground so you can gain speed. It feels absolutely terrifying, but it’s necessary” - Chris Tottman, General Partner at Notion