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"In the past year, Square has grown from approximately 150 employees to more than 400, says the company, and has plans to employ nearly 1,000 people by the end of next year." -TechCrunch

What is it with the massive pre-profitability hiring binges? Twitter did it, Zynga did it, GroupOn did it, now Square.

By any accounting, 1000 full-time employees is $200,000,000 in ongoing annual cost. Doesn't sound frugal to me. What am I missing?

(Note, Google grew explosively, too, but waited until after the IPO and well after it could do so profitability.)
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DeWitt Clinton's profile photoJohn A. Tamplin's profile photoMichael Galpin's profile photoJesse Wilson's profile photo
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Mind you, I have a lot of respect for Square. Just not sure how multiplying their staff by 6x will improve their product or their profit margins.
 
Well, I think it really depends on the business you're in. Somebody like Square could plausibly argue that hiring heavily in sales would have a big impact on the bottom line. Somebody who's job is monetizing attention? Probably wants a different strategy. 
 
+Brandon Downey That, and I may have spoken too fast about them being pre-profitability if reports of their turning $2B $8B in sales are to be believed.
 
Twitter seems to be a viable business -- but maybe not an X billion dollars a year in revenue one.
 
+Gregor J. Rothfuss Square has more incumbents that will be interested in serving the same customer base, i.e. the credit card companies themselves. Plus, there's always the mobile phone ecosystem who can offer something with even lower friction, from Google to Apple to Microsoft to the carriers. Granted, that broad range of interests has led to the very infighting and confusion that has allowed Square to get such a head start, so we'll see. Regardless, I see shrinking margins.
 
maybe it's only the places i go to in nyc, but i see a lot of square and very little of those alleged other payment solutions. square is the only one making inroads with a culture of famously cash only small businesses.
 
You didn't mention Starbucks, which is a huge deal both for the transaction volume and for solving the chicken-and-the-egg problem for Square Wallet by giving tons of places to use it.

Personally I was more interested in Square opening an ATL office :).
 
I am :).

If you mean Square, well, I am not the one to answer such questions...
 
BTW, +John A. Tamplin, don't take what I'm saying personally at all! I'm notoriously bearish about long-term viability for almost all highly visible (or heavily hyped) tech companies of this era. Square is one of the rare exceptions that actually has transactional revenue, which puts it in the rare position of perhaps actually living up to the hype.
Piaw Na
 
It's a characteristic of San Francisco startups. Fundamentally, they're not run by engineers in the way that Silicon Valley startups are. Because of that, they think the solution to their problem is to throw more warm bodies at the problem, instead of hiring smarter. A look at Twitter's engineering scaling problems will tell you that the strategy does not work, but twitter's founders got rewarded richly for it, so...
 
Those jobs don't exist. It's valuation leverage :)
 
+Chris Houtzer Then I wonder who is putting money into my bank account?  In the few months since Google decided they no longer wanted engineers in ATL and Square opened an office here to hire a number of us, we have grown by about 20%.

+Piaw Na The hiring bar at Square is no lower than at Google, so it is far from just throwing warm bodies at the problem.
 
Overnight I tried to think about where the dissonance in this thread is coming from. It's not from John certainly, nor from Square's business model per se. But I do think there has been a long-simmering, and still growing, discontentment regarding the valuations of many newer tech companies, and how disconnected they appear from fundamentals. This was all brought to a head with the IPOs of ZNG, FB, and GRPN, which have lost public market investors $80 billion among them. That the pre-IPO inflation was so deliberate and intentionally stimulated by early investors and management lends an inherent skepticism now whenever any company closely affiliated with that world does something that seems far out of line with rational expectations (e.g. leases massive amounts of some of the world's most expensive real estate to house 6x employee growth in a year). So the Dropboxes, AirBnbs, Squares, Spotifies, etc., are all painted with the same brush, whether or not they deserve it. (And again, Square as a business quite possibly is different, and they certainly have hired world-class talent.)

Mostly, people are just afraid of a bubble. Or rather, what happens if and when the bubble pops.
 
If you are referring to Square with the 6x growth in a year, it is actually 2.5x - note the 150->400 growth was the past year, and the 400->1000 is planned for the next year.

If you think the price of something is too high, don't buy it (I certainly didn't buy any FaceBook stock).  Since Square isn't publicly traded, you don't have to worry about it at the moment.

Regarding the general case of valuations and the emphasis on growth vs profits, I was at a company that was in process of an IPO just before the dot-com crash in 2000 (we missed it by a month or two).  In the process of shopping for the investment banker to handle it, we received a rejection letter from Goldman Sachs.  The CFO framed it and kept it so this is paraphrased from memory, but basically it said our management was incompetent because the company was making a profit.  I get the underlying point, that since we were growing we should be investing more of the profit into growth, but I thought that epitomized the dot-com crash:  a company making good money and growing only as it could grow its revenues was ridiculed for not growing so fast that the only way it could survive was a massive infusion of cash from an IPO.

I don't think we are any where near such a bubble again, but clearly FB's stock price was predicated on massive growth and then it dropped when it became clear that level of growth wasn't going to happen.
 
I don't know nothin' 'bout no Squares, but getting back to the original question... In my experience at high valuation startups, one of the caveats of receiving a large amount of VC money is an aggressive plan for expansion. In particular for a Silicon Valley startup, there must be big plans for hiring engineers because of the scarcity of engineers. VCs even do interesting math around hiring engineers. If VCs give you $X million today and six months from today all you've done with it is hire engineers, that may be enough to increase the VC calculates value of your company. If you haven't spent much of that new money, but haven't hired a lot of engineers, then the VC calculus could go against you, even if you have had positive growth in other business related metrics. This is also why "acqui-hires" are evaluated positively, they turn VC capital into engineers.

My insider sources confirm this was also true at Twitter and Zynga :) I don't know about Groupon. It's also not been the case for the most part at Facebook, which has a culture of placing a very high value on small teams over big teams. Facebook is also quite good at ignoring demands of investors, as the whole world has had to learn the hard way since their IPO.
 
First mover advantage is pretty important here too.
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