Building Engineering and Product Teams
How much of the R&D budget should be allocated to people?
- R&D typically comprises the largest portion of spend as companies scale to $25M. That plateaus to ~20-30% of revenue as companies reach critical scale
- Personnel costs comprise the largest portion (usually ~70-80% of total spend)
- For CTOs, setting up a strong organizational structure and operating model is a critical point of leverage
Engineering makes up ~80-90% of the total R&D headcount.
The remaining (~10-20%) goes to product.
How should CTOs negotiate engineering resources in a budget-constrained environment?
It's a tough problem, engineering can feel like a mysterious black box to the CEO/CFO. As the CTO, fostering discussions about engineering priorities and how that maps back to the broader goals of the organization is essential for building empathy and understanding of your resourcing needs. CTOs need to be the owner of engineering budget and understand how that maps back to business value, manage dependencies, and communicate how revenue maps back to resource allocation.
How should the make-up of product and engineering organizations evolve as organizations scale?
- Within the R&D organization, engineering makes up ~80-90% of the total R&D headcount. Product typically comprises ~10-20% (regardless of scale)
- Software engineers make up ~40% of R&D headcount
- As companies scale past $25M in revenue, they tend to invest more heavily in full-time employees (FTEs) dedicated to infrastructure
R&D usually represent the largest portion of spend as companies scale to $25M. Once they attain critical scale, these expenses level off to around ~20-30% of revenue
While the optimal time to hire the first dedicated FTE for key R&D roles will depend on business needs, hiring trends tend to converge around different inflection points of growth.
- Software Engineers make up ~40% of R&D headcount, regardless of scale, with the make-up of other IC roles staying relatively consistent as companies scale
- As companies scale past $25M in revenue, they tend to invest more heavily in FTEs dedicated to infrastructure; In addition, Leadership roles make up ~20% of the R&D organization, regardless of scale
- Although team composition and headcount ratios vary based on a company's strategic and operational objectives, our survey data offers a benchmark for what constitutes a healthy range for R&D ratios.
Our hiring philosophy is quite contrarian. We hire everyone as a “Member of the Technical Staff” with no specified level and title. We have a Technical Committee that observes them during the first 6-10 months, assesses their level of contributions and skills, and decides on their title based on that assessment. This has been perceived as very fair by employees, and as a result we see an attrition rate of that is lower than the industry average.
Spotlight: Building a Customer-Centric Engineering Culture
- At my previous company Nutanix and now at DevRev, we want to ensure that our developers interact with customers on a regular basis. As such, we have them visit customer sites with our sales team and sit in with customer support during calls, or occasionally, even to look at and respond to customer support tickets
- This approach allows our engineers to truly empathize with our customers. As a result of our customer-centric culture., we have achieved a 90+ Net Promoter Score (NPS)
- In addition, because the engineers are in such close contact with customer problems, they end up knowing the impact of their work and feeling motivated by that as opposed to feeling detached from the core problems they have to build for
- We want engineers to always ask themselves: “Is what I’m working on good for our customers?” If the answer is not “Yes”, that means that they are not prioritizing their work correctly
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