Picture this: It's mid-December, and Sarah, the newly hired Head of People at a Series B SaaS startup, walks into her first annual planning meeting.
The CFO opens his laptop and projects a spreadsheet onto the conference room screen. "Based on our current burn rate and the headcount we added last quarter, we can afford approximately 12 more hires next year."
The VP of Engineering immediately jumps in: "I need at least 8 of those for my team. We're already underwater on the product roadmap."
The VP of Sales counters: "I need 6 SDRs and 3 AEs just to hit our pipeline targets."
The CEO looks exhausted. "Let's just split the difference and revisit this next quarter."
Sarah sits there thinking: Wait. Nobody has mentioned what we're actually trying to achieve.
3 months later, the company misses its revenue target by 40%. 6 months after that, they're doing layoffs because they hired for the wrong positions.
This is what happens when you start annual planning with the wrong question.
The Question That Changes Everything
Most startup annual planning processes get the order wrong.
They start with: "How many people can we afford to hire?"
Instead of: "What do we need to achieve, and what does that require?"
When you start with "how many people can we afford," you're operating from scarcity and incrementalism. You take your current org chart, add a few roles where teams are stretched thin, and call it a plan.
But your current org chart reflects the company you were building six months ago—not the company you need to become in the next twelve months.
How to Build Headcount Plans That Actually Work
Here's the approach I use with clients that consistently produces better outcomes.
Step 1: Start with absolute clarity on what success looks like
Before you touch your headcount planning spreadsheet, answer these questions:
What is your revenue or growth target for next year? Not a range—a specific number your leadership team agrees represents success.
What commercial goals need to happen to hit that target? Are you entering a new market? Launching a product line? Monetizing features that are currently free?
For VC-backed companies: What needs to be true to raise your next round given the current or expected fundraising environment? How long do you have before you need to raise based on your cash runway?
At a startup, you're building three products simultaneously.
- A customer-facing product (the thing you sell)
- An investment vehicle (the story and metrics that attract capital)
- A workplace for employees (the environment that attracts and retains talent)
Your annual plan needs to account for all three.
Step 1: Start With Absolute Clarity on What Success Looks Like
Step 2: Build your headcount two ways—top down AND bottom up
You need both perspectives to create a headcount plan that's simultaneously strategic and operationally realistic.
Top Down: Build a Zero-Based Org Chart With Strategic Constraints
Let's say your revenue target is $20M next year, and you want to maintain approximately $200K ARR per full-time employee. That gives you a maximum of 100 people.
Start with a completely blank org chart. Don't pull up your current structure—build from scratch based purely on what you need to achieve your goals.
Your leadership team sets the parameters first. For example:
- Engineering gets 40% of total headcount
- Sales & Marketing gets 35% of total headcount
- The remaining 25% is distributed across other functions
Where do these ratios come from? Start with industry benchmarks for companies at your stage and business model—then adjust for your specific context.
A B2B enterprise SaaS company struggling with customer retention needs different ratios than a PLG company hungry for more inbound leads.
I call this approach "industry-informed, context-driven."
Within these constraints, map out your ideal org chart. What roles do you need? What does the reporting structure look like? Who needs to be hired in Q1 versus Q4?
Bottom-Up: Ask Each Team to Build Their Plan to Meet Their Goals
Have your VP of Sales calculate exactly how many SDRs and AEs they need to hit pipeline targets—based on realistic quota attainment rates.
Have your VP of Engineering estimate the team size required to ship the product roadmap on time—accounting for tech debt and infrastructure work.
They're working within the top-down parameters you set, but adding operational detail that only people close to the work can provide.
Aggregate these departmental plans and map them onto an org chart.
Step 3: The magic happens when you reconcile both org charts
Step 3: The Magic Happens When You Reconcile Both Org Charts
Put your top-down zero-based org chart next to your bottom-up aggregated org chart. Where do they differ?
Now compare both of these future-state org charts against your current org chart.
This three-way comparison forces the strategic conversations that most leadership teams need to have.
This is where you determine exactly where you need to:
✓ Hire new talent for gaps in your ideal future org chart
✓ Upskill existing team members to grow into new roles (developing internal talent is almost always faster and cheaper than external hiring)
✓ Make difficult exits where current roles don't exist in either future view
✓ Adjust timelines or scope based on resource reality
These conversations are uncomfortable, but necessary. If your annual planning process doesn't require difficult tradeoffs, you're probably not being honest about priorities.
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Step 2: Build Your Headcount Two Ways—Top-Down AND Bottom-Up
Step 2: Build Your Headcount Two Ways—Top-Down AND Bottom-Up
The Three Common Mistakes to Avoid
Mistake #1: Starting With Your Current Org Chart and Adding Incrementally
Mistake #1: You start with your current org chart and add headcount
This locks you into past decisions and prevents strategic shifts. The zero-based approach forces you to justify every single role from scratch.
Mistake #2: Leadership Does Top-Down Planning Without Ground-Level Input
Mistake #2: Leadership Does Top-Down Planning Without Ground-Level Input
Mistake #2: Leadership Does Top-Down Planning Without Ground-Level Input
Mistake #2: Leadership Does Top-Down Planning Without Ground-Level Input
Mistake #2: Leadership Does Top-Down Planning Without Ground-Level Input
Mistake #2: Your leadership does top-down planning without ground-level input
Your CEO and CFO don't have the detailed operational knowledge to build realistic plans alone. Your Director of Marketing knows pipeline conversion rates. Your engineering leads know which parts of your infrastructure need reinforcement. Involve them early.
Mistake #3: You do bottom-up planning without any constraints.
If you only collect departmental wish lists, you'll end up with requests for 47 people when you can afford 12. You need top-down strategic constraints to force real prioritization.
Mistake #3: Only Doing Bottom-Up Planning
📌 The Four-T Playbook: Tip, Trick, Tactic, or Template
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👉 Tip: Ask department heads to submit ranked-choice headcount plans instead of single wish lists.
Have them prioritize their requested roles from most to least critical, with clear justification for why each role matters. This forces leaders to think strategically about trade-offs before budget conversations begin.
Even better—encourage your ground-level leaders to identify non-headcount methods to accomplish business goals. The best solutions often come from process improvements, automation, or reorganizing how work gets done rather than simply adding more people.
Final thoughts:
The best annual plans aren't spreadsheet exercises. They're strategic documents that connect your growth ambitions to the people and resources needed to achieve them.
I'd love to hear: What's your biggest challenge with annual planning right now? Hit reply and let's talk.
Until next time,
Melissa
