💡 Workforce analysis is an important component of due diligence for potential investors or acquirers, like PE / VC firms, both to understand trends & strategy over time and to compare with competitors. 💡 For example, comparing restaurant POS company SpotOn with its key competitors, we see modest personnel growth, a sales-focused workforce model, and an opportunity to optimize its seniority structure.
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Workforce analysis is an essential element of PE / VC due diligence prior to investment or acquisition. It can enable a comprehensive understanding of workforce capabilities across functions, seniority levels, and geographies, and can also highlight gaps or opportunities for optimization. Corporates or investors should regularly leverage this kind of analysis to monitor competitor or target changes. We have previously shared [the example of Athenahealth](https://www.getaura.ai/athenahealth-a-workforce-diligence-view), demonstrating how acquisitions have had a significant impact on strategic priorities and subsequently workforce makeup. In this case, we saw significant restructuring shifts, with a focus on product investment focus and trimming of internal operations across two different acquisitions. This analysis was enabled by Aura’s data, which tracks key workforce metrics across time points.
We have previously shared the example of Athenahealth, demonstrating how acquisitions have had a significant impact on strategic priorities and subsequently workforce makeup. In this case, we saw significant restructuring shifts, with a focus on product investment focus and trimming of internal operations across two different acquisitions. This analysis was enabled by Aura’s data, which tracks key workforce metrics across time points.
SpotOn: An investment example
Today, we look at SpotOn, a US-based software company founded in 2017, focusing on point-of-sale (POS) systems for restaurants and small businesses. As a relative challenger in this growing industry, key competitors include Block / Square and Toast.
SpotOn has secured multiple successful investment rounds in recent years, increasing its ability to acquire (e.g. Appetize in 2021) and scale revenues significantly. These include its September 2021 $300 million Series E round led by Andreessen Horowitz, with follow-on investment from previous investors including Dragoneer Investment Group, and its May 2022 $300 million Series F round led by Dragoneer, with continued participation from Andreessen Horowitz and others. Dragoneer in particular has been a longstanding supporter of SpotOn, with six separate investments into the firm.
In this article, we explore SpotOn’s workforce shifts since their Series E investment round, in comparison with their leading competitors.
How has SpotOn’s overall workforce changed over time? How has its competitors’ changed?
We analyzed publicly available data on current & past SpotOn, Toast, and Square employees – note that these figures may slightly underestimate the actual employee figures, as our outside-in sources rely on online profiles being up-to-date and therefore may not have complete coverage.
Across all three firms, we see workforce increases over this two-year period. SpotOn saw sizable growth between their Series E & Series F rounds, with 22% growth over these eight months, but has stabilized significantly more since then despite the significant funding injection. Square has similarly grown slowly over this period (+18%), in line with its status as an ‘incumbent’ in the POS space.
In contrast, Toast has seen a significant workforce increase of 70%, signaling investment across the board to match its growth ambition. As many restaurants and brick-and-mortar stores lost business during the COVID-19 pandemic, Toast had its share of struggles, having to cut its workforce by half in 2020. However, Toast has bounced back dramatically, with massive revenue growth ($101M in 2020 to $324M in 2022), and a successful IPO in 2021.
Functional analysis shows SpotOn’s ongoing sales focus, in contrast with Toast & Square
Breaking down these workforces by function enables us to compare strategic priorities across these companies, as well as to determine if investment rounds have triggered any significant shifts in these priorities manifesting in subsequent personnel shifts.
SpotOn’s functional distribution has seen only minimal changes over the period of analysis – its Engineering department has grown slightly (+~1ppt). Notably, however, the Sales team is relatively large, making up 55-60% of the workforce, varying significantly from its larger peers (Toast ~30%; Square 15-20%). This strategic focus on Sales makes sense for this kind of business; given its client base would comprise of many independent small businesses, they require large numbers of personnel managing these relationships and generating new leads, especially in the midst of heavy competition from peers. However, this may come at the cost of product development – SpotOn’s relatively lean Engineering & Product teams may hinder their growth potential in the longer-term as their competitors continue to innovate and improve their offerings.
On the other hand, Toast has a more balanced team, although relatively operationally-heavy (~15% of the workforce). Square has by far a much larger product focus, with larger Engineering & Product teams (~35% & ~10% of the workforce respectively). Given Square’s strategic push to target and retain larger customers, this can mean less individual relationships to manage and the opportunity to slim down on sales.
SpotOn’s relatively heavy middle management layer represents an opportunity for optimization
Analysis & reduction of management layers is a typical component of workforce optimization and restructuring, as it can often identify general opportunities across a company for personnel cost reduction and process complexity reduction between layers. In our spans & layers analysis, we break down the workforce into four main layers of seniority (junior staff, managers, directors/VPs, C-suite/top level management), and look at the number of ‘FTEs per manager’ between each layer to see which layers are overweight or underweight.
When comparing seniority layers, Square’s organization resembles a pyramidal structure, with slimmer top and middle management layers overseeing a large pool of junior staff (~60% of employees). This suggests a highly optimized approach to workforce planning and personnel costs, especially given that upper management compensation tends to significantly higher than for other layers. However, this does not come with excessive management spans at any given seniority interface, with an average of ~2.2 junior FTEs per lower level manager.
In contrast, SpotOn appears to have an overweight middle management level (~45% of employees) in comparison to lower management & upper management. This apparent mismatch can fuel a number of potential issues in a company, including:
Inefficiencies in communication and decision-making processes, as more bureaucratic layers lead to less clarity, slower approvals and ultimately lower productivity
High personnel costs driven by a large middle management layer
Lack of empowerment / autonomy / creativity for more junior employees
Therefore, this appears to be an opportunity for SpotOn to perform more detailed bottom-up analysis of its spans & layers, to understand if this is in fact an issue for the company, to explore if it disproportionately affects particular departments or sections of the company, and to identify instances where improvements could be made going forward as part of a wider restructuring plan.
This form of long-term trend analysis has its uses for diligence and retrospective examination of a company, in partnership with other metrics and qualitative inputs. In this case study, we see SpotOn’s workforce growth over the last two years, its focus on sales in stark contrast with its key competitors, and also the potential opportunity for SpotOn to optimize its seniority structure.
However, although quarterly reporting can highlight large-scale shifts, there remains an opportunity to track companies on a more regular basis. Instead, intra-quarter analysis automated or performed on a frequent basis may yield valuable real-time workforce ‘signals’ that give insights into company direction and, consequently, whether they are meeting / beating / missing expectations. These insights may in turn suggest when to invest or sell a company’s stock, or suggest the need for strategic shifts in response to competitor moves.
At Aura, we support both of these types of analyses by making workforce data readily available and intelligible, enabling comparison of relevant metrics between companies and market segments to develop a deeper understanding of workforce trends and drive meaningful change.
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Matthew Chan Product Economist, Aura
Note: All information mentioned in this report comes from publicly available data; if you believe the information on your company is incorrect, please reach out to us at: firstname.lastname@example.org
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