How should we allocate headcount?
There’s a story about an early Amazon meeting where Jeff Bezos pulled out a chair and left it conspicuously empty. “This chair,” he told the room, “is for the customer.” The gesture was simple, but the message was clear: every decision, no matter how small, should be made with the customer in mind. Over time, that empty chair became a metaphor for how Amazon thought about prioritization — if it didn’t serve the customer, it didn’t belong in the room.
But in most companies, it’s not an empty chair that defines prioritization — it’s a spreadsheet. At first, those rows and columns feel harmless, tools for tracking users, revenue, and churn. But there’s a moment in every tech company’s lifecycle when the spreadsheet stops being a tool for reflection and starts driving the conversation. What began as a way to measure the business becomes the scaffolding for decisions about its future: where to invest, what to build, and most critically, where to put people.
Deciding where to allocate headcount is deciding where to allocate potential. It’s deciding what the company is betting on, what it’s letting go of, and what it’s willing to risk. Done poorly, headcount planning is the fastest way to kill innovation and morale. And yet, for something so critical, most headcount allocation processes are shockingly obscure and undefined.
This post will reflect my opinions on how to optimally allocate headcount. Note that the focus will be on staffing teams and not projects, since team allocations are harder to change once a commitment has been made.
The challenges
Headcount allocation is uniquely challenging because it’s not just a numbers game — it’s a political one. Every team believes their work is the most important, and they often have the data to back it up. Product teams come armed with ambitious roadmaps and revenue projections. Support teams point to mounting ticket backlogs that are driving down customer satisfaction. Platform or infrastructure teams wave metrics about tech debt and system fragility that could bring the company to its knees. And because resources are finite, these conversations can feel like zero-sum games, where one team’s gain is another’s loss.
The problem is compounded by how these priorities are presented. Teams with visible issues — customer complaints, missed deadlines, or a feature slipping on the roadmap — fan the flames to make their problems seem urgent. A delayed launch becomes a fire, and fires demand immediate attention. Meanwhile, quieter but equally important work — like automating internal processes, scaling infrastructure, or exploring new product ideas — doesn’t scream for resources. It’s harder to argue for preventing problems that haven’t happened yet, even when the long-term costs of neglecting them could be catastrophic.
This dynamic reminded me of a conversation I once had with a former manager about headcount allocation feeling reactive, even counterproductive. Teams, I argued, would fan the flames of their fires, ignoring internal inefficiencies, preventative measures, or lack of prioritizing team velocity, because headcount allocation seemed to reward creating problems in need of solving. At some extreme, headcount planning can lead to the resources going to the least productive teams that don’t have a track record of executing well, but which have a lot of fires.
She nodded and shared an anecdote of her own. “It’s like having two kids,” she said. “If one is special needs, you can’t help but focus more on the struggling child. Even if you know deep down that fairness is important, it’s hard not to be a parent and let your attention and energy go where the cries are the loudest.” She explained that for managers, the instinct to support struggling teams — even at the expense of others — is natural, but it doesn’t always lead to the best outcomes for the whole. And it’s that instinct — well-intentioned but reactive — that often drives bad allocation decisions.
The Allure of Simple Answers
The problem with headcount allocation is that everyone wants it to be simple. There’s a deep temptation to treat it like balancing a household budget: a fixed pot of resources, a list of needs, and a calculator to sort it all out. For many companies, this instinct hardens into process. Rows of last year’s headcount get copied into this year’s spreadsheet, adjusted by a few percentage points here and there, and approved with little fanfare. It’s efficient, predictable, and deeply flawed.
Take historical allocation, one of the most common approaches. It assumes that whatever a team had last year is a reasonable proxy for what it needs this year. In some cases, this works well enough — teams with consistent, ongoing work can maintain stability. But as priorities shift, historical allocation becomes an anchor. A team that once mattered deeply, perhaps driving early growth, continues to soak up resources long after its relevance has waned. Meanwhile, newer teams working on emerging priorities are left fighting for scraps. Over time, this approach creates an organization optimized for yesterday’s challenges, not tomorrow’s opportunities.
The alternative often seems like demand-weighted allocation, which shifts resources to wherever the fires are hottest. It feels responsive and logical — if a team is overwhelmed with requests, give them more people. If stakeholders are clamoring for support, prioritize their needs. But firefighting is reactive by nature. It solves the immediate problem while ignoring the structural issues that caused it in the first place. Foundational work — like improving infrastructure, reducing tech debt, or investing in long-term capabilities — rarely generates loud complaints, so it gets overlooked. Over time, demand-driven allocation guarantees that the same fires will keep breaking out, often bigger than before.
These approaches fail because they try to turn an inherently strategic question into a procedural one. They treat headcount allocation as a way to avoid decisions rather than as an opportunity to make them. Historical allocation dodges the hard conversation about what’s no longer important, and demand-weighted allocation avoids the even harder conversation about what should be. Both approaches are attractive because they feel simple and neutral. But they are neither.
The allure of simple answers is especially strong in large organizations, where the complexity of competing priorities can feel overwhelming. Simplicity provides an escape: copy what worked before or triage the loudest complaints. But simplicity also hides the trade-offs that make allocation such a high-stakes decision. And in that invisibility lies the real risk — not just that resources will be misallocated, but that no one will notice until it’s too late.
A Thought Experiment: The Cost of Imbalance
Imagine two companies.. The first allocates 100% of its headcount to today’s priorities. Its core products thrive, but it neglects the foundational work — technical, creative, or cultural — that keeps a company relevant. Over time, its growth slows, and by the time its competitors’ bets start paying off, it’s too late (see IBM, Intel or Blockbuster).
The second company does the opposite. It invests too heavily in innovation, starving its core products of resources. The result? It becomes a company of ideas without execution, a portfolio of possibilities with no profits to fund them. Stitchfix is an example of this cautionary tale. It’s a company that early in my career was considered the best place for Data Science and Machine Learning, often pushing on the cutting edge boundry way ahead of other tech companies. But when you look at how that innovation translated to execution or delivery of business results, the outlook looks bleak, with all fundementals pointing to a consistent decline.
Both companies fail for the same reason: they misunderstand the nature of trade-offs. Headcount allocation isn’t about choosing between today and tomorrow — it’s about balancing them. This balance works because it forces clarity on priorities. Businesses that focus solely on execution — without making room for foundational or exploratory work — risk stagnation. Those that focus on innovation, risk running out of money.
The Hybrid Model: Strategy Meets Optionality
If there’s a better way to approach headcount allocation — and I believe there is — it starts with acknowledging that simplicity isn’t the goal. The goal is clarity. Clarity about what matters now, what might matter later, and what the company is willing to risk. That clarity requires a model that embraces trade-offs rather than avoiding them, balancing the need for focus with the need for flexibility. At its core, that’s what the hybrid model is designed to do: allocate most resources to today’s priorities while reserving space for tomorrow’s possibilities.
The hybrid model works by combining two principles. The first is business-driven allocation, which ensures that the majority of resources — 80 to 90% — go to the company’s most pressing needs. These are the bets the company is willing to stake its reputation on, like scaling a product line, entering a new market, or solving a critical operational bottleneck. Business-driven allocation ties headcount to measurable outcomes, forcing teams to justify their requests not in terms of tradition or urgency but in terms of impact. It asks, “How does this team move the needle for the company today?”
The second principle is the reserved innovation pool, which protects the work that isn’t tied to immediate business metrics but is vital for long-term growth. This might include moonshot projects, exploratory R&D, or foundational investments in infrastructure and tooling. The reserved pool — typically 10 to 20% of headcount — isn’t a free-for-all. It’s managed deliberately, with a clear process for evaluating proposals and a commitment to accountability. The goal isn’t to hedge against uncertainty but to ensure the company remains adaptable, always capable of seizing opportunities or responding to change.
The power of the hybrid model lies in its balance. Business-driven allocation creates focus, directing the bulk of resources to the initiatives that matter most today. The reserved pool creates optionality, making room for the ideas and experiments that might define the company’s future.
Isn’t the 10% to 20% innovation pool too small?
At tech companies, where engineers are surrounded by cutting-edge tools and the promise of endless possibilities, the gravitational pull toward innovation can feel irresistible. I once heard a senior engineer say, half-jokingly, “The easiest way to get attention here is to slap ‘AI-powered’ onto an idea and call it innovation.” It wasn’t just a joke — it was a truth about how ambition can sometimes veer into vanity. When the tools, talent, and appetite for invention are this abundant, the risk isn’t that people won’t innovate. It’s that they’ll innovate too much, often on things that don’t matter.
Consider the scenario: a team is tasked with improving onboarding for a subscription-based product. Instead of focusing on the core issue — simplifying the user flow to reduce friction — they pitch an AI-driven onboarding bot. It’s technically impressive and promises to “revolutionize” the user experience. But months in, the bot isn’t delivering results, and the engineering capacity devoted to it has come at the expense of tackling obvious usability problems that could have moved the needle immediately. This is how innovation, untethered from strategy, starts to erode the company’s ability to execute.
The challenge here is that innovation feels exciting, while core business work can feel mundane. Engineers want to push boundaries, not debug onboarding forms. Without guardrails, even a 10–20% innovation allocation can balloon into 40–50% of real capacity, as engineers chip away at side projects, experiment with speculative ideas, or stretch innovation efforts well beyond their initial scope. The intention — to motivate and challenge talented people — is good. The execution, however, can lead to what a former manager once called “innovation theater”: flashy projects that generate internal buzz but fail to deliver meaningful business outcomes.
To fix this, companies need to stop worshipping innovation as an end in itself and start treating it as a means to a larger goal. The best ideas are the ones that are both creative and connected to business strategy. If an innovation project can’t answer basic questions — “What problem does this solve?” “How does it drive impact?” “Why now?” — then it doesn’t belong on the roadmap, no matter how futuristic or impressive it looks.
More importantly, leaders need to reward the engineers who tackle the unglamorous work. Fixing a leaky funnel or optimizing server reliability might not win awards, but it’s the kind of work that keeps the lights on — and often delivers more value than a dozen speculative prototypes. The future of a company isn’t built on big ideas alone; it’s built on a balance between boldness and practicality. That balance doesn’t happen by accident — it happens when leaders make it clear that innovation isn’t about being “two years ahead of the roadmap.” It’s about making sure the roadmap itself is worth following.
Brass Tacks: How to Implement the Hybrid Model
Implementing the hybrid model in practice means translating its principles into a structured, actionable process. This involves balancing quantitative rigor, like evaluating ROI or business impact, with qualitative judgment about strategic priorities, team capabilities, and the root causes of inefficiencies. Beyond just deciding where to add resources, this process should also question why existing headcount isn’t achieving more and address systemic issues like tech debt or team inefficiencies. Here’s how to approach it:
Step 1: Ask: Why Can’t This Team Achieve More with Its Current Headcount?
Before allocating additional resources, take a step back and assess whether the team is truly constrained by headcount — or by deeper structural issues that limit its capacity. Are they tackling the right priorities, or are they bogged down in low-impact tasks? Are they spreading themselves too thin across competing projects? A team that can’t clearly articulate its roadmap or justify its priorities may not need more people — it may need better focus. Dig deeper: Is the team’s productivity hampered by technical debt or architectural complexity? For instance, brittle systems, patchwork solutions, or poorly thought-out dependencies can create overhead that consumes disproportionate amounts of time and effort. Instead of rushing to add headcount, consider whether resolving these blockers — through better tooling, process improvements, or foundational investments — could unlock the team’s existing potential. Sometimes, the most effective solution isn’t adding more people to the fire; it’s putting out the fire itself.
During this process, I would also evaluate the team track record. If a team has a consistent track record of strong execution and delivering results, I would consider assignning more resources to them and expanding their scope instead of allocating headcount to less successul teams.
Step 2: Start with Clear Business Priorities
Headcount allocation must be anchored to the company’s strategic goals for the year, ensuring resources flow to the initiatives that deliver the highest impact. For example, if a SaaS company’s focus is on reducing churn, increasing customer acquisition, and improving operational efficiency, these priorities should directly shape how the 90% business-driven allocation is distributed. But aligning headcount with business goals doesn’t mean waiting for teams to request it — it means proactively identifying where resources are needed, even if the team hasn’t flagged it.
Let’s say the company’s goal is to improve infrastructure cost efficiency by 50%. Headcount allocation should target teams working on projects directly tied to this outcome, whether they’ve explicitly requested headcount or not. For instance, if the infrastructure team has a roadmap to optimize cloud costs by automating workload scheduling or reducing over-provisioning, additional engineers should be allocated to accelerate those efforts. However, this doesn’t mean simply rewarding teams that are vocal about their needs. Instead, leadership should evaluate every team’s roadmap against the stated goal and allocate headcount to the initiatives with the clearest path to impact — whether or not the team has flagged resource constraints. This is where leadership judgment plays a critical role: separating teams’ perceived needs from what the business truly requires.
To describe this more clearly. If my goal is to save $100M in infrastructure costs, I would lietrally go across team roadmaps and divide the benefit/eng effort to understand which teams can bring me closer to that goal. Similarly, if my goal is to increase GOV by $1B/year, I would do the same exercise that divides the benefit/eng effort to get the teams that would bring me closer to the goal.
Step 3: Evaluate the Team’s Roadmap
Before allocating additional headcount, scrutinize the team’s roadmap. A strong roadmap doesn’t just outline high-priority projects — it provides a realistic, actionable plan for delivering measurable impact. Teams with clear milestones, well-defined deliverables, and alignment to business goals are better candidates for additional headcount than those with overly ambitious or reactive plans. However, roadmaps can sometimes include padded numbers or inflated promises that look impressive on paper but don’t translate into real-world results. Leadership must learn to identify and address these issues to avoid misallocating resources.
To deal with padded roadmaps, dig deeper into the assumptions behind the numbers. For example, if a team claims that a new feature will increase revenue by 20%, ask how they arrived at that figure. What data supports this projection? Has a similar initiative delivered comparable results in the past? If the estimates rely on best-case scenarios without accounting for risks or dependencies, leadership should push back and request more grounded expectations. Similarly, look for vague or unverifiable claims — such as “enhanced user experience” — that lack clear metrics or defined outcomes. If the roadmap fails to connect these claims to tangible impact, it may not justify additional resources.
One way to validate roadmaps is by cross-referencing team performance on past initiatives. Did the team meet previous targets, or were their projections overly optimistic? A track record of consistent execution lends credibility to their current plan, while a history of missed goals should prompt further scrutiny.
Finally, encourage teams to adopt a culture of honest planning by rewarding transparency. Teams that present realistic, thoughtful roadmaps — even with modest numbers — should be prioritized over those that inflate projections to compete for resources. By creating a system where honest roadmapping is valued, leadership can ensure that headcount allocation supports meaningful, achievable goals rather than paper successes.
Step 4: Define and Protect the Innovation Pool
The innovation pool is a crucial part of the hybrid model, ensuring that teams have the capacity to explore new ideas, address long-term challenges, and seize future opportunities. However, without clear boundaries and processes, innovation efforts can quickly become scattered, misaligned, or deprioritized. Or they can quickly baloon to consume 50%+ of the engineering capacity, as I’ve often observed. Defining and protecting the innovation pool is about creating the structure and discipline needed to balance creativity with accountability.
Start by clearly allocating 10–20% of headcount to innovation across the organization. Depending on the company’s size and structure, this can be centralized (a dedicated team working on high-impact speculative projects) or decentralized (individual teams reserving a portion of their capacity for innovation). If the pool is decentralized, ensure that innovation time is formally built into team roadmaps rather than being treated as a leftover resource for “when there’s time.”
Leadership should also require teams to justify their innovation projects with concrete proposals. What problem is this idea solving? How does it align with broader business goals? What would success look like? By setting these expectations upfront, companies can ensure innovation efforts are strategic rather than speculative.
Conclusion: Allocating Ambition
Headcount allocation is one of the most critical decisions a company makes, yet it often feels like an afterthought — dominated by politics, spreadsheets, and reactive firefighting. But at its core, headcount allocation isn’t just about numbers; it’s about ambition. It’s about deciding what a company prioritizes, what it’s willing to risk, and, ultimately, what it wants to become.
The hybrid model offers a way forward. By allocating the majority of resources to today’s priorities while reserving space for tomorrow’s possibilities, it strikes a balance between execution and exploration. It forces clarity, turning headcount allocation into an act of strategy rather than a procedural chore. It challenges us to invest in what matters most while creating room for the ideas that might shape the future.
But the model is only as good as the discipline behind it. Implementing it requires leadership to dig deeper: questioning why teams aren’t achieving more, scrutinizing padded roadmaps, and protecting the innovation pool from the gravitational pull of immediate demands. It demands honesty, accountability, and the willingness to make hard trade-offs.
