

Justin Kan: Measuring startup success by head count is toxic - justin
http://areallybadidea.com/measuring-startup-success-by-head-count-is-to?f

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sudonim
A measurement like "Profit per Employee" is a measurement i prefer. It cuts to
the heart of what most businesses are trying to do - make money while keeping
headcount (costs) down.

In times of expansion, your profit per employee will decrease, but this should
be temporary as you increase your ability to do more business.

Then, as you reach a larger scale, you can focus on increasing your profit per
employee through efficiencies.

It's not a perfect measurement because it doesn't account for varying employee
salaries, but it's better than "How many people do you have" or "How much have
you raised"

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abstractbill
Good post Justin.

One thing you didn't touch on: Early employees often join startups to _escape_
from big companies. An ever-increasing headcount can give those people quite a
sinking feeling ;)

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drusenko
You nailed it. The two metrics most startups are judged on are both very
toxic: money raised and number of employees.

I blame the press, who use those two false metrics as a proxy for company
success. In return, founders tend to want to grow headcount quickly and raise
a lot of money, both of which can lead to a quick and untimely death.

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evansolomon
What is the best metric the press could use for measuring private companies'
success? Money raised and number employees might be bad, but I'm not sure
they're not also the best ones possible.

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cabalamat
How about revenue and profit?

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evansolomon
Do you know a lot of private companies that publicly share their revenue or
profit? Of the ones that do, how many do it in a way that can be verified?

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nkh
This made me think of Steve Jobs solution for the Mac team:

 _The Mac team they were all in one building and they eventually got to one
hundred people. Steve had a rule that there could never be more than one
hundred people on the Mac team. So if you wanted to add someone you had to
take someone out. And the thinking was a typical Steve Jobs observation: “I
can’t remember more than a hundred first names so I only want to be around
people that I know personally. So if it gets bigger than a hundred people, it
will force us to go to a different organization structure where I can’t work
that way. The way I like to work is where I touch everything.” Through the
whole time I knew him at Apple that’s exactly how he ran his division._

Link to the full article: [http://www.cultofmac.com/john-sculley-on-steve-
jobs-the-full...](http://www.cultofmac.com/john-sculley-on-steve-jobs-the-
full-interview-transcript/63295)

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zhyder
Absolutely agreed that higher head count should not be a goal; less is more.
But it's still a good second question to ask because:

1\. It gives a sense of what stage the company is at. E.g. a 50-person company
should be well past finding product-market fit. Also, if the asker is
considering employment, it gives a sense of how much influence he/she will
have.

2\. It's more likely to be answered than questions like revenue, gross/net
profits, or revenue/profits per employee.

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raganwald
"Measuring startup progress by head count is like measuring aircraft building
progress by weight."--Gill Bates

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adaugelli
The only two metrics that really matter are: 1) Cash on Hand 2) Monthly Burn.

Until a business is cash flow positive, the above two metrics are the most
important things that need to be managed.

PS For an awesome startup budget / dashboard tool - check out 60mo.com It's
simple, beautiful and the UI focuses on cash remaining

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FluidDjango
Interesting recommendation. I had trouble telling (from index.html page)
whether this was alt to QuickBooks, but since the features page includes
"Integrate QuickBooks to eliminate data entry"... apparently it sits atop QB
and bases it analysis on what you've entered. Bookmarked. Thanks for the lead.

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findm
I think a more accurate measure of success would be net profit per employee

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allenp
I think from a founder's mentality it is 100% true that more people = more
problems, not more success.

However, from a consumer mentality, more employees means (potentially) more
revenue and stability, but it all depends on the industry. I probably wouldn't
buy an airplane from a two man shop, but wouldn't blink at going to a dentist
with only two employees.

The problem comes when the founder starts looking at things from the consumer
perspective and wants to use headcount for appearances or marketing.

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justin
A two man shop probably can't actually make an airplane. Industries where
there are high headcount requirements usually stem from some underlying reason
(like, it actually takes around that many people to produce and support the
product). Even still, if you are in one of those industries you should strive
to keep your headcount as low _as possible_ (where that means you have orders
of magnitude more people than your typical web startup).

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d4rt
Infuriatingly, it's not clear whether Burt Rutan built and designed his early
planes by himself from the Wikipedia articles.

I may have bought into a mythical view of Burt, but I would definitely believe
that Burt Rutan could build an aeroplane with 2 people.

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stretchwithme
Revenue minus costs is what matters.

If you have three employees, costs of 500k/year and revenues of $26 million,
you're a success.

