Justin Kan: Measuring startup success by head count is toxic(areallybadidea.com)
areallybadidea.com
Justin Kan: Measuring startup success by head count is toxic
http://areallybadidea.com/measuring-startup-success-by-head-count-is-to?f
10 comments
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 ;)
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 ;)
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.
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.
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.
How about revenue and profit?
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?
For a consumer-facing web startup traffic numbers are a decent metric of progress, and can be externally verifiable (e.g. Quantcast).
Traffic is a double-edged sword. Certainly a lot more important than funding or headcount in many if not most cases. But it's also a lot less verifiable than funding or headcount.
Quantcast is a good start, though certainly not perfect and requires opt in from the company. Then there's the whole mess of Comscore, Compete, Google Analytics, etc. Ask 5 companies to measure one site's traffic and you'll get 10 answers.
My point wasn't that there aren't other tools to measure success, but that blaming the press for funding and headcount being emphasized is silly.
Edit: There's no shortage of traffic data in the press either.
Quantcast is a good start, though certainly not perfect and requires opt in from the company. Then there's the whole mess of Comscore, Compete, Google Analytics, etc. Ask 5 companies to measure one site's traffic and you'll get 10 answers.
My point wasn't that there aren't other tools to measure success, but that blaming the press for funding and headcount being emphasized is silly.
Edit: There's no shortage of traffic data in the press either.
I might be missing something - how is headcount more verifiable than traffic? Actually now that I think of it, the first startup I worked for peaked at about 7 people and our CEO regularly told the press we were "about 50 people"!
Whether or not it's more often verified, it is definitely more verifiable.
One is a count that is likely in the millions or tens of millions of people and made up of nearly-anonymous people from around the world. The other is likely in the tens and made up of people in a single building.
A journalist could come to your office and make a pretty good guess at how many people work there. That's not to say people don't lie about it, but I think it's reasonable to expect an independent third party to be able to roughly figure out how many people work at a company even if the company wants to lie about it. I don't think it's reasonable to expect the same with web traffic.
One is a count that is likely in the millions or tens of millions of people and made up of nearly-anonymous people from around the world. The other is likely in the tens and made up of people in a single building.
A journalist could come to your office and make a pretty good guess at how many people work there. That's not to say people don't lie about it, but I think it's reasonable to expect an independent third party to be able to roughly figure out how many people work at a company even if the company wants to lie about it. I don't think it's reasonable to expect the same with web traffic.
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...
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...
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.
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.
"Measuring startup progress by head count is like measuring aircraft building progress by weight."--Gill Bates
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
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
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.
I think a more accurate measure of success would be net profit per employee
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.
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.
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).
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.
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.
Revenue minus costs is what matters.
If you have three employees, costs of 500k/year and revenues of $26 million, you're a success.
If you have three employees, costs of 500k/year and revenues of $26 million, you're a success.
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"