Garry() @garrytan Managing Partner, @Initialized. Earliest investor in @coinbase @instacart @flexport & 100+ more—$36B in startup market cap so far. Forbes Midas List 2019 #21 🚀 Jan. 04, 2019 1 min read

Operating models matter because they let you find the right balance between spending too much money and spending too little.

The more dire problem of the two is spending too much. Usually hiring too many people who don’t move the needle enough.

Rule of thumb: does each hire or team earn back their fully loaded cost per year in added revenue per year? How quickly? What multiple per year?

Great startups grow revenue 3X or faster. Does the burn you have with the team you hired return at least 1X per year? Bright line test

Spending too little is a problem too. If you have 30 months runway or infinite runway, can you spend more in order to increase your revenue growth rate? You can take a 6 to 12 month haircut on runway if that team will grow your revenue and pay for itself in that year.

Better to grow 2X or more per year and use the capital you have than to stay at infinite runway but grow at 50% per year, and have that sit in the bank account.

A great operating model lets you, your board or investors, and your advisors dial it in.

Post-product-market-fit it also allows you to set goals for your team and diagnose when things fall out of plan. It’s like brushing your teeth, but for basic health of your business.

Fin


You can follow @garrytan.



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