Garry Tan+ Your Authors @garrytan Cofounder @Initialized —Designer/eng turned VC investor in startups now worth over $36B — New YouTube videos every week — DM me on Instagram for startup advice Jan. 04, 2019 1 min read + Your Authors

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.



Bookmark

____
Tip: mention @threader_app on a Twitter thread with the keyword “compile” to get a link to it.

Enjoy Threader? Sign up.

Since you’re here...

... we’re asking visitors like you to make a contribution to support this independent project. In these uncertain times, access to information is vital. Threader gets 1,000,000+ visits a month and our iOS Twitter client was featured as an App of the Day by Apple. Your financial support will help two developers to keep working on this app. Everyone’s contribution, big or small, is so valuable. Support Threader by becoming premium or by donating on PayPal. Thank you.


Follow Threader