Justin Kan: Measuring startup success by head count is toxic
areallybadidea.com
areallybadidea.com
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"
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 ;)
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.
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.
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.
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...
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.
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
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.
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.
If you have three employees, costs of 500k/year and revenues of $26 million, you're a success.