Good morning, fellow founder! 👋

Welcome to another edition of FounderForge. Your Europe-focused startup digest - just because we do things a little differently here! 🇺🇸 👀

If you missed our last issue, you can still read it at the link below! 👇

Today's topics are all about the people in a startup:

• Revenue per Employee as an Efficiency Metric 👔

• How to Scale Your Orga from Inception to IPO 🏢

📊 Data Dive: Revenue per Employee

We love to measure the success of a startup in terms of headcount.

Understandably - it sounds cool to say we have 100, 200 or 1.000 people working for us! 😎

In reality, however, a much better measure of success is revenue - and ideally as much revenue as possible with as few people as possible.

With funding drying up and people being a major cost driver, startups are increasingly looking at the efficiency of their team (and consequently adjusting team size 🥲).

Keeping track of revenue per employee can be a good way to guard against overstaffing. ☝️

However, tracking a number is useless if we don't know what's good and what's bad - so let's dig deeper into some data! 👇

Company size drives revenue per employee

It is not surprising that smaller companies tend to have lower revenue (or ARR) per employee than larger companies.

The real power behind software companies is their economies of scale, which take time to unfold.

Below is a good benchmark for revenue per employee for earlier-stage companies. 👇

Once you hit massive scale, it gets really juicy. Just look at the revenue per employee of leading tech companies. 🤤

However, revenue per employee does not just go up with size.

Things get saturated, and even the big companies sometimes lose their balance - especially in times when money is available in abundance.

Bootstrapped companies scale more efficiently

Again, hardly surprising, bootstrapped companies tend to have higher revenue per employee in the early days.

Why? Simply because they need to earn the additional employee salaries first.

Funding ideally gives you extra speed (growth), so higher spending for a while is perfectly fine. It just has to make sense. ⚖️

Interestingly, the revenue per employee seems to even out between bootstrapped and venture-backed companies at >$20M ARR.

Antithesis WhatsApp

Not 1:1 related to revenue, but I wanted to share this example anyway - perhaps as an antithesis to high headcount as a success metric.

In 2014, Facebook (now Meta) bought WhatsApp with about 600M users for $19B. A crazy amount.

The even crazier part? At the time, WhatsApp only had 55 employees!

That's $345M per employee. 🤯

So maybe next time that is the goal and not 100 people working for you. 😉

🛠 Founder's Toolkit: How to Scale Your Organization

Today we are going to take a look at a general framework for structuring your organization - from incorporation to the big IPO. 💥

The framework originally came from The Org and has been adapted from our own experience in the field.

Not every company needs the same talents at the same time, but having a common schema in mind will help you structure your team effectively.

Founding

Nothing too fancy here.

A classic structure is one technical and one (or more) non-technical co-founder(s).

A good rule of thumb is two founders. A single founder often lacks the resources and skills to cover everything, and more than two often adds complexity.

(Pre-)Seed

In the early days, you need a simple and lean organization that can execute the product vision and demonstrate early growth.

Look for generalists over specialists. People will often be required to take on tasks that don't fit their "job description".

Lenny Rachitsky recently posted a good piece of content mapping the early teams of successful B2B software companies. 👇

Series A

This is the phase where you move from an early product to a mature product.

From early signs of product-market fit to clear product-market fit.

This requires more team leaders who can recruit and scale their individual functions into full-fledged teams.

Series B

From here it's all about growth.

Growth has become measurable and responsibilities are split into separate functions such as Sales, Marketing and Product (depending on the growth strategy).

Administrative overhead begins to grow - HR and Operations get more attention to take work off the shoulders of the C-level.

Series C and Later Rounds

Your startup is now a scaleup.

It's time to bring in some senior leaders for CFO, CPO and CMO positions. Ideally, people who have seen a lot and taken other companies to the next level.

At this stage, organizational debt becomes critical. Process and administrative bloat must be addressed as a priority.

Exit (IPO, SPAC, Acquisition)

The administrative and operational requirements of a public company are much higher than for startups.

Priorities shift to risk mitigation and M&A becomes a topic - which further increases the legal and financial overhead.

🔗 Founder's Library: Curated Resources

A collection of random reads that the FounderForge team enjoyed.

• 2023 Revenue Per Employee Benchmarks by Nick Perry (key resource for today's Data Dive)

• ARR per Employee Is the North Star of Efficiency by Neeraj Agrawal, Brandon Gleklen & Jack Mattei (interesting take on today's topic from TechCrunch)

• The Venture Market Is Overcorrecting by Gené Teare from Crunchbase

• A Guide to Pricing for Startups by Matt Hodges (one of the best we've read so far)

• Sequoia's Generative AI Hypothesis by Sonya Huang and Pat Grady

• M&A Makes a Comeback in Europe by Miriam Partington

• Accel’s Take on This Year’s SaaS Trends by Philippe Botteri & team (Hint: European SaaS is on the rise again)

😂 Meme of the Fortnight

Please... we just need a few more free credits until we reach PMF.

🤔 Your Thoughts on Today's Edition

• 🔥 It was great!

• 😒 Meh - it was okay.

• 👎 Not interesting to me.

That's all for now!

If you find this newsletter valuable, share it with a friend!

Cheers,
The Founders Blacksmith 👋

Issue #4 | 19. October 2023