Playbook / Lessons / Team and numbers
StartupsJudge burn against new ARR
Sacks proposes measuring capital efficiency as net burn divided by net new ARR, a ratio he calls the Burn Multiple. In his example a quarter that burned $2M to add $1M of ARR is a reasonable 2x for an early-stage startup, while burning $5M for the same gain is a 5x that should probably prompt cost cuts. He adds that the multiple should improve as the startup matures.
“The lower the Burn Multiple, the more efficient the growth is.”— David Sacks, The Burn Multiple, Apr 2020
Do this
This week, divide last quarter's net burn by your net new ARR and put that multiple at the top of your next team update.