April 13, 2011
How do you spot a successful business? It’s easiest to think in terms of size: Google, Starbucks, and Berkshire Hathaway are successful.
If you’re a small business and fixate on size alone, you’ll drive yourself crazy. I will never run a Starbucks-scale company, nor do I want to. But do I want a successful company? Definitely!
Here are the two business metrics that matter at Scout:
Income per employee is a great yardstick for measuring companies of any size. It’s an old-school metric: take everything you’re earning, subtract everything you’re spending, and divide by the number of people it takes to do it. If the number is high, you have a well-run business. The number is low? You have some work to do. If you like jargon, you can talk about “management efficiency”.
I love income per employee because I can rank Scout alongside larger companies. For example, Scout is an engineering-heavy operation, but income-per-employee lets me compare our performance to companies that love to hire middle managers.
Income per employee provides a yardstick without having to focus on size.
Curious about income per employee for household-name companies? Pingdom assembled a list a couple years ago. Here are numbers from 2009 for the NASDAQ 100 for revenue per employee—not the same thing as income, but still revealing.
As much as I like making money, I don’t want to be miserable doing it. I want to enjoy my work, and the people working near should be enjoying their work as well.
What makes each of us happy is going to vary, but there should be plenty of common ground: stimulating problems to work on, smart co-workers, and time to spend with family, to name a few. A few things on my list: working with people I trust, biking to work, and the flexibility to hit the the gym at 3pm if I feel like it.
It’s generally possible to trade some happiness for more money—just work longer hours. Some people trade nearly all their time for additional money, but for lots of people (including me), money alone isn’t going to cut it. With a little luck, you can get in a position to increase both money and happiness at the same time.