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These numbers are interesting, but using them as a ranking method is absurd. Revenue/Employee punishes vertical integration. Let's say that Facebook, instead o

These numbers are interesting, but using them as a ranking method is absurd. Revenue/Employee punishes vertical integration. Let's say that Facebook, instead of developing Casandra in-house, decided to use millions of dollars worth of Oracle RAC. Their revenue/employee would go up, presuming that they could have avoided hiring those good developers. But, their profits would likely be lower. What's the revenue per employee of a private equity firm? Isn't Chrysler an LLC wholly owned by Cerberus? Revenue per employee must be well over $10M!

sparky 17y ago
Agreed. When I worked at a fabless semi company, we compared ourselves to other fabless semi companies using this metric, and given similar levels of vertical integration, it's not a bad metric. Using it to compare a hedge fund and a fast food chain is indeed absurd.
- jakarta 17y ago
  Haha - indeed. Centaurus Energy (TX based hedge fund) would amount to $88.2M per employee.
fnid2 17y ago
Every valuation metric requires context. Like sparky said, you can't compare two different types of businesses the same way. In retail, you want razor thin margins. In software you want very high margins. In capital intensive businesses like factories, you want lots of debt. In software businesses you want no debt. Building tools in-house, like cassandra, would be considered a distraction at most public companies. Expensive efforts that are not within the business's core competency are signs that the organization may be making bad investment decisions or they are bloated and trying to keep employees busy. In fb's case, their core competency is information, so building better information management tools is part of their core competency and they have the talent on staff to do it. If GM or Walmart spent employee brain power on something like cassandra, they'd be blasted by the shareholders for re-inventing a wheel that is already good enough.
ericd 17y ago
I think it's clearly implied that profit per employee would be far preferable, but in the absence of good profit data, they're saying that revenue per employee is vastly more useful in judging a business from a business viability standpoint than, say, users, or even users/employee. If the startup's goal is solely to be acquired, then users might be appropriate, but 37Signals has always argued that that goal is generally foolish, and akin to playing the lottery. Their mantra has been that startups should be trying to build a business, not an acquisition target.

sparky 17y ago

Agreed. When I worked at a fabless semi company, we compared ourselves to other fabless semi companies using this metric, and given similar levels of vertical integration, it's not a bad metric. Using it to compare a hedge fund and a fast food chain is indeed absurd.

jakarta 17y ago
Haha - indeed. Centaurus Energy (TX based hedge fund) would amount to $88.2M per employee.

fnid2 17y ago

Every valuation metric requires context. Like sparky said, you can't compare two different types of businesses the same way. In retail, you want razor thin margins. In software you want very high margins. In capital intensive businesses like factories, you want lots of debt. In software businesses you want no debt. Building tools in-house, like cassandra, would be considered a distraction at most public companies. Expensive efforts that are not within the business's core competency are signs that the organization may be making bad investment decisions or they are bloated and trying to keep employees busy. In fb's case, their core competency is information, so building better information management tools is part of their core competency and they have the talent on staff to do it. If GM or Walmart spent employee brain power on something like cassandra, they'd be blasted by the shareholders for re-inventing a wheel that is already good enough.

ericd 17y ago

I think it's clearly implied that profit per employee would be far preferable, but in the absence of good profit data, they're saying that revenue per employee is vastly more useful in judging a business from a business viability standpoint than, say, users, or even users/employee. If the startup's goal is solely to be acquired, then users might be appropriate, but 37Signals has always argued that that goal is generally foolish, and akin to playing the lottery. Their mantra has been that startups should be trying to build a business, not an acquisition target.