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Global·66d ago
Startup Guides
Free
The 40 Rule: When to Reinvest vs Take Profits
What you'll learn The '40 Rule' that Warren Buffett of SaaS uses to decide whether to reinvest in growth or take money home. Why it matters Founders often reinvest too aggressively (burn out) or too slowly (get out-grown by competitors). The 40 Rule gives you a data-driven answer. The playbook 1) The formula — Growth Rate (%) + Profit Margin (%) should equal 40+. 2) Example 1 — Growth 60%/year, Profit margin -20% (burning cash) = 40 → healthy but aggressive. 3) Example 2 — Growth 10%/year, Profit margin 30% = 40 → healthy but slow (lifestyle mode). 4) Example 3 — Growth 5%/year, Profit margin 10% = 15 → in trouble, one of these must go up. 5) Under 40? Choose one: cut costs to raise margin, or invest to raise growth. Both stagnant is a slow death. 6) Over 60? You're leaving money on the table — reinvest more into growth. Common mistakes Optimising for growth alone (running out of cash). Optimising for margin alone (getting out-grown). Not tracking either monthly. Next action Calculate your 40 Rule number today. If below 40, book a meeting with your cofounder this weekend to decide: cut or invest.