Welcome to your weekly check-in. Every week, The Scale Signal cuts through the noise to give you one perspective shift, so you can scale smarter without losing your sanity.

This week, I want to talk about something that sits quietly underneath all the activity in your business and tells you, very quickly, whether the model is actually working. A lot of founders are too deep in the work to ever look at it directly. But when they do, it tends to change the conversation fast.

Let's go.

~ 9 minute read

Earlier this week I had a catch-up with a founder I've known for a few years.

He's preparing for his next round of funding. We hadn't spoken in a while, so I asked him to walk me through where things stood.

The picture he painted was pretty impressive. Revenue more than doubled. New clients coming in. A product range that was looking really good. His industry had been through a difficult patch over the last three to four years, and he had pushed through it. You could hear the momentum in how he talked.

Then we looked at the numbers together. Strong revenue line. Good growth trajectory. And then, sitting quietly at the top of the page, the total capital raised to date.

I did the calculation in my head. I asked one question. Where has this gone?

Not accusingly. Not as a challenge. Just the honest question that any investor looking at this deck for the first time would ask themselves in the first five minutes.

We both paused for a second.

Because the answer wasn't obvious. The money hadn't gone to a factory, or an asset, or a piece of infrastructure that now sits on a balance sheet generating return. It had gone into the business. Into the motion of it. Into the years of pushing, developing and building and making it work.

And in truth, the business had made real progress. But the relationship between what had gone in and what was now coming out needed more explanation than a revenue growth chart could offer. The two numbers told quite different stories when you put them side by side.

That's a number a lot of founders never look at. Not because they're careless of course. You're just so deep into making everything work that you wouldn't necessarily think about it. It doesn't feel abstract because you've dismissed it. It feels abstract because it's nowhere near the surface of your day.

Until it's the first thing someone who looks at your business for the first time asks.

So I thought today it would be worth spending some time on this. It doesn't get much too much air time in founder circles from experience. But it's one of the most telling diagnostics I know. Once you understand it, you can use it to spot a problem early and adjust course before it becomes expensive. It's also a great indicator to indicate how hard your model is to operate.

🧠 The Founder’s Edge

There is a metric investors look at very early when assessing a business, and keep looking at for a long time. It shapes almost every conversation about valuation, fundraising, and long-term viability.

It's called capital efficiency. Put simply, it answers one question: for every pound you put into this business, how fast are you getting it back?

A lot of founders I talk to never really apply this lens. A few things explain it, in my experience.

The early years of building are genuinely consuming. All your attention goes into making the thing work: creating a product or service people want, and then selling it. Simple to write, brutal to live. And like anything that demands everything, it's easy to keep pushing without stepping back. Numbers and operating reality get treated as separate worlds. The numbers matter, but the business is the real thing.

And it's also true that the culture around early stage business rewards a completely different set of signals. Revenue is celebrated. Headcount is celebrated as an external sign of growth. "We're serious now" kind of things. Nobody puts up a slide that says "and here's what it cost us to produce every pound of that revenue."

The problem is that when you operate in a certain way for a while, it's easy to keep doing things the same way. So founders often keep pushing for the visible metrics. The ratio underneath quietly does its own thing. You're just so deep into making everything work that you wouldn't necessarily think to look at it.

Here is what often gets missed. Capital in a business, whether it's your own money, a bank's, or an investor's, really only serves three legitimate purposes:

Capital (the cash you, investors or a bank bring) = losses + working capital requirement + investment needed

You can make it more complicated than that, but it's really all it is.

Now here is an uncomfortable question. In a lot of businesses I work with, the working capital need is modest, if not close to zero, and the capital investment requirements are also pretty small. There is no heavy machinery, no large inventory, no asset base that requires significant funding.

So if capital is being consumed at a pace that doesn't match those three categories, what is it actually reflecting?

In most cases, the honest answer sits in one of four places: a pricing model that doesn't recover the real cost of delivery, a service offer delivery that has become too broad or too complex, a team structure built before the model was stable enough to support it. Or a cost base that crept up alongside activity without a proportional increase in output.

None of those are capital problems. Often they are model problems. And the danger is that when capital is available, it makes them invisible. You can fund a poorly designed model for a while. The question is whether you are building something, or just financing motion.

🧭 The Sanity Check

I want to name a real resistance here, because it's not what it looks like on the surface.

When I suggest to founders that they look at what it's actually costing them to produce their revenue, the hesitation isn't often confusion. They know the number exists. The hesitation is something closer to: if I really look at this, I might have to accept that some of what I've been building isn't working the way I thought it was.

Don't get me wrong, that's a hard thing to sit with. Especially when you've been flat out. Especially when, from the outside, things look like they're moving.

Some will say: but this is an early stage business. You invest knowing you won't get your money back quickly. And that's true,... up to a point. But if you're spending six months of every eighteen looking for new investment, it means you're burning through what you raised. The ratio matters whether you want it to or not.

And there's something else underneath it. A lot of the "spend to grow" logic that founders have absorbed over the last decade came from the VC world. Move fast. Deploy capital. Build the revenue line and worry about the unit economics later. That logic made sense in a specific context: businesses with genuinely massive market potential, where the exit multiple justified years of burning capital to acquire a sticky and dominant position on the other end. Also a context where capital was cheaper.

But for a lot of founders I meet, that's not the operating reality they're working in. There is no exit at 1,000,000 times revenue sitting at the end of the runway. There is a business that's a great business but needs to work fairly quickly. And "working" means the model generates more than it costs to run it.

Applying a VC playbook to a business that will never have a VC outcome isn't ambition. It's a mismatch. And it's one I often see. Not because founders are reckless, but because the culture around early stage business made it feel like it's been the right way to operate for a long time.

Looking at your capital efficiency ratio is not about judging the past. It's about seeing clearly what the model is actually doing, right now, so you can make a different decision about what comes next.

🚀 Freedom at Scale

A few things on that to get a sense of where you stand. It won't take long but it might give you a quick assessment fairly quickly:

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​This newsletter reflects my personal views and experience. It is not intended as professional advice. You are responsible for how you interpret and apply any ideas shared here, and Scale and Sustain accepts no liability for outcomes resulting from their use.