June 17, 2026
Plastic vs spreadsheet panic
Brad Feld – Does the Rule of 40 Work for Hardware?
Investors are fighting over whether the famous startup score totally falls apart for gadget makers
TLDR: Brad Feld says a popular investor score for balancing growth and profit still matters, but it can badly misread hardware companies if you only look at one moment in time. Commenters loved the reality check, while others mocked the whole formula as oversimplified spreadsheet religion.
Brad Feld tossed a very calm idea into the internet — the famous startup "Rule of 40" works great for software companies, but hardware makers need to be judged over time, not by one scary quarter — and commenters promptly turned it into a mini brawl about whether investors are grading factories like phone apps. For non-finance people: the rule is a simple score that adds growth and profit. In software, it’s become almost holy scripture. Feld’s point is that for companies making physical products, the early years are messy, expensive, and often look terrible on paper even when things are going fine.
That sparked two loud camps. One side basically yelled, "finally, someone said it", arguing you can’t expect a company building real-world products to look as neat as a software business with cheap copies and monthly subscriptions. The other side was much harsher, saying rules like this become lazy investor astrology the second people forget the context. A few took the spiciest angle of all: if you need a special exception for hardware, maybe the rule was never as universal as venture capital wanted to believe.
And yes, the jokes arrived right on schedule. People cracked that hardware is just "pain with shipping delays", while others joked the real rule is "lose money for years, then pray your margins grow up". The overall mood? Respect for Feld’s nuance, mixed with plenty of eye-rolling at simple formulas trying to explain very complicated businesses.
Key Points
- •Brad Feld says the Rule of 40, first discussed by him in 2015, became a widely used benchmark in SaaS for combining growth and profitability.
- •The article states that the Rule of 40 works well in SaaS because those businesses often have low marginal costs, high gross margins, recurring revenue, and rapid iteration.
- •Feld says hardware companies differ from SaaS because they require significant upfront investment in tooling, manufacturing, and supply chains, and often depend on one-time sales.
- •According to the article, a young hardware company can fail the Rule of 40 for years even while executing properly because margins may remain negative during development and early production.
- •Feld concludes that for hardware, the Rule of 40 should be evaluated over time by looking at the shape of margin and profitability trends rather than a single-quarter snapshot.