Does the Rule of 40 Work for Hardware?

I first wrote about the Rule of 40 in 2015. I’d heard a late-stage investor describe it at a board meeting - growth rate plus profit should add up to at least 40% - and the simplicity stuck with me. So I blogged about it. Fred Wilson was at the same board meeting and posted his own version a few days later. Between the two posts, the Rule of 40 spread. It’s now gospel in SaaS. I still like it. It’s a clean way to compress two things that usually fight each other - growth and profitability - into one number. Grow 40% and break even, you pass. Grow 20% with 20% margins, you pass. Grow 50% and lose 10%, you pass. Below 40%, you have work to do. The number isn’t really the point. Rather, the market rewards growth until it doesn’t, and then it rewards profitability. I learned that the hard way in 2000. The Rule of 40 is a simple way to check that you aren’t too far out over your skis in either direction. Others have tried to sharpen it. Bessemer proposed a Rule of X that weighs growth more…