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Operating Model Overview

Operating models play a critical role in supporting business decisions and managing runway. In this guide, Ryan Keating, Partner at EisnerAmper and founder of Keating Consulting Group, shares his best practices when setting up an operating model and how to use the model to proactively manage the business.

About Ryan Keating

Over the last 25 years, Ryan Keating has supported over 1000 startups, primarily venture-backed or venture-seeking. During this time, one-third of his clients have been pre-revenue, and in the last 1-2 years, at least a dozen or more have been Lightspeed-backed companies. 

After joining PwC, he founded Keating Consulting Group, a financial and professional services firm focused on supporting early stage startups. After 23 years, Keating Consulting was acquired by EisnerAmper in December 2021. 

Ryan and his team refer to their services as fractional back office support. While the notion is that you shouldn't outsource a core business function, in the early stages, back office responsibilities only take 4-5 hours a week as opposed to 40-50 hours a week. As a result, Ryan and his team function as if they are a part of your core team that meets on a factional basis. Their expertise and services are designed to keep up with your growth, step up in the areas where you need it most, and add relevant and timely support from pre-revenue to revenue.

Operating Model Functions

Operating models have two primary functions: 

Understanding Near-Term Cash Flow Management

A model should help you understand the health of your business and the runway available in coming months. This information is critical in determining capital availability for things like new hires, product expansion, how the business is trending against projections, etc. While the number of inputs will grow over time, every company should have a basic operating model from day 1.


In addition to near-term cash insights, operating models can provide a look into the future of the business - the big picture of where things might be in 3-5 years. These models are an opportunity to show board members and future investors how you think about the opportunity at hand and how you expect it to grow over time.

Considerations & Best Practices

Operating models should be a tool for strategy planning, forecasting, and plan execution. In order to make these the most impactful tools possible, models should be updated frequently and comprehensively. Include everything and stay conservative with your cost assumptions. Below are a few best practices we recommend following when building out and leveraging your model.

Common Assumption Mistakes

Assuming Hires Will Come Quickly

When building an operating model, one of the most common mistakes is assuming that hiring will be a quick and inexpensive process - this is rarely the case. Even with a fresh round of new capital, it's unlikely you'll be able to hire 10+ engineers in 90 days. While an inconvenient truth, anticipating extended timelines can help you develop a more targeted plan. Early-stage companies should expect to close 4-5 technical hires per quarter and to include any pre-existing or anticipated search firm fees into their plan.

Be realistic with the amount of time it takes, and adjust your model accordingly.

Aiming for a Fixed Budget Number

A second common mistake is targeting a fixed budget number. Operating budgets will ebb and flow as you grow as a business. Even things like server costs are going to change depending on where you are in your development and deployment cycle. Startups should constantly revisit and reevaluate both their assumptions and actuals based on company growth, new and projected revenue, and industry changes over time.

Updating Frequency

A model is only as relevant and current as the inputs. Even 2-3 months without a refresh is enough to make the model out of date and irrelevant.

At a minimum, companies of any size should be conducting monthly rolling forecasts and updating their operating model. Outputs should be compared to both previous months and forecasts to identify any outliers, issues, or roadblocks to plan.

Questions to Ask Every Month
  • What did we accomplish this month? 
  • What did we do differently to previous months?
  • How did we vary from our plan?
  • Where were we over budget?
  • Where were we under budget?
Dynamically Adjust Your Forecasts

In addition to looking at budgets, it's also critical to look at any missed goals or changes to plan. For example, you may have had a senior salesperson projected to start this month, and they ended up late declinging the offer. Not only do you need to anticipate new hiring costs and time, this might also have delated revenue implications. All of these types of scenarios should be accounted for in your forecasts.

Reporting to the Board

For many founders, board meetings are a stressful ordeal where leaders can feel they need to protect their job every month or quarter. While some meetings might be difficult conversations, an effective board meeting should be a time for actual problem solving and collaboration. Ultimately, your board is there to help you succeed and should be your company's biggest fan.

We recommend using board meetings to highlight both progress and challenges and erring on the side of over-communicating. Board members should leave the meetings with homework - ask for introductions and help. The more you can ask them for input and value, the more you'll be able to avoid unnecessary mistakes. Aim to update your board consistently before and after meetings, so nothing net new is every being shared during these sessions.

Note: You can also review our Board Meetings resource for additional information.

Does AWS Count as COGS?

Consider Your Stage of Development

Most companies have AWS and hosting environments. When these costs are specifically for development teams they are generally not considered Cost of Goods Sold (COGS), but rather, part of Operations or R&D.

When companies begin generating revenue, they will likely start to count hosting costs in COGS. When determining if something fits into the cost bucket, ask yourself, "If I sell an incremental unit, will I have an incremental cost?"

As an example, with a SaaS model, there will be initial hosting costs but the more you sell the more those costs will increase - incremental sales = incremental cost. In this case hosting would be buckets under COGS. Credit card transaction fees are another good example; the more customer charges you incur, the higher your credit card processing expenses will be.

Refer to Public-Traded Company Standards

In addition to considering incremental sales to incremental costs, it's also a good practice to look to public-traded companies for guidance around COGS. Public companies are held to an exceptionally high standard around book keeping and will have consistent practices when it comes to COGS. Use public companies in similar industries as a model for where to bucket different costs.

Demo of the Model

The following financial model template has been battle-tested in hundreds of board and fundraising meetings. It's simple to work with and easily customizable. The model template can be found here.  

Model Structure and Takeaways


The Setup tab is your starting point and where you can input your specific operating departments, customize revenue, set CapEx thresholds, add initial hiring expenses and salary differences across geographies, and include funding and safe notes.


The Headcount tab starts off as a forecast but can also become a record of actuals. You can include salaries and start dates, as well as, add a line items for employee benefits or employer taxes. Additionally, there is space to indicate annual increases and bonuses.

Note: Two areas that sneak up on companies are consulting spend and recruiting fees; these expenses should be included in this section.

Outside Services

Another big area of spend tends to be outside services. This includes overseas engineering teams, external legal and accounting, and any outsourced expenses that allow for early-stage companies to stay lean. Make sure to include details about department, category, description, and fees.


Indicate any anticipated capital expenditures, including software spending and depreciation. In addition, new hires will automatically be added to this tab from the Setup tab.

Board Summary

This tab is a useful tool to present to your board. It highlights not only how much you've spent, but your ending cash totals. It also highlights most company's biggest expense - headcount - and indicates how the company is trending in growth.

For any questions about how to use the model or for an introduction to Ryan, please reach out to


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