Costly Signal Stage Framework
A framework defining what constitutes a 'costly signal' demonstrating authentic reconciliation commitment at different company stages, from seed to public company.
A framework defining what constitutes a 'costly signal' demonstrating authentic reconciliation commitment at different company stages, from seed to public company. The principle scales: what matters isn't absolute dollars but meaningful sacrifice relative to resources.
When to Use Costly Signal Stage Framework
Use when determining appropriate scale of reconciliation response based on your company's size and resources. Helps calibrate response to be meaningful without being existential.
How to Apply
Seed Stage ($0-$2M ARR)
Scale: 1-5% of monthly revenue. Examples: 2-4 weeks engineering time for fix ($37K opportunity cost), full refunds + 2 months free shipping ($22K), founder personally reaches out to every affected customer (15-30 hours).
Questions to Ask
- What's 1-5% of monthly revenue?
- Can founder personally contact affected customers?
- What feature delay is acceptable?
Outputs
- Sacrifice amount appropriate to stage
- Personal founder involvement
Series A ($2M-$10M ARR)
Scale: 1-3% of quarterly revenue. Examples: Hire dedicated role (Security Engineer, $150K/year), implement new QA process slowing velocity 15-20%, exit problematic partner contract (5% ARR).
Questions to Ask
- What's 1-3% of quarterly revenue?
- What role should we hire?
- What revenue are we willing to sacrifice?
Outputs
- Structural hire
- Process changes
- Revenue sacrifice if needed
Series B+ ($10M-$100M ARR)
Scale: 1-2% of quarterly profit. Examples: Discontinue profitable-but-problematic product (8% quarterly profit hit), create permanent compliance team (8 FTE, $1.2M annually), tie 20% of exec bonuses to reconciliation metrics.
Questions to Ask
- What's 1-2% of quarterly profit?
- What product/feature changes are needed?
- How should executive comp change?
Outputs
- Product changes
- Compliance infrastructure
- Executive incentive changes
Public Company ($100M+ ARR)
Scale: Meaningful % of quarterly profit or market cap. Examples: Set new industry standard constraining own operations (J&J tamper packaging), divest business units (Siemens exiting countries), accept temporary stock price hit for long-term trust.
Questions to Ask
- What industry standard should we set?
- What operations need fundamental change?
- What market cap impact is acceptable?
Outputs
- Industry-leading standards
- Operational transformation
- Accepted short-term financial impact