Last week, I had the opportunity to talk with a successful tech entrepreneur about his journey. Deep into the conversation, we reflected on the boom years of 2020 and 2021 and then the lean years from 2022 to today. That transition, from growth at all costs to measured growth focused on capital efficiency and the quality of the business model, was incredibly difficult.

During that conversation, he used a phrase I hadn’t heard before but that must have been popular at the time: “grow, margin, burn.” It really resonated with me.

As COVID pulled forward a tremendous amount of demand early in the pandemic, the prevailing strategy was “grow, grow, grow.” But as the pandemic eased, interest rates shot up, and valuations fell off a cliff, the mantra shifted to “grow, margin, burn.”

Let’s take a look at each:

Grow is the easiest. We want to capture more market share, expand into new geographies, sign more partners, and grow the business as fast as possible. Growth is at the core of entrepreneurship.

Margin is a bit more complicated. Margins represent the revenue of the business minus its costs. Gross margin—the revenue less the costs required to service customers—is the most commonly discussed measure. For example, if you have a dollar of revenue and it costs 20 cents to deliver that revenue (due to hosting fees and support costs), your gross margin is 80%, which is very good.

During the boom times, it was easy to ignore margins and spend money on things that hurt them in an effort to grow faster. Some businesses were valued like software companies, but their gross margins showed they were anything but.

Finally, we have burn. Burn is the amount of money a startup loses each month and must be analyzed in the context of growth and scale. A popular metric is the burn multiple, which is the net new revenue divided by the net burn. The goal is to show how much new revenue is gained for every dollar burned.

When a startup spends one to two dollars to achieve one dollar of new revenue, it’s considered healthy.

We’ve been in the lean times for several years now, excluding the AI boom, and entrepreneurs in the current grow, margin, burn phase would do well to recognize that economic cycles always repeat. It’s worth doing the mental exercise: what might the next grow, grow, grow cycle do to your business? What changes would you make, if any? And vice versa, if you happen to be in a grow, grow, grow phase now, what lessons from grow, margin, burn would you carry forward?