I think the insight is that if a company has lots of revenue per employee (headcount correlates pretty well with overall operating costs) they'll take that as a signal that they're doing well and can afford to expand. And then they'll do this until they no longer feel like they're in such a secure financial position.
This, by the way, is why the multiplier is lower for well-funded companies - if they have more runway in the bank, they'll feel better about a lower level of revenue per employee, since they don't have to operate at a profit in the short term.
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I think the insight is that if a company has lots of revenue per employee (headcount correlates pretty well with overall operating costs) they'll take that as a signal that they're doing well and can afford to expand. And then they'll do this until they no longer feel like they're in such a secure financial position.
This, by the way, is why the multiplier is lower for well-funded companies - if they have more runway in the bank, they'll feel better about a lower level of revenue per employee, since they don't have to operate at a profit in the short term.