Startups · Entrepreneurship

Profit vs. Growth?

Tanya Prive

August 25th, 2016

A lot has been said on this front. Especially from the perspective of early stage startup investors. I wonder what is your opinion on which one really matters at an early stage and why. Would love to hear your thoughts.

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

August 25th, 2016

If you cannot run your business profitably, why bother?  Using profits to grow is wise if the growth brings additional efficiency and additional profits.  Business that grow too fast without a sustainable base are likely to fail.

Robert Hurst Robert Hurst, Co-Founder at Audio Network Group

August 25th, 2016

I would advise any founder of an early stage business to do whatever increases your chances of surviving through to the next financing round and securing that cash before the cash runs out.

Never run out of cash !!

Unlike the founder the investors with balanced portfolios are rarely taking the same level of risk as the founders

As an early stage investor taking a punt that the investor can afford to lose the risk profile is often very different from the founders

Dawn Fotopulos HiddenProfitProphet.com - I help small businesses find hidden existing profits | Award-Winning Business Author

August 25th, 2016

I'm on a mission to teach the difference between 'growth' of your client base and revenues vs. growth of bottom line and net income. Most SMB have NO idea there's a difference. Millions of them are panicked over the inability to pay the bills, so they're discounting their products and services to get the sale, improve revenues while destroying bottom line. Then they can't figure out why they're working 20 hours per day and not making any money. I'm addressing this with the small business community at Quickbooks Connect in Silicon Valley late October, 2016.

Nedko Nedkov Brandvertisor: Free Ads Management for Startups

August 25th, 2016

Growth was enough a year ago.
Now everywhere I hear show us revenues and case studies, good team and eventually smooth working beta and you are welcome..

Peter Crane Managing Director at Remington Capital

August 25th, 2016

Isn't this a sector specific question? Think of all the tech companies that have been sold for millions or even billions without showing profitability. Even in the CPG sector I can say with confidence that nobody expects profitability in less than about 3 years. So what sector are we talking about here?

Andrea Raimondi Computer Software Consultant and Contractor

August 26th, 2016

Hi!

It seems to me that too many people mistake "revenue" with "profit" and that's where a lot of companies go wrong. When you say "revenue", you mean the monies you take in before you take out all costs. Profit, instead, is what you're left with after you covered all costs. If you can't cover all of your costs, then you have a negative cash flow, which can be very bad if you are not doing it on purpose. 
For an example, look at Amazon: it ran on negative cash flow for years, but it was intended to be so to gain an insurmountable edge in the marketplace and look where they are now! However, the profit potential for Amazon was such that this strategy made a lot of sense and not all companies have this sort of potential, so this is not something that can be applied to all. Another thing that has to be considered is that growth costs not just in terms of investment but also in terms of support: the more customers you have, the more complaints you have, because, well, statistics! Managing customers is time consuming and, sometimes, resource consuming (money in various forms, computer systems, etc.) so it ends up affecting your bottom line negatively. It is a very delicate balance to strike. 

Eric Sullivan CEO at FoundationLab

August 25th, 2016

In my experience at least how I have always run my companies has been focused a real combination of the two. We always bootstrapped from start to exit so profit was important for us to grow. I feel that its important for a company to focus on profit as well as growth because if you have someone carrying you round after round, have you ever really built a successful business if it isn't self sustaining. Now this is my personal opinion and if your plan is to build a product and sell it then obviously that's great. But for me personally and the few companies I have sold this has always been a metric that has been important to me.

Ema Chuku Designer. Product Developer. Founder @ NuPad

August 25th, 2016

On what grounds? Regardless, it's probably not something of a comparison because both are interchangeable and connected. One triggers the other and vice versa. So for survival grounds and instincts, take the route of the one that's more likely to trigger the other.

If one must chose, then with respect to Early Stage that's self funded, the "Profit route" first makes about sense.
 




Stephen PMP Project Management Professional

August 25th, 2016

Yes. With a crystal ball that reads "this business has a bright future," the answer should be Growth. 

With a real-life situation, when a business is investable , the answer is still growth.  
Investors want starving artists; visionaries want profit. 

Thomas PhD Director of Operations & Growth at Brighterion

August 25th, 2016

It will depend on a few factors: (0) the type of company it is, (1) cash on hand vs. burn, (2) revenue per customer vs. customer acquisition costs, (3) ability to raise additional capital assuming not 1 more paying customer in the current funding climate.

Growth alone is not sustainable for 99.9% of companies. That said, some business models and industries require critical mass to ignite the network effect (social networks, 2-sided platforms like Airbnb etc.). However, there should always be a clear path to revenue and profitability. For companies that can earn revenue from customers without a network effect, customer acquisition costs should be kept to an absolute minimum. Of course, this may inhibit growth. However, as the funding climate turns cold, companies without a clear path to profitability will be unable to raise additional rounds while continuing to burn cash on hand.