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.
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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.

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

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. 

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?

Martin Omansky Independent Venture Capital & Private Equity Professional

August 26th, 2016

Ken: Agreed. And thanks for seconding my motion. Sent from my iPhone

Peter Crane Managing Director at Remington Capital

August 25th, 2016

It can depend on the sector but generally early stage companies sacrifice profit for growth. Showing that something has massive potential is clearly enough to entice folks to invest and/or purchase your company, whereas showing profit but not a clear path to scale the biz to a larger audience, is not so helpful.

Sandeep Rao Owner at Starting New Businesses

August 26th, 2016

Profit is the priority, first check any activity is profitable. Growth can be thought of only after profits come in. Profit can be plowed back in for growth too.

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.