Should Startups Focus on Profitability or Not?
There are certain topics that even some of the best journalists can’t fully grok. One of them is profitability. I find it amusing when a journalist writes an article about a prominent startup (either privately held or preparing for an IPO) and decries that, “They’re not even profitable!” I mention journalists here because they perpetuate the myth that focusing on profits is ALWAYS the right answer and then I hear many entrepreneurs (and certainly many “normals”) repeating the same mantra. There is a healthy tension between profits & growth. To grow faster businesses need resources in today’s financial period to fund growth that may not come for 6 months to a year. If you hire 6 sales reps in January at $120,000 / year salary then you’ve taken on an extra $60,000 per month in costs yet these sales people might not close new business for 4-6 months. I know this seems obvious but I promise you that even smart people forget this when talking about profitability. Exec Summary: As I like to say,
Related: Start-ups & Entrepreneurship
• Board Observers Weekly - March 4th, 2014