Sat, May 31, 2014

Growth vs Profitability

There are largely only two ways to build a company: Focus on growth or focus on profitability.

In the first case you plough all your capital and income (and then some) into activities which aim to grow your company — with the assumption that fast growth is paramount to capturing a large-enough market to later become profitable. That’s essentially the strategy most tech companies follow. It’s fun, exhilarating — and risky: If you fail to get financing you’re done. Your investors can take over (as they often own a large chunk of your company). The pressure on the leadership team is often enormous.

And then you can build a company which focusses on profitability. Make cash-flow king and build a business which can sustain itself and grow organically. It’s also fun and exhilarating — though the fun and exhilaration usually doesn’t come from spending money (as in the former case) but from making money. Fundamental difference! It’s still risky — but generally speaking less so (unless your market is in a capture-the-flag mode). You take financing on your terms (when you’re profitable you come from a position of strength when negotiating terms). The company is often yours alone (or has minority shareholders). The pressure is less.

Both models have their pros and cons. You decide.

Want more?

← Surround Yourself with Awesomeness

Let’s take this to your inbox