Starting up is an interesting zone to be in. As in the popular culture, it is about being your own boss, working at hours of your choice, going to office in crox and building your own team! However, as much as it is about the fun, startups also involve some real, hard work. It involves taking some really tough calls, building robust plans, facing massive setbacks, and still driving results at the end.
One of such key points of discussion in the startup world is weather startups should focus on profitability or not, and if it should, what is the right time for it? Now there are two very important components of the life journey of a startup – growth & profit.
While in the long run, every startup wants both growth and profit, but in the initial days, one thing comes at cost of the other. You can either make your startup grow and expand to its full potential, or you can focus on profits. A broad choice has to be made within the first few months into a startup.
Weather a particular startup should put growth first or profit, is something that is very subjective and caries from case to case and from startup to startup. A lot of factors come at play in deciding which way the startup turns – are there any investors in the picture?; If yes, what is their attitude and what are their expectations?; What is the cost of growth?; What are your personal expectations from the startup and how much time are you willing to commit?
The rule of thumb is that if you are looking for long term and eying to make your startup the next big thing, sustained growth is of utmost importance. You can forego the profits initially in such a case, while investing all your money in growth while minimising the operational expenses. The startup can be monetised at a later stage, when the returns will be much high and the potential of growth even higher.
However, there may be cases when a startup is not pretty sure of the scope of growth, or if growth is bound to be slow due to inherent factors like tough competition and legalities. There can also be cases where the investors are pressing for profits and are not particularly patient. One can start to focus on profits from day one itself in such scenarios. Exiting from a startup, if you may want to, and that too without major losses is a big advantage of following this profit-driven approach.
What happens many a times is that the profit and growth both go hands in hand. Profit is needed to fuel growth, and growth is needed to drive profits. It is a catch 22 situation. One has to strike the right balance between the two sides of the scale in such cases.