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Should Startups Care About Profitability

Do you think entrepreneurs launch their businesses to do charity? Of course not!

Gaining financial independence is one of the primary driving factors behind launching their businesses. And the same financial freedom is obtained through generating revenue and making profits.

True, startups should not focus only on profitability. But, profit is a key motivating factor that pushes entrepreneurs to expand their boundaries and work harder to bring real change to their customers’ lives.

Some of us have probably read in our business classes that if a business is making a profit in 6 figures or more, it is deemed successful.

However, if we do a real-life case study on some successful startups, we realize that most of them took years to save money after catering to operational costs and other expenses.

The inability to generate revenue and make a profit didn’t put them out of business at all.

Amazon, Facebook, Google, and others on the list didn’t focus on profitability only in their early years. For them, surviving and growing gradually might have been the impetus to keep pushing further.

Profit probably came much later in the picture.

The matter in question is quite subjective, so to speak. Different people might have different opinions about the same.

But, if we have to answer the question, we can say yes, profit is important, but business growth is more crucial.

If your business reaches a stagnant point, its period of existence will get cut short by a few years or more.

Think about it: Your startup is generating enough revenue for continuity in the competitive world. Yes, it is minting dollars in terms of profit. But, in terms of growth and expansion, your business has reached a tipping point from where it cannot go further.

Do you think such a company can survive for a longer duration?

We all know that at some point in time or other, markets reach a saturation point. If businesses fail to expand to different niches quickly, they can easily reach stagnation. They will still make profits.

But, with market saturation comes a drop in demand for services your business was catering to. Eventually, your business will not have enough customers to avail of your services, and you will lose business.

And, before you wake up from the sweet bubble, your business has reached the point of no return. In short, its time is up.

Yes, profitability is essential, but it should follow after:

Winning new users/clients/customers

Retaining a band of loyal and active customers

Reducing cost/acquisition

Generating more gross revenue

Earning a handsome ROI

Also, we like to point out that profitability cannot determine your venture’s success. We are not ignoring the profit factor entirely, but the ultimate success relies on the abovementioned factors and how quickly it grew in the given period.

Profitability is a constant variable.

If all the above factors are checked, profit will follow.

Instead of focusing only on making profits, companies should change their perspectives to accelerate business growth.

That’s because if there’s no growth, there’s no chance of earning profits. And business growth is important because of the following reasons:

#1: Gives Startups a Chance to Get More Investors

Facebook, for instance, took five years or more to generate enough revenue. It was not making a profit in higher denominations in the early years. Today, it is one of the most profitable businesses out there.

So, if our focus is solely on profit, the opportunity to invest in business growth will remain limited to earning a profit margin only. It is hard to expect a good profit margin in the initial years.

If the focus remains on profiting, businesses will never have enough funds saved to invest in growth, R&D, technology, marketing, and expansion. Approximately 80% of the revenue will be kept aside to meet expenses and pay operational costs.

Do you think investors will be interested in investing their money in companies like yours?

If they see no prospect of future growth, they might not even consider your company for investment.

That’s because a company with an uncertain future will never earn a high-profit margin apart from whatever it is currently earning.

And with zero investment, growth and profitability will remain unachievable variables for your business.

In short, it is as good as a business that went out of service or is soon to be!

#2: Makes Startups More Agile

The world is in full gear, and everyone is racing and competing to reach the end line first.

Businesses strive hard to encroach upon virgin territories through constant innovation to gain a monopoly over the niches before others. There’s a continuous need for businesses to step up in their efforts to become the first player in the market.

That helps them to win a good market share and run a monopoly business.

So, companies must be more agile and quick in identifying opportunities before their competitors. More importantly, they have to optimally utilize the given opportunities to retain their hold over the market and stay ahead of the competition.

Startups are more agile as compared to already established businesses. However, investment is required here to make such game-changing decisions.

If businesses are more concerned about retaining the same profit margin all through, then it will become quite an arduous task to convince investors to take risks and forget about profit for the time being.

We all know that you can hardly taste success when you try something entirely new and different for the first time. Success eventually comes after years or months of continuous struggle and multiple failures.

Likewise, profit will follow, but that might take about a year or two.

So, you are not only expanding your horizons; you are putting your business in full growth gear. Your business growth attracts more investors, and with more monetary resources, you create opportunities for your startup to make more profit.

That means your business has more than two channels to earn more money.

#3: Allow Startups to Make More Profits

Since the ultimate goal of all businesses is to make a profit, this is one variable that remains true and constant for all ventures, irrespective of which industries they are focused on.

Even though your business experienced a high-burn rate earlier, you will eventually see profit in handsome figures.

That’s because making a profit is what all entrepreneurs aim for, but that is achievable through continuous development and growth.

The bottom line is…

Yes, making a profit with your business is the long-term objective, but that variable cannot be the only factor in determining your business’s success.

Businesses grow through tumultuous years.

Their journey is quite like a rollercoaster one. They face multiple challenges, overcome zillion failures, and taste many successes. Their never-ending growth, development, and survival spirit during trying times make them successful.

Making profits along the way keeps them going. So profit and growth should go hand-in-hand to make a venture successful.

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