Importance of growth over profit for startups

Importance of growth over profit for startups

Summary: As entrepreneurs look to build a startup, it's essential to evaluate the role of early growth over profits to reach their ultimate goal and leave a great legacy.

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TOPICS: Start-Ups
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An interesting question sometimes that many entrepreneurs are always stuck with is about the overall picture of their startup and what matters most?

Their dreams are always driven by a passion for the product they build or problem they try to solve. At the end of the day, a lot of times, entrepreneurs are driven by a goal that they have set for themselves right at the time they've formulated their startup idea, wrote the business plan and created a dream that they're willing to fulfil at a cost that cannot be measured in mere cash or profit or even for that matter how much fame and success it yields them.

There are plenty of examples that showcase the attributes of targeting the goal and actual problem solving, before even a question of monetization arises. Many startups today have realized that traction, userbase, overall growth has quite the advantage for many startups and probably investors realize that as well. But at the end of the day how one views the startup overall in terms of its valuation and what matters more at what stage for entrepreneurs  in terms of growth versus the profits they bring in, can be tricky business. 

Also a lot of times, sometimes smart entrepreneurs and even investors realize that if your product is good and has a robust plan, then growth would certainly be key and being able to build traction to build a stronger growth plan. A lot of investors do feel profits are important and a startup that cannot bring in the revenue may be of less value, however smart investors feel that early growth and revenue or optimization later can cut it for them. Generally since technology startups are profitable, it won't be that big a deal, if the startup isn't profitable now, but is two or three years later. 

On many occasions, the timing of profits is something of a risk many investors are willing to take. The probability of the profits is always a dangling sword when it comes to tech startups, if you look at an early stage. But certainly there are startups who get acquired by larger players for the extensive hardwork they've put in for their product. And I'm not saying that it's a guaranteed strategy for tech products to focus on these days. It's just important to build a product that truly has a focus on it's key principles, the problem it solves. Eventually, profit will certainly be part of the equation.

A very good example in the Indian startup ecosystem is Redbus. How it has transformed such a simple thing as booking buses by building the platform and putting in very rigorous work into getting the backend sorted and not focusing so much on profits they received from tour operators, as much as on scaling their startup in terms of overall early growth.

And a lot of times the profits don't end up accounting for the shortcomings of your business. It also doesn't mean that the business will be sustainably successful or whether it'll scale. 

Profits do mean that a startup has more leverage, more time and a better understanding of its business model. So being profitable is important to investors but it's only one of a group of factors. But at the same time, for entrepreneurs the journey should be about creating a value that can go above and beyond those profits that they make for themselves and for their investors. What do you think about it?

Topic: Start-Ups

Srinivas Kulkarni

About Srinivas Kulkarni

Srinivas is an avid blogger and a technology enthusiast who has worked for a couple of digital/tech startups in India since 2010. He has also worked with a few technology clients dealing with tech startups in India and Asia-Pacific, giving him an insight on the country's startup space. In his spare time he listens to audiobooks, podcasts and is a passionate travel blogger.

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  • However...

    ... Ferengi rule of acquisition #47: Never trust a man wearing a better suit than yours. And... also, Rule #59: Free advice is seldom cheap. I'd also add, Rule#102 (paraphrase): Everything decays in the end. Gold, however lasts forever.
    Kostaghus