The one and only Mark Suster has done it again. In a long blog post, the entrepreneur-turned-VC-turned-Philosopher wrote about profitability in the startup world (and introduced this writer to the word ‘grok’).
Many people outside of the startup world (without understanding the strategy) pronounce the death of successful startups because they operate at a huge loss. Uber being the most obvious example.
Startups need to grow, and the inevitable result of growth is incurring large expenses to facilitate technology, hiring and marketing. So yes, a startup may be profitable, but if it falls into the ‘SME’ category, it may struggle to grow large enough to compete with inevitable competition.
In this situation it will either get stomped-out or stay as an SME forever (which is perfectly fine).
That being said, some companies should focus on profitability. They would fall under the ’boutique’ category and are unlikely to raise funding because VCs care about growth above everything.
The problem is, a lot of Founders don’t realise they are sitting on a boutique company and treat it like the next Facebook, incurring debt for a product that will never become big enough for Grab-type success.
So, what should be done about this? Should startups focus on growth? Profitability? And what metrics can they use to figure out what is best?
Let’s discuss below!
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