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May 31st, 2014 Share: Share on Twitter Share on Facebook Share on LinkedIn

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.

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