Site logo

Should startups care about profitability? More news at 10

There are certain topics that even some of the smartest people I talk with who aren’t startup oriented can’t fully grok. One of them is whether profitability matters. It’s common cocktail party chatter to hear people confidently pronounce that some well known startup is sure to blow up.

Or you know the other one — the one where Snapchat lost $2 billion in just one quarter. Two-fucking-billion! What a disaster! Except that they didn’t actually lose $2 billion in cash. It was a stock option incentive related “expense” but I bet you didn’t know that because in an era where we only read the headlines — they must be a train wreck losing billions. (They actually lost about $175 million in cash in that quarter, FWIW. See appendix if you want to know more on this.)

“How could they succeed when they’re not even profitable!”

If you hire 6 senior sales reps in January at $120,000 / year salary then you’ve taken on an extra $60,000 per month in costs yet these sales people might not close new business for 6 months. Your profitability will go down for 2 quarters while your growth may increase dramatically in quarters 3–12.
I know this seems obvious but I promise you that even smart people forget this when talking about profitability. 70–80% of the costs of most startups are employee costs so what you’re really talking about when a company is unprofitable is that they are growing their staff ahead of their revenue.

Comments

  • No comments yet.
  • Add a comment
    Compare Products
    No products were added to compare list
    Return to Shop
    Camera
    0 customer review
    1,000.0012,000.00
    Revo
    0 customer review
    Placeholder
    Reverse Withdrawal Payment
    0 customer review
    0.00
    Placeholder
    Claim Listing Package Subscription
    0 customer review
    /day
    Custom Photography
    0 customer review
    Basic Photography
    0 customer review
    25,000.00
    Silver Photography
    0 customer review
    50,000.00
    Gold Photography
    0 customer review
    100,000.00
    Platinum Photography
    0 customer review
    200,000.00
    Product Eight
    0 customer review
    9.99