Make Your Startup Profitable From the Beginning
If your company isn’t profitable yet, you’re probably hearing the clock ticking a little louder these days.
You’re not alone. My inbox is filling up with panicked founders trying to figure out how to get profitable immediately — yesterday, if possible.
Here’s how the wake-up call came for one of them.
A Promising Fundraise Turns Into a Chicken and Egg
A tech entrepreneur with a killer idea had done all their homework — their business model was polished, their financial projections were airtight. They had a little traction under them. They’d been networking, and had already made a few solid investor connections. They were finally ready to go out there and start an honest-to-goodness, future-is-bright fundraise.
Then the ground shifted beneath their feet. Economic instability reared its ugly head, and the venture capital community they’d been networking with, in unison, started talking about how they’d been requiring revenue and profitability all along. Try again later, they said, once some revenue was coming in.
Welcome to the party, pal. It’s a startup-killer Catch-22. You need to show profitability to raise money, but you need to raise money to build and sell the thing to make the profit to show the investors.
This chicken-and-egg funding paradox is a cycle that happens over and over again. Sometimes it happens broadly when macro economic conditions collapse, other times a specific industry or technology flames out, but more often it’s at a granular level, maybe when some of those airtight financial assumptions don’t pan out.
Regardless of the catalyst, at some point, your company is going to have to be profitable. So why not be profitable right out of the starting gate?
Three Steps To Early Profitability
You know that old meme: Step 1 is a great idea, Step 2 is a question mark, and Step 3 is profit? This is the opposite of that.
Over my 20-year career in startups, I’ve always preached revenue first, profit second…