Should Your Company Be Profitable?

Mark Suster just put up a long post on this topic. His message is “it depends” and he explains the rationale for investing in growth vs getting profitable.

I have come to think about this differently.

If you are bootstrapping your company without the help of outside investment (ie angels, VCs, etc), then you have to be profitable from day one. No debate or discussion there.

But if you have the ability to lose money because of the availability of outside investment, then you can and should lose money in the first three stages of your company’s development which are; 1) building the product, 2) shipping the product, 3) scaling the revenues. But once you have achieved those three objectives, I believe you should move on to #4 – getting profitable.

There is this idea that you can’t grow really fast and be profitable at the same time. There is also this idea that you have to keep adding engineering and product resources as you scale your business. And there is this idea that more salespeople equals more sales. I have found that all three of those ideas are wrong to some extent. And I have found that really strong execution in product, engineering, and sales, based on doing less, not more, and based on having a high performing team without a lot of baggage, will allow your company to grow fast and be profitable at the same time.

We have a number of portfolio companies that are now seven, eight, nine, and ten years old that for most of their lives have been unprofitable and focused on growing users, revenues, and the team. I have been working closely with a few of them in the last year or two to help them to change their mindset to get profitable. This has, in some cases, meant reducing the size of the team, in a few cases significantly.

It has been enlightening to watch what has happened with this cohort of companies. They have kept growing, sometimes at a higher growth rate than before the belt tightening. They are better places to work, more stable, more focused, and more successful. They are better companies and they are more valuable companies. They are easier to finance and they are easier to exit.

I would encourage all entrepreneurs and leaders out there to embrace the idea of getting profitable sooner than you might think you can or should. It’s good for your companies and it is good for you.

#entrepreneurship#management

Comments (Archived):

  1. lyuben belov

    Spot on. A little bit of profit solves a lot of problems.

    1. fredwilson

      Yuppppp

  2. Jack Byrne

    I wholeheartedly and wholeheadedly agree. In most cases, being negative profit – regardless of the rationale for growth – destroys all business measures and instinct. Often a $100K negative shift seems like a big deal to a company making $500K – but can be just “more loss” and unfortunately not as big a deal to a company already losing $500K. It’s amazing what rationalizations the brain can build to justify continuing negative profit. Learning this was a huge lesson – like being able to say that the Emperor has no clothes on!

  3. Liban

    Fred;This is the billion dollar question. When the next stock market collapse happens, everyone will ask this question.I believe we all agree the objective of a private enterprise is to earn return on capital, generate a profit. Growth for growth’s sake is illusion and maybe management is being dishonest and distracting investors and public in general.In my humble opinion many firms use growth to hide the structural deficiencies in their business model. Maybe they discount too much or give away products and can never change model.Profitability has been completely ignored and prevailing consensus is growth, no of users, and complete repudiation of the idea of specialization. Many firms believe they can be good at everything.Amazon aims to sell everything and be great at everything, still it failed to nake any significant profit in the last 20 years.Amazon reminds me of Sears 30 years ago. When Sears bought Dean Witter brokerage the headline was Super Market for everything. Amazon P/E ratio is above 100. In finance anything above 30 is pure speculative play with no fundamental economic basis.Ladiea and gents tbere is a lot of money to be made shorting many high flying stocks.Fred; this is a very thoughtful subject.

    1. Pointsandfigures

      Good luck shorting TSLA and AMZN. You will be right someday, but you will need a lot of capital to prove yourself correct. Hey, sounds like the above blogpost! : )

      1. liban

        I agree with your assessment of odds today. But remember once crash comes and the herd starts panicking all bets are off. The flight downhill would be like riding a rocket.By the way Mr. TRUMP as a Manager of the economy will hasten the arrival of next crash.I agree with your assessment that it is nearly impossible to short Amazon and other high flying tech as of now but eventually the dust will settle.

        1. JLM

          .President Trump is shoring up the energy, coal, steel, lumber industries with fundamental and basic decisions which have been overlooked for years.Take as an example Keystone XL, Dakota, declaring the Chinese to be steel dumpers, the Canadian softwood import tariff, the resurgence of coal, the re-opening of Federal mineral lands leasing.Take a breath.The export of coal to China (replacing NK coal), the export of NG to eastern Europe (that is a huge tactical improvement in the vulnerability of Eastern Europe to Russian aggression), the decline of border immigration, the Europeans paying their fair share to NATO.The list — real accomplishments — is long and getting longer.These are all small ball until they are measured in the aggregate and then they are quite substantial.TSLA has been a head fake from the beginning and while Elon Musk seems to be an entrepreneur, he is a master sugar tit manipulator (I guess that is entrepreneurial in its own fashion.)No President “manages the economy.” Presidents create an environment in which the economy can grow and evolve and adapt and blossom.Pres Trump’s predecessor — WTF was that guy’s name — was in favor of penalizing success. That is a change.Even the Fed realizes growth is happening with a 2% inflation target and the beginning of a series of small interest rate increases.I would be more than willing to give Pres Trump credit for managing the economy if it were only true.Pres Trump’s biggest foe these days is the Undocumented Democrats in the Republican Party. The Republicans should never be given a majority as they fail to use it effectively.JLMwww.themusingsofthebigredca…

        2. SFG

          Just remember that the interest rate hike sandbagging went on until a certain president got into office.

    2. Tom Labus

      AMZN throws in a profitable Q once and a while when the shareholders get nervous. The stock fared pretty well during the 08/09 crash. Buffett’s line about seeing who was swimming naked when the tide goes out. Be some sight!!!

  4. cavepainting

    There really is no debate about investing during the phases of building product, getting to product-market fit, and initial sales ramp, and taking losses during these periods.The question is: When do you start optimizing for profitability after that. Do you trade-off profitability for growth using guidelines like the 40% rule? (i.e. sum of growth and profitability(losses) = 40%). When is it too soon and when is it too late?I believe it really depends on a) growth of the underlying market, b) potential growth of the company addressing the market. In some cases, they are the same if the market is being created the company.For example, take the cloud CRM market from 1999-2016 and Salesforce: Profitability really was not a worthwhile goal. Why? Because the company and the underlying market it created was growing at triple and high double digit rates over the last decade and a half. It is now cooling down to ~ 30% per year, but the growth was so profound that the only right thing to do was to pour more fuel to grab as much market opportunity as possible.But most cases are never as obvious or cut and dry. Often the company plans for negative EBITDA, hoping for growth, but the hockey stick growth never comes. Is the market not ready yet, or is the company not executing well? It would need the board and CEO to deep-dive into the reasons and have a very honest conversation about what’s happening and why.For venture-backed companies who have proven product-market fit, and have built a solid customer base, the real question to answer is: Are you leading (or) co-leading the creation of a massive new market? (Think Uber, Airbnb, Salesforce, Lyft, Snapchat, etc…). If there is plausible evidence of this, there should be no hesitation in optimizing for growth. If the evidence is sparse and is more speculative, it is best to be conservative and spend cash wisely.

    1. Liban

      In the case CRM, I wonder if anyone will ever make money in that crowded field. Salesforce made zero dollars in 15 years being public company. The funny thing is they dont even use GAAP accounting rules in reporting quarterly figures.It is a strange situation when a company make no profit in 10 years.10 years no profitability should the company exist; I am not sure.

      1. Dan Cornish

        Yes there are companies that are very profitable in the CRM space. You just never hear about them in the Tech press. They do not have to impress the investor class, just their customers.

    2. PhilipSugar

      I think as usual your comments are spot on. The only thing I would say is you need to take your foot off of the accelerator way before growth slows down.From what I’ve seen that almost never happens.

  5. awaldstein

    Yup!I came up under the tutelage of Silicon Valley leaders that personified that making a profit was the discipline of being in business.Along with the economic value of a brand, the art of strategic selling and the never ending power of community as the market.Jack Tramiel, Steve Mayer, Sim Wong Hu, Umang Gupta, partners Heidi Roizen and Bing Gordon top the list of the ones in my formative years as a market maker.

  6. Jeff Robinson

    Scary that a post has to be written about this to enlighten your audience – Maybe all startups need/should be taught eco 101.

    1. sigmaalgebra

      A good course in economics would say that if you can borrow money at 10% a year and have a use for it that yields 10,000% a year, even if only in expected value, then by all means borrow money ASAP. A good course would understand that business is decision making over time under uncertainty — Samuelson did; so did Dynkin, so did I — and be careful about the best ways to do that. Start by reading some work of R. Bellman.Maybe you had in mind for Economics 101 tough lessons from the school of hard knocks with a lot of emphasis on some version of quasi-religious, highly severe, nose to the grindstone, ear to the ground, shoulder to the wheel, Puritanical discipline?

  7. Salt Shaker

    I’d like to see a company’s stated biz objective(s) 7-10 yrs in w/ no profit? Is it realistic and consistent w/ where they are or is it just some self-fulfilling prophecy? Well before profitability (and way sooner than 7-10 yrs. in) there should be clarity on monetization demonstrated by topline revenue and/or user growth (and ideally both).Does a VC provide guidance and evaluate company performance individually or view/manage in the context of the fund’s overall portfolio, like a mutual fund manager? A broader/macro view by VC’s could lead to a lack of candor and a disservice to underperforming companies and their employees, particularly when there’s not a clear path or realistic strat to achieve profitability.One’s prime earning years are indeed precious. The truth can sometimes hurt, but long term it can be a lot less painful than pursuing a pipe dream.

    1. JLM

      .It is much easier to commit to be unprofitable than it is to become profitable.JLMwww.themusingsofthebigredca…

      1. Salt Shaker

        True, but it’s hard to show no profit in a 3 or 5 year pro forma in Year 5 or 6. At some point, there needs to be a light.Thinking of buying some WMT tomorrow. P/E 17 (AMZN 186) and they know the grocery biz like no other. I’m guessing they’ll benefit more from supermarket disruption than AMZN, assuming the latter even ramps quickly. I also like their recent e-commerce acquisitions. There are far more mass than class customers out there. This isn’t domestic auto biz vs. imports.

        1. JLM

          .There is a huge amount of fly over country that WMT will never have a rivalry from either AMZN or Whole Foods.That is only going to get better and better for WMT.From an investment perspective, you should have been in WMT for the last 20 years.There have been few clearer winners than WMT over the last quarter century.They are only going to get bigger and better.They dwarf AMZN’s grocery business and they are willing to pay up to get techy.JLMwww.themusingsofthebigredca…

  8. prankeapple

    What if said profit comes from clueless speculators driving up the value of your ‘network’ two or more orders of magnitude higher than where it would be if it didn’t have the word blockchain attached to it?I saw today that Reddit (Reddit!) is raising at a $1.7 billion valuation.Gnosis (a project with zero actual users) has an implied market cap of $2.4 billion.I can almost smell Joe Lubin’s lambo from here…

    1. JLM

      .”A bad idea, even when held by a majority, is still a bad idea.””A bad idea with an entrance price, even when held by a majority, is still a bad idea.”JLMwww.themusingsofthebigredca…

  9. Vitomir Jevremovic

    Interesting will be to see profits in the times of a blockchain expansion, companies doing ICOs to raise money, finnacing through market speculation, projects like openbazzar without any margins, opensourced smart contracts.. where is profitability in the times of such disruption? Will it even be cool to be profitable in the old fashioned way? Imagine next distributed social network that will give Ad dollars to its users instead of keeping all profits..

  10. William Mougayar

    I learned this from an entrepreneur I invested in, where she rightfully said it’s important to at least “flirt” with profits, initially. It helps you to know if your model is right, and gives you a taste for profits, for later.

    1. Vasudev Ram

      Good on her.Flirt with profits, initially, marry them eventually – or at least go steady :)”Going steady” slang is from my Archie-Betty-Veronica-Reggie-Moose-Jughead-comics-reading days as a kid.

      1. Vasudev Ram

        P.S. What’s the current slang – will you be my Snap or Tinder or something?Sorry, couldn’t resist.

  11. Pointsandfigures

    The old entrepreneurship professor at the University of Illinois Paul Magelli used to say, “If you don’t eventually make a profit it’s not a business, it’s a hobby.”

    1. Nima Elyassi-Rad

      Unless that person has infinite funds, an unsustainable hobby šŸ˜‰

    2. Rob Cotter

      In that case, Amazon is one hell of a hobby.

      1. pointsnfigures

        There is GAAP accounting, Tax accounting, internal accounting. If you think Amazon is truly not profitable, check which set of books you are reading. I suspect they certainly could be profitable if they didn’t plow all their profit back into growth.

  12. Evan Frank

    Thanks Fred. Great article. This reminds me of a great quote I picked up a few month back on Twitter by @skirani: “Every time I see a startup that scales with a weak product, some part of the org starts bloating”. Happy father’s day!

  13. David C. Baker

    I really think this is a terrific article. I like how logical the steps are and how you allow exceptions in the “system”–but with specific reasoning for each one. I think we’d have a better startup ecosystem if folks bought into this.

  14. Tom Labus

    When you see Uber being hammered you think they could be gone pretty fast but if they were making a boatload of cash, I don’t believe they would be in the same jeopardy.

    1. Anne Libby

      Reports have said that they have 14,000 people — not counting drivers!

    2. JLM

      .Uber is in constant war with its workers. Though there was an excellent DOL ruling/action related to contract workers two weeks ago which nobody has reported on. It solves a lot of problems for Uber. [Thank you, Donald J Trump.]Uber is looking for a new #2, COO, CFO, CMO, and General Counsel.Uber’s CEO is taking a leave of absence.Uber canned more than 20, including Emil Michael #2, for overly bro sexual harassment behavior after the Holder investigation. It is, essentially, a locker room with a steam room attached.Uber showed David Bonderman of TPG the door because he made a joke at a board meeting. They get rid of Bonderman and keep Arianna Huffington.Uber gets its ass handed to it in China.Uber has lost first mover advantage and spawned a bunch of competition.Still, Uber is a going concern. It is burning cash at a remarkable rate.Predictions:1. Uber does not make the cut and gets its comeuppance in a truly extraordinary melt down.2. Travis Kalanick never returns from his “leave of absence.”In spite of all of this, I love their service.JLMwww.themusingsofthebigredca…

  15. jason wright

    What about Snap? Word on the street is that the traditional global advertising cartel control it, as a strategy to thwart G and F. They divert their ad spend to it, but don’t ever need it to be in ‘ profit’ for the strategy to work. In fact the exact opposite to squeeze G and F’s margins.David Heinemeier Hansson;https://www.youtube.com/wat…substitute in so many blockchain ICO startups for the companies he mentions. David’s views always keeps me grounded. good northern European instincts šŸ™‚

  16. PhilipSugar

    This is coming from somebody that loves sales (it took me over a decade in business to realize sales is so important)More Salespeople can equal less sales. Yes if you don’t have enough you will have less sales.But like many things too much is a bad thing.Let me explain why. Actually a VMware salesperson told me best. He said when they were selling the most he had enough opportunities that when a customer would say they needed to think and could he come back he’d say I’m booked out two months. They would buy then.When he territory had shrunk to the point he wasn’t making quotas and was desperate they would ask the same question and he would say when! I’ll make the time. The sale never happened.A ton about sales is confidence and swagger.

    1. JLM

      .Fabulous truth. I have seen this happen in so many ways. A buyer needs to know where they fit in the flow of the market. A seller needs to create an artificial sense of urgency.I once got a big, balky tenant to renew their lease by asking a broker friend of mine to take a “prospective tenant” to look at the space.I wrote into my leases that I could show the space in the six months before the normal end of the lease term if the tenant had not exercised their renewal.The existing tenant was playing me, trying to get a better deal by pretending they were not going to renew.When my broker friend and “tenant” walked through, the tenant asked the existing tenant “how is JLM to work with?”The existing tenant called me ten minutes later to exercise their renewal option, which had expired by then. I renewed their lease, but at a much higher rent.It felt good.JLMwww.themusingsofthebigredca…

    2. LE

      he come back he’d say I’m booked out two months.In case it’s not obvious that is a bit of social proof as well as tempo (and as you say confidence and swagger).Related, my ex wife had an advertising coupon book and would have a 3 or 4 month sales cycle for each issue (was college distribution, spring and fall). There was another business we looked at that had an advertising product which had to sell out an issue say, every 3 weeks. You can predict from your statement both the reason and the success of that. It’s no secret that deadlines work in most cases and work well. Otoh there is always the case where if it’s simply a bluff you get called out on it. [1]It’s funny though you can always tell when someone has read some book on sales. Whatever their approach is it appears staged and non-genuine. The best are the guys who email you and give you a choice of two times to pick from ‘when I am not busy’. They should really get more creative in their game.[1] And the very very important corrollary to this is ‘don’t make open ended offers’. This is at least one of the reasons why fixed pricing with autos does not work as well as cutting individual deals with buyers (where additionally you get more profit from certain buyers and don’t leave money on the table if well done). And deadlines like ‘end of month’ ‘end of quarter’ and so on.

      1. JamesHRH

        Social proof is the real secret sauce in the VMWare anecdote.

      2. PhilipSugar

        I will say this: Reading sales books is great. I implored the Dean Harker of Wharton, then the President of UofD and now the President of the Philadelphia Fed to have a class on sales.He said there was no way to teach it and I said read a book each week and then listen to somebody that had experience talk about it.Yes if you read a book and crudely follow it seems so cheesy.But if you read it and then keep it in the back of your mind it’s great.He would always laugh when he saw me and say here is the M&T guy that loves sales. He was an engineer as well.As for your never making an open ended so critical and you can see the same thread with JLM’s real life story. So right.My only two other points would be this: If you offer a discount you’ve set the priceCertain buyers expect discounts. Enterprise and Car Buyers for example

        1. Jay Janney

          Sales very much can be taught. It can be taught well, or poorly.I’m proud of our University’s Sales program. It’s a niche program (we graduate about 70 Marketing majors specializing in Sales annually). We specialize in B2B high-tech, consultative selling. We spend a lot of time teaching our students to listen, and to discern what problem the customer has. Students all do multiple role plays (recorded and annotated), and internships. We enter 6-8 competitions annually.Basically all our grads have jobs prior to graduation, and nearly all exceed quota their 1st year.So it can be taught.

        2. LE

          If you offer a discount you’ve set the priceGood story follows. Now obviously I am one to negotiate in every situation possible even if just for fun and so on. No stone unturned and I make money doing it as well. Like lot’s of money.When my father passed away a few years ago we all go to the funeral house (the one that everyone in our community uses) to set it up, pick casket, services and so on. Was my mom, sisters and me. They funeral director goes through all the options and then has us look at caskets [1] In the end he adds it all up and gives us the price. We are all sitting there and I am sure our faces are saying ‘ok no issues let’s wrap this up we are tired of sitting here for 3 hours’ (really seemed to take that long ..). He then says “and I will give you a discount of x% off so the total comes to: $$”. Like what? A discount? Wow. Didn’t see that coming. Caught me by surprise. Who knew?I figured out why he did that. And it’s an interesting concept. He needs referrals. And it must be that many people say they can’t afford or ask for discounts (or read somewhere you get discounts; like I didn’t..) so he just figures he better offer a discount or we will feel (after we talk to others) ‘ripped off’. Of course maybe he was just a sucky salesman perhaps. But I rarely run into a situation where someone in a pressure situation like that gives you a discount and they don’t need to. I mean yeah sometimes car dealers do that (so they throw out the first offer to anchor you) but still surprised me.[1] And you’d be surprised how much that matters even when you know it will go in the ground. Seriously it’s like the same thought process as picking kitchen appliances or anything else. Even if you are just reselling or not even using at all. Just has to be right. I wonder if others felt the same (or it was just me?) Actually took some time (and not strictly for the price differences. Very interesting experience that I learned from.

        3. Rob Larson

          I wish you had been successful with Dean Harker – I’d have loved to take that class. MIT Sloan has a great class on sales that I visited during AdMIT weekend – I loved it – it almost got me to choose them over Wharton.

  17. sigmaalgebra

    1) building the product, 2) shipping the product, 3) scaling the revenues.Sure, sure, sounds right. Sounds like the introductory lecture at any of high school Junior Achievement, Sawgrass U Business 101, or, as a former B-school prof, much of one of my all time favorite video clips, right, from Back to School as athttp://www.youtube.com/watc…Sure, for 1) -3), there are such cases. A problem is that for a venture funded startup, 1)-3) are so general they are nearly useless.Let’s see: If the product is a new sports car to have more performance and lower cost than anything from Corvette, Mercedes, Ferrari, etc., e.g., effortless 8- second quarter mile, then 1) building the product is likely a lot of work. But even there might have some exceptions: Mostly just weld up an aluminum frame and suspension members; use a computer to design the carbon fiber body panels and outsource the carbon fiber work and hang the panels onto the frame, get a standard engine block, say, an aluminum Chevy big block, about 600 cubic inches, and add enough force feeding to get the desired HP, outsource radiators, HVAC, seats, glass, brakes, accessories, etc. and, to get around some legal issues, offer the product only as a kit.Much of success in information technology touches on some additional approaches to 1): Be like Plenty of Fish, long just two old Dell servers, wrote all his own code, ads just from Google, and $10 million in annual revenue. If he can have a sofa to sleep on, sit up at a card table and type in his code, have something standard and cheap to eat, etc. then he has a shot at getting the code done.And how much work it is to write the code can vary over many millions of dollars and the financial potential of that code can vary over many billions of dollars. So, part of what is needed is good problem selection and finding a good solution to the problem so that the effort to write the code is nicely small and its financial value relatively large.Sure for 2) shipping the product, that can be important. When I was a B-school prof, one of my students was in a family that killed 5000 hogs a day and daily shipped that product, the fresh pork, 900 miles to market. That was a lot of work. They had their own trucking company. Right, and in the winter a truck could jackknife, slide into and wipe out a toll booth, scatter 40,000 pounds of fresh pork all over the highway — been known to happen. Physical distribution? Sometimes not so easy.But for Plenty of Fish? Sure ship the result over the Internet — fast, cheap, easy.So, there’s a lot of variation in 2).It goes on this way: At every step in the business, the work can be either (A) a long slog of mud wrestling and crawling in a dangerous swamp or (B) a short, easy walk along a pretty path and cases between these two.Moreover, just now, for information technology, the prices of processor cycles, main memory, mass storage, data communications rates, operating system software, middle-ware, open source software, software development tools, etc. are so low that they represent a grand new opportunity.So, net, for 1)-3), there is huge variation.

  18. TeddyBeingTeddy

    Profit can also be the difference between self happiness and depression for many entrepreneurs.

  19. iggyfanlo

    This is probably the first post where I agree 100% with it… every word is spot on

  20. Ronnie Rendel

    When I started reading avc (2009) I though vc was a gift to humanity, making good ideas into companies driving sustainable value etc. What I learned about the tech business, networks, decentralized networks, block chain, never mind MBA Mondays, it all formed into a hobby that turned into a prototype that turned into a company of 4. It’s all thanks to this blog.But as I started talking to more VCs, I see a different reality (maybe because it’s 2017 but not really). I see a crown following the same exact formulas to ignore or irrationally chance the same companies following the same pattern. I don’t see creativity, deep investment thesis, or very deep involvement in discussion or ideas. 1 exception is usv really which is why you have Coinbase and do many other leading startups.Fred taught me about network effects years ago, but my seed investors don’t get it. They don’t read Fred’s blog. I’m trying to explain to them how life dashboard is a network built on top of Gmail’s most amazing global network, hosted on Google’s cloud. Fred’s blog post on Ether taught me that I should reward LD early adapters (we finally got 1 last week) with LD coin, and that every LD user account should come with an Ethereum wallet. I literally learned it in this blog, then researched, then discussed it with my cofounders.It’s a rant, sorry. But I read Mark’s post earlier this morning, and I love his perspective usually, but in the diclscussion of profitablity vs growth he did not mention network effects and in general the article was a for a b2b saas startup. What about consumer products? Networks?Anyway, the vc rant was coming for a long time and just caught a ride on this post. I would love to ico before ever needing to take vc money. But building a consumer internet product, and a network, we need advice and support from a VC more then we need money. And there seems to be a shortage of vc offering real value beyond money. I know I’m biased, but am I wrong?

  21. JLM

    .The issue is not whether a company is currently profitable; the issue is what is the plan to become profitable?”The trend is your friend” and if there is a clear trend line which ends in profitability then there is no reason not to follow the trend.If profitability requires some extraordinary happenstance over a 5-7 year period to happen, then it is a mistake. Too much stuff changes over that time period, particularly in tech.JLMwww.themusingsofthebigredca…

    1. JamesHRH

      CDN media entrepreneur Ted Rogers was never profitableā€¦.because he was constantly inviting in the next big idea. But the trend was up and to the right: radio, print, cable, cell phones.

    2. SFG

      You listening to JLM, Elon?

  22. Nima Elyassi-Rad

    Alas most raising money are effectively asking for a paycheck to tinker.In the olden/golden days, folks wouldn’t quit their day jobs and ask for a hand out. They’d keep their day jobs, work 7-midnight and on the weekends to build something/anything before seeking outside financing. Cynicism aside, I do believe the best entrepreneurs still do it this way.Someday, hopefully, we’ll dispel the myth that profitability and growth don’t go hand in hand.

  23. Salt Shaker

    What’s the avg. number of years before USV backed companies reach profitability? There may not be enough data points to generate high statistical reliability, but there should be enough data for directional learning. Each biz and industry admittedly is different, but with a consistently executed investment thesis (e.g., network effect), USV should be able to calculate meaningful probability curves at various time intervals.

  24. William Mougayar

    When I worked at HP (for 14 years), Profits was the #1 Objective. Customers was #2. The reasoning was that if you’re not profitable, how can you acquire, take care of, and retain customers? And Profits funded Growth the 3rd Objective. Every manager received a detailed P&L statement each month, even if it was on paper. But it all rolled-up into the real P&L. Key is to give financial transparency to your managers about the cash flows and costs of your business, and make them accountable for their part.

    1. Salt Shaker

      Public vs. private. The goal posts get moved up to midfield. Points on the board required.

  25. Vasudev Ram

    Completely off topic (except it refers to the title of the post) – just noticed that in the post title, the letters f and i of the word “profitable” seem joined together. Freaked me out a bit initially (not in a scary way, just in a “weird!” way). Don’t remember seeing this before anywhere. Wonder if it is some CSS issue or just the font is that way.Edit: I checked – all the other letters in the title are separate from each other.

    1. Sprugman

      Those are called ligatures. They’re considered good typography. There are certain combinations of letters that create challenges, such as two t’s or two f’s next to each other, or this case, an f and an “i”. The end of the curvy part of the f runs into the dot of the i. So instead of having them clash awkwardly, they’re combined into a single glyph.

      1. Vasudev Ram

        Interesting, didn’t know that, thanks.

  26. msuster

    Thanks, Fred. You and I are, as usual, in the exact same position in this regard. I push for reduced burn rates and profitability and pragmatic growth. What prompted my article is the blind statement that “this company isn’t profitable and therefore must be a house of cards” mentality of people who don’t take the time to understand the accounting or economics of startups.One small additional thought. I have always been from the school of thought that you can’t just keep adding sales reps to fuel your growth but the one person who has proven me wrong consistently is my former boss Marc Benioff. I remember him telling me how we’d get to $1bn in sales and there was a predictable nature because he could add sales reps at a predictable level and with consistent results. He’s now at $8.4 billion in sales and $61 billion market cap. He’s always run Salesforce.com differently than my gut feel would have said and he’s consistently been right. I’ve learned much from Marc.

  27. Vasudev Ram

    Interesting topic. Coincidentally, I just recently saw this related post recently – it’s by Jason Fried of 37 Signals, makers of BaseCamp, which is where David Heinemeier Hansson, creator of Ruby on Rails (used by lots of startups), works and is a partner:The Calm Company (our next book):https://m.signalvnoise.com/…DHH tweet about it:https://twitter.com/dhh/sta

  28. JLM

    .In a rare Sunday ruling, the SCOTUS ruled today in favor of the Institute for the Eradication of Overused Cliches that use of the words “spot on” were an affront to humanity, a war crime, and would henceforth be punishable, under Federal law, by no more than five years in a transgender prison and a 500,000 bitcoin fine or both.The majority opinion was guest written by Daffy Duck who wrote, “That’s all, folks. No more “spot on” for anybody.”The minority opinion said Daffy was a “silly goose” which forced DD to say, “Fuck you, I’m a duck.”JLMwww.themusingsofthebigredcar

  29. sdjuarez

    great article

  30. Thomas Luk

    A business is there to make profits. So if you can you should…If you want an exception from this basic norm, tell me the reasons why you should not? Not making profits as a business should be explained šŸ˜‰

  31. JLM

    .Agreeing with you more than you agree with yourself. Will go eat an organic bagel in your honor.JLMwww.themusingsofthebigredca…

  32. awaldstein

    wish we controlled the channels for distribution as they do in the software business as well.

  33. LE

    Saw your driver at WF this am.

  34. awaldstein

    you have a great product and a good story.i know the ceo and he knows his shit! and understands margins and costs as well as anyone.its the parts of food distribution that no one can control that is troublesome. And the realization that whole foods and some distributors use artisanal success as market proof for building their own replacement.met with southern cross, what is left of hadden house last week and that was their entire model.like microsoft of old.

  35. awaldstein

    And bread is the staff of life. Blended greens sure ain’t–well for me they are!