There are certain topics that even some of the smartest people I talk with who aren\u2019t startup oriented can\u2019t fully grok. One of them is whether profitability matters. It\u2019s common cocktail party chatter to hear people confidently pronounce that some well known startup is sure to blow up.<\/p>\n
Or you know the other one\u200a\u2014\u200athe one where Snapchat lost $2 billion in just one quarter. Two-fucking-billion! What a disaster! Except that they didn\u2019t actually lose $2 billion in cash. It was a stock option incentive related \u201cexpense\u201d but I bet you didn\u2019t know that because in an era where we only read the headlines\u200a\u2014\u200athey 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.)<\/p>\n
\u201cHow could they succeed when they\u2019re not even profitable!\u201d<\/p><\/blockquote>\n
If you hire 6 senior sales reps in January at $120,000 \/ year salary then you\u2019ve 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\u201312.
\nI know this seems obvious but I promise you that even smart people forget this when talking about profitability. 70\u201380% of the costs of most startups are employee costs so what you\u2019re really talking about when a company is unprofitable is that they are growing their staff ahead of their revenue.<\/p>\n","protected":false},"excerpt":{"rendered":"There are certain topics that even some of the smartest people I talk with who aren\u2019t startup oriented can\u2019t fully grok. One of them is whether profitability matters. It\u2019s 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\u200a\u2014\u200athe one […]<\/p>\n","protected":false},"author":25,"featured_media":3664,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[94],"tags":[89,90,91],"class_list":["post-176","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-directory","tag-listing","tag-theme"],"yoast_head":"\n
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