Startup’s profitability is a growing discussion these days. It’s a recurring topic that gets more discussed when financial people feel we are at the end of a bullish cycle, and that feeling is here.
Profitable startups have inevitably a higher survival rate during downturns, check 2000–1 or 2008–9.
Now, should your startup aim for profitability? which often means growing slower.
I think there are 2 key criteria to take into account
1) Am I on a “winner takes all” market? or can 2–3–4 competitors coexist in this market. If you are a “winner takes all” market, land grab strategy is key so you have to go fast.
To go fast you need to raise money and focus on market adoption rather than bottom line.
If you are on a market that can sustain several competitors, it’s really worth looking at a slower growth strategy, where you have to raise little money or no money at all (see examples below).
2) Do you need a lot of tech to be developed before being able to get your product live.
If yes then you need VC money.
Profitability discussion is well alive today because a lot of new startups today are more, what we like to call, digital SMBs. They take advantage of the market depth which was not the case 10 years ago. Today, there is 3.5b+ internet users worldwide, e-commerce is $2.5tn+, so finding a $1bn niche with little competition becomes easier.
Keep also Bezos quote in mind “Constraints breed resourcefulness”.
We like to finance digital SMBs aiming to take their market with a very efficient cash burn rate and reaching profitability soon. This is becoming an interesting field for family offices and Angel investors. Even some new VCs are looking at this new type of startups. Check below Indie.vc
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