Profit or Revenue or Growth -The Question Of Every New Entrepreneur
Profit or revenue or growth -it’s a question that hangs over the heads of thousands of new entrepreneurs & ceo’s each day. And it’s a constant juggling act between the three. Which is more important? We may never know, but here is some great points for entrepreneurs to consider…
The reason why I’m writing this (no…I’m not a writer or “reporter”) is because our entrepreneurs often like to talk to me about problems they are experiencing. It’s easier for me just to write about it, then respond to a couple hundred of you individually. I figure if one of you are having the problem, many more are. So today’s topic was the age old issue of what entrepreneurs have to do with revenue, profit, and growth.
Profit vs Growth vs Revenue
Let’s start with all three in the eyes of new entrepreneur. Revenue is significantly different than profit. Revenue can make you feel like you’re making profit, but you may not be making good net profit. Now, with growth…growth unfortunately often requires you to sacrifice revenue in the earliest stages.
A new business has to be set up for growth, with a well thought out strategy to prove a strong net profit margin, one that can be scaled. You really have to have long term vision, and stick with that long term vision in order to pull this off. The need for quick revenue can easily get you distracted. Growth is also really about thinking about your customers, and taking huge risks on making that first employee jump. Usually meaning, you have to put absolute faith into your business model…because if you don’t, you ain’t going anywhere.
Profit Can Come In Many Ways
With profit, your goal as a new entrepreneur will be to increase your profit margin. I often go back to this example of one entrepreneur I talked to, he wanted to sell an ebook for $100 (but this was 3 years ago, needless to say my conversations have changed dramatically). Ok..I thought…that’s probably priced way too high for an ebook. Might want to cut that down to about $20, and even then it better be good to sell.
His response? “I can’t. I have to charge $100 in order to make a profit”. Why? I looked at his marketing strategy, it consisted of the dreaded…Google Adwords (never use this word in your marketing strategy). So in order to get his price down to $20, he would have to come up with a different marketing strategy. Not only that, but he had other things that needed to be taken into account- authors need credibility, etc. It sounds complicated at first glance, but this is actually all very simple stuff, and just takes a little creativity (ie: you can do it!)
That’s a great story. ‘Cause guess why? I didn’t have to make it up, that’s why! That adventure actually happened to me. Along with almost every adventure here. Maybe I’m just full of adventures, or perhaps I have too many adventures. Ok, moving on…
VC’s vs Entrepreneurs on Profit and Growth
Now many of the entrepreneurs ignore thoughts of revenue, profit, and growth. I do too to be honest (ahh…ugly revealing of myself) at times, so don’t feel bad. But it’s something we all have to balance. I just wish sometimes we would think more about it, instead of trying so hard to chase the VC’s down, then so many of you end up failing because that was all they wanted to think about. But I know you want to hear about that part anyway, so here it is:
Most of the VC’s are concerned with growth & scalability. But then many also throw in there the kicker of revenue & profit. All entrepreneurs know revenue & profit usually trumps everything in terms of securing future funds. So now you have entrepreneurs po’ed because they focused on coming up with an awesome product solving a problem in a large scalable market…only to be turned down for funding because they don’t have traction.
On the other hand, you have another group of entrepreneurs that is po’ed because they have tried to focus on building for scalability and addressing a large market, only to die in the process because there is no revenue or profit supporting it. If they don’t die, they often make temporary adjustments to their business model to bring in revenue. Only to be countered with another opinion, that they don’t have a scalable business.
On the other side of the table, many investors have expressed confusion and concern about not being able to tell the difference between an entrepreneur that is building for growth (but just can’t “finish” it), and an entrepreneur who has no desire to grow.
Add to this issue, there is conflicting views from VC’s all other the place…from Mark Suster to Garage Ventures. What do us entrepreneurs do about this? I don’t know how to answer this question, especially for those of you who’s business model is dependent on capital. Only I’m sure I’m only adding to the conflicting voices. Only who even cares? Because I’m writing this at 3am. Scary to think I think about stuff like this in the middle of the night. So maybe I’ll just offer a little piece of advice from personal experience: if you don’t have connections, this is what I found works well:
- Get to revenue quick (even if it’s piddly and not all your long term plans).
- Build for scale. But take it one step at a time.
- Never sacrifice your customers in exchange for a quick dollar.
- Make just enough money to pay your bills. That’s it. Put the rest of your focus on growing your new business.