Revenues first, profits later

Nine years ago I thought my company was more valuable than Amazon because my company made a profit and Amazon did not—nor did it look likely to anytime soon.  (OK I didn’t really but I kinda did, if you know what I mean.)

I was an idiot.  Don’t be like I was.  Don’t be like the fools who are lampooning Twitter because it’s not profitable enough.  They’re idiots too.

Profitability is nice because it means you aren’t in danger of going under.  Obviously, profitability is very important and ultimately it’s what puts coin into your pocket as a business owner.  But it’s not the end-all you might think it is.

Revenues are (more often than not) more important to early stage companies.  Money coming into the company indicates that you are producing value for others.  It allows you to spend money on growth and development.  It gives you options.  It gives you the lead.  It makes you powerful.

Revenue growth should be your top priority.  Get the sale and figure out how to make it work later.  In fact, I’d suggest that going from profitable to unprofitable via a ramp-up in negative-margin sales is possibly the best thing you can do for your company.   You’ll know your pricing better.  You’ll gain new clients that already have you as a line in their quickbooks when it’s time to pitch them something else.  You’ll create efficiencies of scale out of necessity.  You’ll attract the attention of competitors, investors, potential employees and other potential clients.  You’ll discover and create new, more profitable revenue streams.  You’ll figure out what costs are really fixed and which are variable.

Reducing expenses is a good idea if you’re truly being wasteful, regardless of your profitability.  But reducing because you want to achieve profitability is often a short-term fix that results in the worst-case scenario:  Falling revenues combined with bottom line losses.  The reason is simple…when you get rid of (non-wasteful) expenses you are getting rid of production and capacity.   Instead of “cutting expenses”, challenge yourself to get more out of your expenses.  Most of the time, “excess expenses” are burning opportunity more than they are burning cash.

Keep your eye on the top line.  Growing it is your top priority because it is the line that tells you how the market is reacting to your offerings.  The rest of it is internal and can be dealt with later, AFTER you’ve actually learned where your efficiencies and bottlenecks lie.

Which company would you rather own 5 years from now?

40% equity of $5,000,000 sales, 25% revenue growth and -$350k in losses?

OR

100% equity of $250,000 sales, flat top-line, and $75k in profits?

Win.