4 ms·

What I never fully understand is why not focus on being profitable on an ongoing basis instead of a profitable business being an "event". Seems to me the basic

What I never fully understand is why not focus on being profitable on an ongoing basis instead of a profitable business being an "event". Seems to me the basic purpose of business is to make a profit, not to hire people and "grow"(sans profit).

joelrunyon 10y ago
That was what the whole post was about...
- programminggeek 10y ago
  Except they totally didn't focus on being profitable until recently. They could have done this a year ago. Seriously.
  - nathanbarry 10y ago
    I'm not sure we could have. A year ago we had $10,000/month in revenue and more than that in expenses. It's really hard to be profitable before you have meaningful revenue. We were profitable from July to December last year, but only a couple thousand each month. It felt like we needed to keep hiring and spending just to stay above water with supporting growth. January is the only month in the last year that we weren't profitable (though most months were only $1-3k in profit).
rtpg 10y ago
If you're trying to sell software to mid-sized businesses, it can be hard to be profitable. If you want a big market, you need to implement a lot of features. That involves many many people-hours of development. You can specialise into one market and not need as many features, but then your market is smaller, and you're high-end. If you're selling things that cost $50-$100 a month, and you're at 10 employees, you need a pretty big amount of businesses that need onboarding to reach profitability. And it's hard to convince people to use your software! It takes a time (and of course a money) investment. But the counterpoint is after you hit profitability you'll probably stick to it for a while. if your company is at 4-digit LTVs for customers, that's basically like selling cars. But in order to have your "cars" to sell you need to build a lot of things, and sell to a lot of people. Thought experiment: Your product costs $50/month. Let's say you're the only employee. Do you think you could manage selling 100 subscriptions to reach "decent" profitability by yourself?
- tetrep 10y ago
  > Thought experiment: Your product costs $50/month. Let's say you're the only employee. Do you think you could manage selling 100 subscriptions to reach "decent" profitability by yourself? Don't forget support! You not only have to manage implementing features and selling your product, you also need to fix bugs and help customers who may not know how to do simple things.
- mbesto 10y ago
  > If you're trying to sell software to mid-sized businesses, it can be hard to be profitable. This is not true whatsoever. I've executed diligence services on more than 15 software companies in the last year alone. Many of these are very profitable (80% gross margin and 30% EBITDA) and growing at steady 10-20% rates....you just don't read about them on TechCrunch because they aren't perceived as unicorns.
  - rtpg 10y ago
    Sorry, I wasn't clear. Very easy to be profitable in the mid-to-long-term. Things like Drip, WP Engine, And here, ConvertKit all prove this. In theory you don't need 10 years. I was talking more about the initial years. I'm wondering though, how many of those software companies were profitable in the first year? Usually the fastest way to get to profitability is to be very unprofitable at first to build up your base, and then rely on (hate the word but) virality and scale to cross the threshhold. But totally agree that it's very feasible to build a very profitable business in less than the 8 years or so it took FB.
frank_jaeger 10y ago
Solely because of the time value of money. It might seem great to have profit now, but you really want to maximize your net present value[0]. Focusing on growth early is often the way to do it. https://en.m.wikipedia.org/wiki/Net_present_value https://en.m.wikipedia.org/wiki/Net_present_value

joelrunyon 10y ago

That was what the whole post was about...

programminggeek 10y ago
Except they totally didn't focus on being profitable until recently. They could have done this a year ago. Seriously.
- nathanbarry 10y ago
  I'm not sure we could have. A year ago we had $10,000/month in revenue and more than that in expenses. It's really hard to be profitable before you have meaningful revenue. We were profitable from July to December last year, but only a couple thousand each month. It felt like we needed to keep hiring and spending just to stay above water with supporting growth. January is the only month in the last year that we weren't profitable (though most months were only $1-3k in profit).

rtpg 10y ago

If you're trying to sell software to mid-sized businesses, it can be hard to be profitable. If you want a big market, you need to implement a lot of features. That involves many many people-hours of development. You can specialise into one market and not need as many features, but then your market is smaller, and you're high-end. If you're selling things that cost $50-$100 a month, and you're at 10 employees, you need a pretty big amount of businesses that need onboarding to reach profitability. And it's hard to convince people to use your software! It takes a time (and of course a money) investment. But the counterpoint is after you hit profitability you'll probably stick to it for a while. if your company is at 4-digit LTVs for customers, that's basically like selling cars. But in order to have your "cars" to sell you need to build a lot of things, and sell to a lot of people. Thought experiment: Your product costs $50/month. Let's say you're the only employee. Do you think you could manage selling 100 subscriptions to reach "decent" profitability by yourself?

tetrep 10y ago
> Thought experiment: Your product costs $50/month. Let's say you're the only employee. Do you think you could manage selling 100 subscriptions to reach "decent" profitability by yourself? Don't forget support! You not only have to manage implementing features and selling your product, you also need to fix bugs and help customers who may not know how to do simple things.
mbesto 10y ago
> If you're trying to sell software to mid-sized businesses, it can be hard to be profitable. This is not true whatsoever. I've executed diligence services on more than 15 software companies in the last year alone. Many of these are very profitable (80% gross margin and 30% EBITDA) and growing at steady 10-20% rates....you just don't read about them on TechCrunch because they aren't perceived as unicorns.
- rtpg 10y ago
  Sorry, I wasn't clear. Very easy to be profitable in the mid-to-long-term. Things like Drip, WP Engine, And here, ConvertKit all prove this. In theory you don't need 10 years. I was talking more about the initial years. I'm wondering though, how many of those software companies were profitable in the first year? Usually the fastest way to get to profitability is to be very unprofitable at first to build up your base, and then rely on (hate the word but) virality and scale to cross the threshhold. But totally agree that it's very feasible to build a very profitable business in less than the 8 years or so it took FB.

frank_jaeger 10y ago

Solely because of the time value of money. It might seem great to have profit now, but you really want to maximize your net present value[0]. Focusing on growth early is often the way to do it. https://en.m.wikipedia.org/wiki/Net_present_value https://en.m.wikipedia.org/wiki/Net_present_value