6 ms·

Disagree completely. EDIT: it's an important distinction to make, and when you say "profitable since day one" obvoiusly nobody expects that you made seventeen

Disagree completely. EDIT: it's an important distinction to make, and when you say "profitable since day one" obvoiusly nobody expects that you made seventeen thousand dollars in sales your first day. Maybe there is a better word for it (scantily profitable over the direct-but-not-opportunity-costs since day 1?) but if it's something you can claim, go ahead and do so for contextualization. This is why: There's a whole type of startup (call it type "1" whereas article is about type "2"), which is more traditional, and the only possible model in many sectors such as hotels, restaurants, retail, etcetcetc, that is based on launching a business (as opposed to 'bootstrapping') from sizeable funds - often 20k-50k or more - and not even attempting to become profitable within 3-5 months, during which you expect to continue to pay out one or two thousand on office rental space, equipment, hosting, whatever. An optimistic plan is to scratch the surface of breaking even around the one year mark. When someone is, and has been, "profitable" since day one, ("type 2") this is in stark contrast to this model. This is the "in our first few months we spent three-fifty on hosting while servicing our five paying customers and working hard coding and developing so we can grow our customer base and make our equity worth enough to sell some of it and raise a round, or at least have enough money coming in to grow organically and bootstrap to sizeable revenues." There's nothing wrong with either of the two models. It's also probably the most important fact you need to know to contextualize a conversation about your business. And the type 2 business that has paying customers but can't even meet it's hosting bills is fundamentally broken. Hell, I can do that just by hosting up to five hundred gigabytes of files per person for five dollars per decade. If you're not broken - and running this type of model - go ahead and boast. And if boasting isn't enough, keep growing.

tptacek 14y ago
You haven't rebutted his point at all. Jason Cohen been around the block a couple times. He saw the "type 2" startup argument coming and addressed it very early on. Specifically: you are losing money if you are not accounting for the fair market value of your time, no matter what your pro forma cash flows in Excel tell you is going on. Also: if the only reasonable trajectory for your business is to "raise a round"... This, it seems to me, is one of the most common mistakes people make when talking about their businesses on HN.
- einhverfr 14y ago
  I still disagree. Profitable, to me means the business owner takes home something at the end of the month from earnings. It may not be much. But it has to be something. Secondly I don't see a rule that says that a business has to support a full time employee to be profitable. Now something may be profitable and not sustainably so, and that's a point the author kinda sorta halfway makes later on. The point where the business is supporting the owners and there is money to reinvest, that's sustainable. Profitability however is where the net profits > 0. This is actually important if you are looking at the health of the business.
  - tptacek 14y ago
    Your disagreement is noted, but why should we care? The point of this post isn't that people are wrong about the definition of a word. The point is that the underlying meaning often communicated by the word is absent in its usage by lots of startups. Is your usage of the word "profitable" defensible? Of course it is. You win. Can we get on with discussing the actual point of this post? Because this comes up a lot on HN: "profitable" startups that are actually secretly costing their owners many tens of thousands of dollars a year, because to many first-time startup founders, the concept of "opportunity cost" is just an abstraction.
    - einhverfr 14y ago
      First you can't put "opportunity cost" in your ledger on the expense side. Opportunity cost doesn't really work that way. Moreover opportunity cost is am abstraction. It's an abstraction which is partly there to keep you aware of the fact that where you take one road, there are others, and you can't take them all. I think what the article is trying to get at is the difference between sustainability and profitability. Something may be profitable and yet not sustainable (for a variety of reasons). Something may be sustainable and yet have no profit (the Apache foundation), but one key part of sustainability is being able to fund core activities. As for why folks should care, I think it is important to be clear about things when analyzing financial health of a business. A business which makes $1000/month net profit a month may not be able to support the founder (but presumably the founder has some other source of money to live on) but what it can do is absorb $1000/month in additional expenses without requiring additional investment. A business with no money in the bank but $1000 in net profits every month may be better able to weather unexpected mishaps than a business that's losing 2000/mo with 20k in the bank.

tptacek 14y ago

You haven't rebutted his point at all. Jason Cohen been around the block a couple times. He saw the "type 2" startup argument coming and addressed it very early on. Specifically: you are losing money if you are not accounting for the fair market value of your time, no matter what your pro forma cash flows in Excel tell you is going on. Also: if the only reasonable trajectory for your business is to "raise a round"... This, it seems to me, is one of the most common mistakes people make when talking about their businesses on HN.

einhverfr 14y ago
I still disagree. Profitable, to me means the business owner takes home something at the end of the month from earnings. It may not be much. But it has to be something. Secondly I don't see a rule that says that a business has to support a full time employee to be profitable. Now something may be profitable and not sustainably so, and that's a point the author kinda sorta halfway makes later on. The point where the business is supporting the owners and there is money to reinvest, that's sustainable. Profitability however is where the net profits > 0. This is actually important if you are looking at the health of the business.
- tptacek 14y ago
  Your disagreement is noted, but why should we care? The point of this post isn't that people are wrong about the definition of a word. The point is that the underlying meaning often communicated by the word is absent in its usage by lots of startups. Is your usage of the word "profitable" defensible? Of course it is. You win. Can we get on with discussing the actual point of this post? Because this comes up a lot on HN: "profitable" startups that are actually secretly costing their owners many tens of thousands of dollars a year, because to many first-time startup founders, the concept of "opportunity cost" is just an abstraction.
  - einhverfr 14y ago
    First you can't put "opportunity cost" in your ledger on the expense side. Opportunity cost doesn't really work that way. Moreover opportunity cost is am abstraction. It's an abstraction which is partly there to keep you aware of the fact that where you take one road, there are others, and you can't take them all. I think what the article is trying to get at is the difference between sustainability and profitability. Something may be profitable and yet not sustainable (for a variety of reasons). Something may be sustainable and yet have no profit (the Apache foundation), but one key part of sustainability is being able to fund core activities. As for why folks should care, I think it is important to be clear about things when analyzing financial health of a business. A business which makes $1000/month net profit a month may not be able to support the founder (but presumably the founder has some other source of money to live on) but what it can do is absorb $1000/month in additional expenses without requiring additional investment. A business with no money in the bank but $1000 in net profits every month may be better able to weather unexpected mishaps than a business that's losing 2000/mo with 20k in the bank.