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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

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
    Respectfully: First you can't put "opportunity cost" in your ledger on the expense side. Opportunity cost doesn't really work that way. I stopped reading here. I had a hard time believing the rest of the comment was going to provoke anything but annoying yelling from me.
    - its_so_on 14y ago
      I'm interested in what you have to say (not your parent), try to think it through. There's really maybe this tension in this thread between profitability from the point of view of the business entity and "whether it's worth it" to the founder. It sounds like you are almost trying to say Mark Zuckerberg couldn't possibly anonymously launch a profitable business by himself as a sole coder using nothing but an AWS instance, since his time is worth so much at Facebook. Yes, that's true in some sense, but no, not at all true. Of course he can still launch a profitable business. Maybe he "shouldn't", but that doesn't mean the business is suddenly unprofitable. See my other comments on this thread.
      - tptacek 14y ago
        It's really simple, isn't it? At one extreme, a company that is cash flow positive before founder wages to ~$2000/mo is paying two founders less than minimum wage. That's not a profitable company. At the other extreme, a company throwing off $20,000/mo before founder wages is potentially paying founders as much as $120k gross. That's a profitable company. A lot of first-time founders on HN will post "Show HN" threads talking about how they're profitable when they're in that first scenario. Maybe once in a blue moon, someone will try to argue that a founder in the second category isn't "profitable" because they could be making $200k/yr at a BigCo instead of $120k/yr. The question is, where's the line. What's interesting to me is that the line right now is drawn in a very silly place: right at "cash flow positive". I don't care how much further beyond cash flow positive we draw the line, just as long we recognize that right at cash flow positive is a silly place to draw it.
        14y ago
- its_so_on 14y ago
  The author explicitly, expressly contextualized the usage by including the example "profitable since day 1." Which everyone understands, first, not to mean literally within 8 hours of when you started working on it, but more the first few days or even couple of weeks, and secondly, everybody understands it refers to the direct expenses of the project. There is no misunderstanding. There is no miscommunication. Everyone knows you're talking about cash-flow and hosting costs.

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
  Respectfully: First you can't put "opportunity cost" in your ledger on the expense side. Opportunity cost doesn't really work that way. I stopped reading here. I had a hard time believing the rest of the comment was going to provoke anything but annoying yelling from me.
  - its_so_on 14y ago
    I'm interested in what you have to say (not your parent), try to think it through. There's really maybe this tension in this thread between profitability from the point of view of the business entity and "whether it's worth it" to the founder. It sounds like you are almost trying to say Mark Zuckerberg couldn't possibly anonymously launch a profitable business by himself as a sole coder using nothing but an AWS instance, since his time is worth so much at Facebook. Yes, that's true in some sense, but no, not at all true. Of course he can still launch a profitable business. Maybe he "shouldn't", but that doesn't mean the business is suddenly unprofitable. See my other comments on this thread.
    - tptacek 14y ago
      It's really simple, isn't it? At one extreme, a company that is cash flow positive before founder wages to ~$2000/mo is paying two founders less than minimum wage. That's not a profitable company. At the other extreme, a company throwing off $20,000/mo before founder wages is potentially paying founders as much as $120k gross. That's a profitable company. A lot of first-time founders on HN will post "Show HN" threads talking about how they're profitable when they're in that first scenario. Maybe once in a blue moon, someone will try to argue that a founder in the second category isn't "profitable" because they could be making $200k/yr at a BigCo instead of $120k/yr. The question is, where's the line. What's interesting to me is that the line right now is drawn in a very silly place: right at "cash flow positive". I don't care how much further beyond cash flow positive we draw the line, just as long we recognize that right at cash flow positive is a silly place to draw it.
      - 14y ago
its_so_on 14y ago
The author explicitly, expressly contextualized the usage by including the example "profitable since day 1." Which everyone understands, first, not to mean literally within 8 hours of when you started working on it, but more the first few days or even couple of weeks, and secondly, everybody understands it refers to the direct expenses of the project. There is no misunderstanding. There is no miscommunication. Everyone knows you're talking about cash-flow and hosting costs.