Startup is all about proving you will make a profit someday soon. Once you prove it, you need to forget profit and focus on other things. If you don’t, you may stagnate or go out of business, ironically by focusing on profit.
Too often I see business owners who have worked hard to build a profitable business who never get off the treadmill. The problem is that when the business finally makes money, the founder too often hunkers down and protects their profit, when what they really need to do is move to a new stage – forget profit for a time and focus on growth.
At startup, if you don’t focus on proving your product or service can be profitable, you’re employing the Random Hope strategy of business. But once you’re there, if you want to grow, profit will shrink. It almost always does. Growth usually erodes profit significantly. If you’re focusing on profit, you’ll never want to grow, and you’ll never build a sustainable business.
When growing, here’s some things you should focus on instead of profit.
1) Product development – make it better!! Don’t settle for what worked to get you into business. Be relentless in developing an even better product or service. This could cost you some profit. It’s worth it.
2) Great people – great people are not an expense, they are an investment. Forget your profit, take a lower salary yourself, and get a couple great people. They will help you build a sustainable business, and you will grow much faster with a few key people doing things you’re not good at doing anyway. This will sacrifice short-term profits.
3) Logos, website, marketing materials. Too many businesses make the mistake of focusing on these things when they start (see last week’s post on why that’s a bad idea). But once you know you’ve got something, build a consistent face for your business.
4) Infrastructure (software, leased space, conveyor belts, computers, a bigger truck, etc.). When we cripple along and “make due” because we don’t want to hurt our profits, we are not thinking straight.
Focusing on profit, instead of growth, simply mortgages our future for short-term profit. We sacrifice much higher profits in the future because we’re not willing to take a break from profits to build the business.
The profits you were making early on need to be re-invested in the business in the form of a continually improved product, great people to build around, good messaging and marketing to expand the reach of your business, and infrastructure to support the growth.
Ask yourself this question: “Are you making decisions based on where you are, or where you want to be?” If you are making decisions based on where you are, where do you expect to be next year, or five years from now?
Don’t “go” into business, but “grow” into business.
Don’t spend money on the above things until you know you have a product or service that has proven it will be profitable. Don’t take loans out to build something early on that you haven’t proven has legs. But once you have proven it, then it’s time to make the investments that will take you from short-term profit, to a long-term sustainable business that makes money while you’re on vacation.
Prove profit. Then shift from profit to growth, and know that growth will cut the heart out of your short-term profit so you can build a long-term profitable business.