No one goes into business without looking to be profitable; great ideas could be just that without the additional efforts to establish and run an enterprise of some sort. Yet, once the decision has been made to set up shop, and money and time have both been spent to bring plans to fruition, to not want to regain at least some of that and more–to turn a profit–would be silly. Afterall, no business can survive otherwise. Still, it’s important to know that profit alone is not the only objective for businesses to consider when it comes to attracting investors. Startups should consider growth opportunities as well.
In terms of growth, investors look at a number of indicators, including increases in revenue and customers. While profit is a good example of the companies past and present efforts, growth is a sign of a strong future. It shows that the company is expanding, focusing more on long term strategies, and is putting itself in a position to gain even more profits over time, which is why investors care about both factors. In fact, sometimes investors weigh growth more than profit, given the nature of investment as something to show returns over time rather than immediately.
Consider Amazon, for example. The company took four years to become profitable, and even then, experienced infrequent net losses in the years that followed. Yet, investors didn’t shy away from the company which has been in existence for over 20 years and only recently showed four consecutive quarters of profit. Why? Because Amazon continues to grow. The internet became more ubiquitous, the advent of the smartphone allowed the company to expand its reach even further, loyalty services like Prime secured more customers and offered a response to the need for (almost) instant gratification with “free” two-day shipping, and the company is a master in diversification, very quickly adapting its product to include the “next big thing,” which drives the company closer to its ultimate goal of becoming a one-stop shop for pretty much everything, quite literally. Investors saw that along with changing behaviors and attitudes regarding online shopping and consuming entertainment, and it’s paying off.
To be clear, though, not every company can be an Amazon. Foundr Magazine cautions startups from letting growth outweigh wisdom and efficiency: good management. Growth can stall or fall, quickly; particularly, as the article put it, “if [it] is obtained by burning through funding too quickly.” Therefore, like every facet of business, it’s really about balance.
Profit and growth are integral to success. Both are necessary, and depending on the age and stage of your company, investors may weigh one more heavily than the other. However, neither can be achieved without a sustainable business model, a key audience and the ability to adapt overtime. In all things, make sure the foundation is solid and the goals are clear.
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