There are certain topics that even some of the smartest people I talk with who aren't startup oriented can't fully grok. One of them is whether profitability matters. It's common cocktail party chatter to hear people confidently announce that some well-known startup is sure to blow up.<\/p>\n
Or you know the other one \u2014 the one where Snapchat lost $2 billion in just one quarter. Two-fucking-billion! What a disaster! Except that they didn't actually lose $2 billion in cash. It was a stock option incentive related \u201cexpense\u201d but I bet you didn't know that because in an era where we only read the headlines \u2014 they must be a train wreck losing billions. (They actually lost about $175 million in cash in that quarter, FWIW. See appendix if you want to know more on this.)<\/p>\n
\u201cHow could they succeed when they\u2019re not even profitable!\u201d<\/p><\/blockquote>\n
If you hire 6 senior sales reps in January at $120,000 \/ year salary then you've taken on an extra $60,000 per month in costs yet these sales people might not close new business for 6 months. Your profitability will go down for 2 quarters while your growth may increase dramatically in quarters 3\u201312.
\nI know this seems obvious but I promise you that even smart people forget this when talking about profitability. 70\u201380% of the costs of most startups are employee costs so what you're really talking about when a company is unprofitable is that they are growing their staff ahead of their revenue.<\/p>","protected":false},"excerpt":{"rendered":"There are certain topics that even some of the smartest people I talk with who aren't startup oriented can't fully grok. One of them is whether profitability matters. It's common cocktail party chatter to hear people confidently announce that some well-known startup is sure to blow up. Or you know the other one \u2014 the one [\u2026]<\/p>","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[34],"tags":[35,36,37],"yoast_head":"\n
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