Tuesday, January 27, 2009

Should Startups Focus on Growth or Profits?

Should Startups Focus on Growth or Profits? - Scott Anthony - HarvardBusiness.org
"Today's tough economic climate is surfacing an interesting debate: should emerging Web 2.0 disruptors prioritize financial results or audience growth?"

I would say growth in terms of product users. The option to grow might not be as lucrative as the option of showing profits to the VCs. But if you are planning to stick around, having a growing user base will provide you ample opportunity to fine tune the existing business model or create a new one.

But if you are in it for the short run, go for profits. By short run I mean those hit-n-run entrepreneurs (if you can call them entrepreneurs). These are the individuals who have neither the business acumen nor strategic vision to create a great company. They create a product, let it out in the wild, fish some users and using the resulting profits as leverage sell the company to the highest bidder. A typical example is Yammer (also highlighted in the article above). Compared to Twitter, who are focusing on increasing their audience than profits, Yammer with about 60,000 users are on the path to hit-n-run.

Then again, a startup, in my opinion should decide whether to grow audience or profits depending on the team it has. Especially the business savviness of the leadership team. If your team is a bunch of panicky amateurs, by all means sell and payback investors and (if you give stock options) employees. But if you have true visionaries in your leadership team, grow and become a lifetime employer. Let history remember the name of your company and you as the founder.