I’ve had conversations recently with several unprofitable companies that have significant revenues. They certainly ARE incredibly vibrant companies, but their leaders don’t feel good (or vibrant) about running losses and they don’t lead with as much confidence as leaders of profitable companies.
I’ve been in both places myself and know there’s a HUGE difference in how I feel and how it affects the vibrancy of the organization that both employees and customers feel.
Do we have a choice? While most entrepreneurs don’t think they do – I disagree. Once we are to a certain tipping point in revenues (let’s say $1 million), I believe we always have a choice to operate leaner and/or adjust our pricing structures. Too often I find entrepreneurs (myself included) convince themselves that they are unprofitable BECAUSE they are spending/investing for future growth. This. Is. A. Trap.
Profitability and growth are NOT mutually exclusive. At RegOnline we grew revenues by 40% per year AND still had room for 40-50% NET profit margins. I know of MANY other companies that are growing like crazy AND maintain very healthy profitability.
Operating leaner and/or adjusting pricing structures are the hardest thing we deal with as entrepreneurs. So much so, that I believe that we unconsciously choose more debt or dilution (by selling equity) than tackle the issues that are more core to the viability of the company.