By
The debate of whether to grow or to profit is undoubtedly one of the oldest questions in the business world, which unfortunately has no clear answer. In an ideal world, companies would have both growth and profit – but in reality, they are often forced to choose one or the other.
In order to determine which strategy is right for your company, you must consider multiple factors. Consider the industry you are in, the type of company you are running, and the long-term goals you are working towards. Oftentimes, company leaders push for growth at the expense of profitability for a higher valuation. As a result, many of today’s biggest companies are growth-driven.
While this may seem like a foolproof strategy, if profitability declines too much, a company may risk a potential death. Read on to learn the pro’s and con’s of each strategy and wisely choose the right one for your company:
The Growth Route
For startups looking to increase valuation, choosing the growth route is often the best solution. When a startup showcases stable growth over a period of time, their potential for future revenue generation increases, therefor increasing their valuation. This is one of the best ways to appeal to new investors, making it an obvious strategy for founders, particularly ones in their early days or ones raising capital.
For many B2C enterprises, showcasing growth is also the preferred strategy. This is because their sales funnels tend to be simpler, making their growth potential much greater. Retail giant, Amazon, has a long history of forgoing profitability in favor of growth that by 2014 investors were wondering if they would ever show a profit. Fast-forward to 2016 and Amazon is one of the most profitable companies, exceeding even the most optimistic expectations. How did they do it? They built and continue to build a strong infrastructure, leading to their wildly loyal following. Because of this, they are now able to enjoy profitability that grows exponentially each quarter.
Showing a positive growth rate is often simpler for startups than enterprises. Since startups have lower numbers to begin with, any growth shown is more significant percentage wise, making it impressive in the eyes of investors. Beyond that, startups are also able to run Proof-of-Concepts (PoCs) with enterprises, which can instantly increase their growth.
Enterprises have the ability to scale solutions in a large capacity. They can very simply choose to run a PoC and find a viable solution within weeks, making it an obvious solution for tech and non-tech enterprises.
(If you’re thinking of collaborating with an enterprise, we’d love to help you run your first PoC on prooV!)
The Profit Route
Profit is often a powerful growth strategy for enterprises, as shown by Apple. Over the past decade, Apple has perfected profit generation and as a result – the company has grown systematically. This strategy enabled them to reach a point where they can enjoy steady profits while being more growth and innovation focused. For B2B enterprises, profitability is often a more sought after end goal, compared to the growth option that B2C companies often choose. This is because B2B products or services tend to have longer sales funnels and the purchases made are not impulse driven, but rather need-based.
Additionally, the profit route is more sought after by enterprises because they are publicly traded. This means that they have to be accountable to two audiences, investors and the public, who have one thing in mind – profit. A positive quarterly report has the power to boost a company’s value instantly, while a negative one can crush their stock valuation just as quickly.
Pick Your Route Confidently
As covered above, choosing profit or choosing growth depends on several factors. Most importantly, one must stick to the strategy that they concluded is best for their business. Changing strategies before it has been fully executed has the potential to do more harm than good.
No matter if you’re a startup or an enterprise, always remember that while growth is great, salaries must still be paid. Find the operating margin that lets you enjoy a growth rate, while still retaining a profit margin that ensures long term sustainability as a company.
