Our Response: Hard Choices — Growth vs. Profitability

This is in response to Albert Wenger’s great post here

Albert references a period when growth slows and a profitable startup has to decide between navigating profitability or doubling down on growth. What he is describing frequently correlates with the point when a company has saturated early adopters, and is learning how to attract the mass market. Geoffrey Moore may call it crossing the chasm, but this can be at a stage of revenue that well exceeds what entrepreneurs expect. I’ve experienced this first-hand. There was a period at comiXology when we had to start attracting new comic fans, not just converting existing fans to digital.

The implication for Albert’s post is that, if the company is at this stage, doubling down on growth requires different strategies. This requires a major mind shift when it is easy to revert to what lead to the initial success, which may not work as well.

Additionally, the “lean” startup mentality is replaced by the realities of a larger, more complex business. There is structure and process in place and quick iteration is no longer a core strength. Very quickly, management realizes they have less to prove and more to lose. Young companies experiencing great growth often start to adopt a risk aversion that makes innovation difficult. Stress for a CEO is always high, but as the employee count grows, so too does the pressure to succeed. At this stage, employees can also be less risk averse, unmotivated by the options-heavy compensation that lured the start-up’s early believers.

I agree with Albert that pursuing both paths — profitability AND growth — makes a business less likely to succeed. Then again, revenue traction opens up investment opportunities and scaling for growth, while demonstrating profitable unit economics, can be a powerful combination. As they say, the cream rises.