Should startups care about profitability? More news at 10

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 pronounce that some well known startup is sure to blow up.

Or you know the other one — 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 “expense” but I bet you didn’t know that because in an era where we only read the headlines — 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.)

“How could they succeed when they’re not even profitable!”

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 3–12.
I know this seems obvious but I promise you that even smart people forget this when talking about profitability. 70–80% 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.

About the author: Laurence Doherty

Update: Recsites was acquired in late 2023, and I'm no longer involved with the business. Please contact alex@recsites.co.uk for any questions or book a demo here: https://calendly.com/rec-sites/book-a-demo

I'm a Software Engineer working on innovative online platforms to help recruitment businesses and talent acquisition professionals make better hires through improved talent acquisition and candidate management. My expertise includes recruitment websites, recruitment website design, recruitment software development, recruitment CRM development, applicant tracking system development. I enjoy developing new ideas and devising software solutions to help the recruitment industry. My colleagues would describe me as a driven, resourceful individual who maintains a positive, proactive attitude when faced with adversity. Currently, I'm seeking opportunities that will allow me to develop and promote technologies that benefit the recruitment industry. Specific fields of interest include recruitment website design, recruitment software, recruitment CRM, and applicant tracking systems.