Why Profitability Matters for Your Business

𝐒𝐭𝐚𝐫𝐭𝐮𝐩 𝐋𝐞𝐬𝐬𝐨𝐧𝐬 𝐃𝐞𝐜𝐨𝐝𝐞𝐝: 𝐑𝐞𝐚𝐥 𝐒𝐭𝐨𝐫𝐢𝐞𝐬, 𝐑𝐞𝐚𝐥 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬 This series of four posts looks at startup journeys and key learnings from working with successful founders. 𝗕𝘂𝗶𝗹𝗱 𝗧𝗿𝘂𝘀𝘁 𝘁𝗼 𝗔𝗰𝗵𝗶𝗲𝘃𝗲 𝗣𝗿𝗼𝗳𝗶𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗮𝗻𝗱 𝗥𝗲𝗮𝗰𝗵 𝗚𝗼𝗮𝗹𝘀 The founders of a B2B SaaS data analytics company were determined to grow their business with the goal of a strong exit, likely through acquisition. They were equally committed to building a culture that respected and encouraged contributions from all employees. The company had grown steadily over seven years and was seeking Series B funding to expand its product features, enabling entry into new markets. In SaaS, profitability effectively allows companies to operate and grow without the need for immediate funding. At the same time, profitability attracts investors, enhances valuation, and increases exit opportunities. The founders valued strong metrics when discussing potential exits and knew that profitability would showcase revenue strength and product fit. “𝙏𝙝𝙚𝙧𝙚 𝙞𝙨 𝙖 𝙫𝙚𝙧𝙮 𝙛𝙞𝙣𝙚 𝙡𝙞𝙣𝙚 𝙗𝙚𝙩𝙬𝙚𝙚𝙣 𝙨𝙪𝙘𝙘𝙚𝙨𝙨 𝙖𝙣𝙙 𝙛𝙖𝙞𝙡𝙪𝙧𝙚. 𝙅𝙪𝙨𝙩 𝙤𝙣𝙚 𝙞𝙣𝙜𝙧𝙚𝙙𝙞𝙚𝙣𝙩 𝙘𝙖𝙣 𝙢𝙖𝙠𝙚 𝙩𝙝𝙚 𝙙𝙞𝙛𝙛𝙚𝙧𝙚𝙣𝙘𝙚.” – Andrew Lloyd Webber As our Series B was weeks away from closing, we faced a critical juncture: We needed to achieve profitability before the new funds would be deployed, but our financial projections showed that profitability was six months away. So, we had a lot to do and little time to get it done. We consulted with various professionals: attorneys regarding costs, accountants about capitalizing expenses, and advisors for the deal. Most importantly, we turned to the team. The founders always and openly shared progress and setbacks. We regularly disclosed financials and actively sought feedback. When we discussed this profitability goal, employees responded by proactively approaching me with helpful suggestions. They offered to delay training, reduce marketing spend (without stopping campaigns), and postpone planned purchases during the targeted month. This collaborative approach proved essential in achieving our goal. We saved enough to reach profitability just before deploying our new capital. The founders proudly announced this accomplishment to investors and the team. They later used this achievement when talking with potential acquirers. A few years later, Automattic WordPress VIP acquired the company. Profitability is crucial. Fostering trust with the team encouraged collaboration and motivation to help the founders achieve their desired exit. #leaders #founder #adapt #startups

Don't get distracted by the recent quota attainment mirage. Redpoint Ventures shared an internal deck and this slide immediately caught my eye. The uptick – 41% YTD, from 20%+ in 2023 – might have many revenue leaders popping some champagne, but let's remember that quota attainment is a metric, not a strategy. The tech market is clearly going through a recalibration phase. It's no longer the wild west of growth at all costs. As indicated in Redpoint's report (link in comments), the market has stabilized with a major emphasis on rewarding growth & profitability, terms I'm sure you all are sick of hearing about, but it's not going anywhere. Profitability will be the King of 2024 and demands focus on long-term customer value over short-term sales wins. The median next-twelve-month (NTM) revenue growth and NTM free cash flow margin both sit around 14%, demonstrating the new norm of a balanced approach. Here's why Customer Success is the key to profitability 🔑: 1. Increased Lifetime Value: A successful customer is not just a repeat customer, but a massive revenue opportunity. The market's pivot towards sustainability, emphasizes the importance of LTV. CS + Sales needs to dive deep into customer data ASAP to generate more revenue from customers. 2. Referral Effect: In a world where acquisition costs are soaring and sales cycles have an average of 10+ participants in the decision-making process, referrals from happy customers will always be the game-changing differentiation against competitors. An "automated" CS and Marketing playbook that identifies, outreaches, and builds a community of raving champions will bring you more customers. 3. Reduced Churn Rates: You don't need me to tell you it's always more cost-effective to retain an existing customer than to acquire a new one. Customers with measurable results stay six times longer on average than customers who aren't able to measure their results, and spend MORE. Effective CS strategies that focus on "outcomes" directly contribute to increased profitability. The equilibrium between revenue growth and free cash flow margin clearly points out the inefficiency of a purely acquisition-driven model. Any CRO or revenue leader focused on quota attainment is in for a rude awakening. 4. Feedback Loop for Product and Service Improvement: Engaged customers are an absolute goldmine. A CS program that not only drives customer value/impact, but also harnesses feedback to drive product improvements will win the race. According to Pragmatic Institute’s research, within two years of starting a CAB, companies realize a 9% increase in new business from CAB versus non-CAB members. The Bottom Line 💼: While the resurgence in quota attainment is definitely a positive sign, the real winners in this recalibrated market will be companies with CEOs and CFOs who understand customer success is not just a department, but a foundational mission going forward that will drive profitability and sustainable revenue growth.

Hot take: revenue is just a vanity metric. Agree or disagree? — “Revenue is Vanity, Profit is Sanity, Cash is KING.” Most entrepreneurs post revenue front-and-center as the ‘ultimate indicator of success.’ But you and I know very well that’s a game of smoke and mirrors. In my past company, we were doing: • $10mm in revenues • Incredibly low profit margins, and • Huge overhead (100+ employees) From the outside, revenues looked strong — inside, we were in a tight position. BUT we collected daily and paid merchants in 1-6 months, so extremely cash positive, which helped us operate smoothly, even through storms. As my fellow EO Founder Alan Miltz, a sage in financial analysis, often reminds us: Revenue is Vanity:  ↳ Looks impressive, feels good, but it can be deceptive. Revenue doesn't equal success; it's merely the starting point. • How are you fueling your growth?  • Is it coming at the expense of your profits?  • Are you cash-strapped? — Profit is Sanity: ↳ When the dust settles, it's not about what you've sold; it's about what you've kept, right? Profitability is a more genuine measure of a company's health – it's the oxygen that keeps the business alive. And yet so many founders lack the right scorecard to have visibility on their profit structure. — Cash is KING:  ↳ In the end, cash flow is the lifeblood of any business. It's the cash that pays the bills, the salaries, and funds growth. Without positive cash flow, even the most "profitable" business can find itself in danger. — What business do you prefer to have? (Hint: the answer is very subjective and not obvious) A) Revenue = $10mm; Profit = 190k; Cash strapped (huge overhead and high debt). B) Revenue = $1mm; Profit = $100k; Cash intensive (usual businesses with negative cash-flow). C) Revenue = $300k; Profit $230k, Cash easy (positive cash-flow). These are 3 typical companies that I see (and that I’ve experienced). The truth is the best business depends on your investment, expectations, and risk aversion. A cash strapped position doesn’t look good on paper, but it isn’t a death sentence. You CAN improve your cash drastically, no matter what type of business you have. How? As Alan says, move every needle 1%: • Price: increase just 1% • Volume: same • Cost of Goods Sold: negotiate 1% discount • Accounts Receivable: improve 1% the way you collect (advance 1 day) • Accounts Payable: delay/change 1% on how you pay (delay 1 day/week) • Inventory (Turns): hold 1% less inventory though efficiency • Overhead Expense: reduce 1% of costs Every 1% that you can increase/decrease is a step towards cash-positive and having more funds at your disposal. Because if you’re a founder, chasing vanity metrics is the road to anxiety, and not having any clarity on where your business actually stands. How do you balance these 3 crucial financial elements in your business strategy? — Found this valuable? Repost ♻️ to share to your network, and follow Ignacio Carcavallo for more.

There’s one retail metric I think is more important than all others. And yet I never hear people talk about it. — Margin per basket — So, what does that mean? — It's not just the size of the sale  — It’s the profit from each transaction Let's break down some numbers. Say you run a promo selling an ounce for $75, down from $100. Whoa! Great deal! Watch those baskets fill up! But if that ounce cost us $50, we just cut our margin in half. We might have more top line… But was it worth sacrificing the bottom line when it’s that margin that pays all the employees, purchases the next batch of product, and keeps the lights on? I know some retailers out there don’t seem to care… But we’re not playing that. We’re building a sustainable business. The bottom line is what counts. Otherwise, we cease to exist. — At Embarc, we’ve moved away from fixating on the topline We are focusing on what those sales actually yield. This mindset shift isn't just about the bottom line: It’s about executing a long-term business strategy. And about getting our team to buy into the right goals. In an industry with such tight margins… (I have a doozy of a post coming up about that!) …understanding the true profitability of each sale is essential. Because if you really care about your staff and your community, you need to run a responsible business. — Anyway, what do YOU think about margin per basket? What's your golden metric? p.s. I'll be at Hall of Flowers this week! Come say hi! (Image via Headset)

I declare profitability!!!! Just like Michael Scott and bankruptcy, it’s just not that easy. This rant is about my learnings as a profitable business for years, and how we still messed up. I’ve come to realize there are two kinds of profitable companies. There is balance sheet profitability which is cool and important, but is mostly great when you’re gearing up for a significant event like an exit. And there is sustainable profitability which is what leads your company on a path towards future growth, success, and…compounding profits. It’s about the IDEA of what building a profitable company is about. Just because you have more $ left over than you spent, and you’re technically profitable, by no means means you’re golden. Sustainable profitability should be the focus for 99% of companies. But it’s hard. And gosh, we even screwed this up. From 2017-2022 Sales Assembly was balance sheet profitable. Made more than we spent literally every single month. And we were growing top line at the same time. Awesome right? Turns out, not so much. H2 2022 and almost all of 2023 was tough. And we came to realize we were only profitable in the balance sheet sense. We didn’t have sustainable profitability built into our business And our financials took a hit. What we failed to do during all those years of profits was re-invest PROPERLY and make the right STRATGIC decisions for the company 1) we hired awesome people to fill immediate needs but not always the best fits for our needs 6-12+ months out. Didn’t think far enough ahead. 2) we “re-invested” profits like clockwork but in areas that didn’t contribute to foundational building (only immediate help with top line or productivity in the moment) 3) we did and creating things that people thought they wanted, but didn’t need. Impact? Immediate cash flow boost, but long term churn and PMF issue 4) we lost focus in certain areas because…we were profitable. We thought because we were profitable, we were making the right decisions. And super smart. But some of our decisions were a house of cards just waiting for ZIRP to be over. But the last 9 months have been different. We’re now re-focused on building a company for sustainable profitability. ✅ more scrutiny around every financial decision ✅ instead of asking what people want, we ask what problem we need to solve ✅ major investments need to make our company better 12 months from now FIRST, not just help today ✅ remaining flexible and nimble by taking a 1099 or tech efficiency mindset, first ✅ spending time and money now to automate, delegate and deprecate things that will make our core team better and more effective in the future. ✅ enhanced effort around internal comms and alignment on our goals / focus. We’re slowing down to speed up. Sales Assembly is still profitable. But now, much healthier and sustainable. And I believe that should be the focus for most businesses

Are you really focusing on the metrics that matter most? For years, I measured success by growing ARR and team size - the classic tech company measuring stick. But a conversation with Greg Alexander, founder of Collective 54 (thanks Justin Wasserman for the intro), flipped my perspective. Greg’s advice? Focus on the metrics that matter for your business. For small, boutique service companies (like Executive Presence), it’s not about ARR. It’s about: ✅ Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): Profitability is king. ✅ Revenue per employee: Efficiency beats expansion. In 2025, I’m making these my guiding themes: ▶️ Smarter decisions ▶️ Maximum efficiency ▶️ A laser focus on profitability Growth is great. But profitability and efficiency are what build something lasting.

Talked to a founder last week who did some math that made me cringe... ��� He runs a business with $10M annual revenue, and saw a competitor with $20M revenue raise at a $90M valuation. His logic: That's a 4.5x revenue multiple, so my business should sell for $45M. Founders, DON'T DO THIS MATH. 💥 Here's what I told him—gently: 👊 1) VC valuations ≠ sale prices Fundraising valuations are often inflated, based on potential or hot market conditions. M&A valuations are based on proven performance—specifically, how much profit you generate. 👊 2) Most sales are valued on profit, not revenue Buyers care about EBITDA. Revenue multiples are rare for small businesses. One notable exception: SaaS businesses with $1-2M+ revenue might get revenue multiples, but profitability still matters. 👊 3) Sale multiples aren't straightforward They're based on factors you don't see on the surface. That $20M company might have 40% profit margins while the $10M company barely breaks even. Plus, larger businesses typically command higher multiples just because they're bigger. 💥 The bottom line: Investors pay for potential. Buyers pay for proven performance. Set realistic expectations based on your actual financials, not someone else's fundraising PR. Let's set you up for wins, instead of disappointments. 💪 ** I'm Alexis Grant, founder of They Got Acquired. We share ideas like this in our free newsletter: https://lnkd.in/e8mXN768

We'll talk about our firms' top-line numbers. “We did $5 million last year." “We brought in $20 million.”   That’s great. But your top-line revenue's not the number I care about most.   Because as a business owner, how much money you bring in doesn’t matter nearly as much as how much money you keep. If you bring in $10 million but spend $9.5 million doing it, that's fine. But you're only operating at 5% profit. Not great.   Most lawyers don’t think about profitability. Many law firm owners don’t know how profitable their firms are off the top of their head. But profitability should be the first number you look at.   This is one of the concepts that mastermind groups have helped me embrace. I used to think in terms of revenues. I paid my lawyers and team based on revenue. I judged our success based on revenue. I paid myself based on revenue. And eventually I started asking why, if the firm was making so much money, I wasn't taking more of it home.   In mastermind groups like ours at Fireproof Performance, you can compare numbers with other firm owners. Not just your revenue, but your actual margins. And compare them to the group as well at national norms. What percentage are you spending on payroll? What’s your spend on case acquisition? What’s your profit %?   One guy stands up and says he’s bringing home 42% of every dollar the firm brings in. Another guy’s at 22%. And everybody’s listening, wondering how they get to that 42% camp.   When you’re operating in a vacuum, it’s easy to assume everything’s fine. But once you see how others are running their firms—and what’s possible—you start asking the right questions.   Where are we leaking money? Where could we tighten things up? How much money would I like to take home at the end of the year?   Once you start asking those questions, you're shifting from thinking in terms of revenue to profitability. That's a great start.

If you’re chasing ROAS, ACOS, or TACOS on Amazon you’re chasing bulls**t. Here’s why… Last week, I met with a FAMOUS brand on Amazon who proudly claimed their ad campaigns were delivering a 20% ACOS and a 5x ROAS. “I’m crushing it,” they said. I stopped them there. Here’s the brutal truth: ROAS, ACOS, and TACOS are bulls**t metrics. But why? These metrics ignore: The true cost of goods sold (COGS) Amazon fees, Fulfillment fees, and shipping Inventory storage and returns Your actual contribution profit You might be optimizing for these numbers, but if they’re not tied to profit, you’re just burning money to look good on a dashboard. Here’s what matters: It’s not about what you MAKE on Amazon, it’s about what you KEEP. The real metrics: Profit on Ad Spend (POAS): Contribution profit divided by ad spend Profit Contribution: The margin left after covering all direct costs Cash Flow: The actual money hitting your bank account When you chase revenue-based metrics, here’s what happens: You over-invest in branded campaigns that don’t drive net-new customers. Agencies or ad managers inflate metrics by padding TACOS with your organic sales. Your business grows top-line revenue but stalls at the bottom line. Remember: Revenue is vanity. ACOS is fantasy. Profitability is reality. Net profit doesn’t lie. If you’re still running your business on these vanity metrics, you’re chasing bulls**t.

“𝗜’𝘃𝗲 𝗴𝗼𝘁 𝗺𝗼𝗻𝗲𝘆 𝗰𝗼𝗺𝗶𝗻𝗴 𝗶𝗻𝗅” Cool. But are you keeping any of it? There’s a huge difference between being busy and being profitable. Ask any small business owner. At 𝗪𝗲𝗹𝗹𝘀 𝗩𝗶𝗿𝘁𝘂𝗮𝗹 𝗕𝗼𝗼𝗸𝗸𝗲𝗲𝗽𝗶𝗻𝗴, we work with some of the hardest-working people. They are generating revenue every day…....but still struggling to pay themselves consistently. Cash flow says: “Your business is active.” Profit margin says: “Your business is healthy.” Ron Kaufman nailed it: “𝗬𝗼𝘂𝗿 𝗽𝗿𝗼𝗳𝗶𝘁𝘀 𝗿𝗲𝗳𝗹𝗲𝗰𝘁 𝘁𝗵𝗲 𝘀𝘂𝗰𝗰𝗲𝘀𝘀 𝗼𝗳 𝘆𝗼𝘂𝗿 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿𝘀.” In other words—when your product genuinely helps people, they keep coming back. And that is what turns revenue into retention. And retention into real results. 🔹 𝗖𝗮𝘀𝗵 𝗳𝗹𝗼𝘄 𝗰𝗮𝗻 𝗯𝗲 𝗱𝗲𝗰𝗲𝗶𝘃𝗶𝗻𝗴. High revenue with high expenses = burnout disguised as growth. 🔹 𝗣𝗿𝗼𝗳𝗶𝘁 𝗺𝗮𝗿𝗴𝗶𝗻 𝗸𝗲𝗲𝗽𝘀 𝘆𝗼𝘂 𝗵𝗼𝗻𝗲𝘀𝘁. It forces you to look at what’s actually working—and what’s just noise. 🔹 𝗞𝗻𝗼𝘄𝗶𝗻𝗴 𝘆𝗼𝘂𝗿 𝗻𝘂𝗺𝗯𝗲𝗿𝘀 𝗴𝗶𝘃𝗲𝘀 𝘆𝗼𝘂 𝗽𝗼𝘄𝗲𝗿. To say no. To scale smart. To build a business that supports your life, not consumes it. So if you’re a small business owner, let me say this: You don’t have to hustle harder. You need to 𝗼𝗽𝘁𝗶𝗺𝗶𝘇𝗲 𝘀𝗺𝗮𝗿𝘁𝗲𝗿. Revenue is vanity. Profit is sanity. Cash flow is just the ride between the two. 👉 Ready to build a business that works for you—not the other way around? 𝗟𝗲𝘁’𝘀 𝗰𝗵𝗮𝘁 𝗮𝗯𝗼𝘂𝘁 𝗮𝗹𝗶𝗴𝗻𝗶𝗻𝗴 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆, 𝘁𝗲𝗰𝗵, 𝗮𝗻𝗱 𝗹𝗲𝗮𝗱𝗲𝗿𝘀𝗵𝗶𝗽 𝗳𝗼𝗿 𝗿𝗲𝗮𝗹, 𝗺𝗲𝗮𝘀𝘂𝗿𝗮𝗯𝗹𝗲 𝗶𝗺𝗽𝗮𝗰𝘁. Your business and those who need you are depending on it. If this post hit the spot, please share! ♻️ P.S. Fellow founders—what was the first moment you realized revenue didn’t mean profit? Let’s swap lessons below.