Q

Growth versus profit dilemma – is there any answer? We are a startup that has just raised Series A. We have some big stretch targets before we can get to Series B. Everyone says market is soft and better to be conservative. But how to grow then?


A
Answered by Meeta Malhotra

Hello Sonal

Congratulations on the fund-raise. The pressure to grow with decent unit economics is actually a blessing in disguise because it will ensure you build a sustainable business. Here’s one way to think about this. Group your costs into the following buckets:

  1. Operational costs like team, infrastructure, product development etc
  2. Marketing costs required to build a brand and acquire customers

Move as quickly as you can to achieve break-even / profitability on the first bucket. It is a well-established fact that as you find traction, your marketing costs as percentage of your sales will start a downward trend over time. You should be able to show that this likely to happen with your business. There are several ways to do this:

  • Is your cost of customer acquisition constant / decreasing as your sales grow?
  • Are your marketing spends bringing you customers who will stick around and deliver value beyond one transaction?
  • What happens when you cut marketing costs? Do sales collapse or do they only dip and settle at a level that is higher than the pre-marketing one?

My advice would be to worry less about the investors and the market and focus sharply on running a super-tight ship while giving customers what they need. That’s how great businesses have always been built.

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