Start Up & Beyond: Why Profitability Matters

Being a for profit business means your focus is on growing a business that is profitable. Seems like a “duh” statement, doesn’t it? Then why isn’t this understood from the very beginning? Depending on the source, the average number of years a start-up business becomes profitable is anywhere from 2 to 5 years. And yet according to the U.S. Bureau of Labor Statistics, an alarming 20% of start-ups fail within 2 years and another 45% of businesses don’t make it past 5 years. Only 25% of businesses make it to 15 years or more.  

A more profitable business is a more bankable business. Just ask your local banker. A start up that is in a growth mode and can’t show a profit is hard pressed to get bank funding, and while it may be able to get angel or venture funding, then the pressure to be profitable becomes ever present.  


It seems evident that profitability should be taken more seriously from the very beginning. So why isn’t it? 

Many lifestyle types of businesses are more focused on the lifestyle of the business owner being maintained in the manner they desire than building a business that could ultimately be sustainable without the owner. The business funds a lifestyle and that’s its primary purpose, nothing more. With this mindset driving the business, the owner is more focused on low or little profits from a tax obligation standpoint, so paying oneself is more important than investing in the business for growth, higher revenues, and profitable outcomes. 


I applaud a new metric for start-up business success shared in a 2023 article on entrepreneur.com by Will Fan.  A profitability-first focus in a start-up is a business built for long-term, sustainable existence. He further elaborated that by focusing on profitability, it requires its founder to be disciplined, to carefully plan, and to prioritize the bottom line over short-term growth. 


Fan accurately shared that profitability has often taken a back seat to growth for start-ups for a variety of reasons. When a start-up is under pressure by stakeholders or investors beyond its founder to have massive growth, spending can be rampant and reckless to grow a user or client base of offerings. Strategy and diversification of offerings is not a focus. Just fast growth on sky-rocketing revenues. The focus is on quantity rather than quality. 


The success and then plumet in value of 23andMe is a perfect example of a business that focused on growth over profits. It’s lack of diversification of offerings from a single product turned first-time users into only-time users. They had millions in a customer base to leverage and nothing to keep them buying repeatedly. And the most important point to be made -- from 2014 through 2023, they still were struggling to generate profit. 


Profitability-first focuses on sustainability, creating value, strategy, efficiency and pricing accurately.


Bottom Line Rule #1

It's not about sales; it's about profits.


1. Long-term Sustainability: When you correlate business success rates with the current norm for when businesses become profitable mentioned at the beginning of this blog, a siren should be going off emphasizing the importance of being profitable from the very beginning. In addition, even though a business may be in a start up mode, it needs to be thinking strategically long term too in the process. Operating by the seat of your pants in how decisions are being made will not serve you in the short term or the long term.



To be sustainable as a business beyond two years, five years, ten years and beyond, it takes understanding profitability and its importance from the day you opened for business. 



2. Creating Real Value: For customers to invest their money in purchasing your products or services, your business must be demonstrating and reinforcing on a daily basis its distinctiveness against direct and indirect competitors in a manner that resonates and attracts your customers to prefer to buy and keep buying from you. If you aren't viewed as distinctive, then you are not viewed as creating real value. Know how you are distinctive and continue to identify multiple ways to stand out in your marketplace.


When you are viewed as distinctive and being THE place to go for what you are offering, you are building a market position of preference. Investing profits or working capital in protecting your distinctiveness through what is proprietary to your business is also key to maintaining your advantage and increasing value. 


Bottom Line Rule #4

Know your value. Make it
and it will be profitable. 


3. Strategic Spending: How you spend your money in the business speaks volumes to how dedicated you are to ongoing growth and advancement of your operations. This is why your profitability allocation is pivotal to success. If you spend money frivolously at the end of the year on equipment, excursions, or other line items simply to get your profitability down, you may not be making the best spending decisions in relation to growing sales and opportunities for the business. Strategically calculated expenditures should be justifiable based on growth plans.


This is especially key to demonstrate to a potential investor who needs to know why profits have been impacted. If the investor sees the spending as a strategic reinvestment of profits into the business, then they will deem your business worthy of investing in too. Employees also scrutinize your spending decisions. Spending dollars on an extravagant party versus professional development may be telling an employee that his or her advancement and ability to serve you in the future is not valued.


Bottom Line Rule #5

Allocate profits in four ways:
Cash reserve, sharing, capacity building and value building.


4. Operational Efficiency: This is where having an understanding of the four resources to continuously leverage in a business comes into play. In addition to money, you need to be considering your people, time being spent and technology and how all are contributing to the company being high performance, highly productive and highly effective and efficient and delivering what is being offered. Too often, I have found that when money is the only resource being considered, money is actually being wasted.


By not considering technology, people inside and outside of the company involved in delivering your offerings and how time is most effectively spent by each and every person within their roles you may be spending in the wrong places. Everyone doing their best work is where technology and income-based time management also play a pivotal role. 


5. Pricing Offerings Correctly: Too many start-up businesses underprice offerings with a mindset that pricing can be raised later with time, track record and confidence built. Too many small businesses in general underprice offerings placing their business in a commodity mindset quagmire that can be hard to bounce back from. Read my blog on How a Commodity Mindset is Killing Your Business to learn more. Pricing offerings should be based on the distinct value and return on investment realized.



Yes, you must take into consideration what competitors are charging, however, if you create true preference in your offerings as mentioned in point #2, the value received will outweigh a lower priced competitor every time when aligned with ideal markets that buy on value received. Read this Forbes article where I am quoted entitled, How to Stop Trading Dollars for Hours as an Entrepreneur. 

Bottom Line Rule #20

Profitability first. Growth second. 


Business failure rates and a Wall Street darling turned disaster should be confirmation enough on how important profitability matters to building a business that lasts from its very start. At any stage of a business, profitability should be scrutinized strategically through a value building and capacity building lens. Without profits, it will be difficult to accomplish sustainable growth or true value in your business.


Yours in economic vitality,



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