THE HOLY GRAIL OF PROFITABILITY

Profitability for startups is elusive, often overshadowed by growth and investor expectations. Achieving profitability requires a delicate balance between revenue generation and cost management, with factors like market dynamics and competition playing significant roles

- ANAGH PAL

PROFITABILITY IS A RATHER CONTENTIOUS term. And so is the path to profitability. Startups, even those with billion-dollar valuations, often shy away from discussing profitability. Just like a person would shy away from divulging his income at a social gathering.

This reluctance stems from several factors. First, many startups prioritise rapid growth and market expansion over immediate profits. They believe that by acquiring a large user base and market share, they can achieve profitability later. Second, investors often emphasise growth and valuation over short-term profits, putting pressure on startups to meet these expectations.

Third, startups frequently have high burn rates due to investments in marketing, research and development, and team expansion. These expenses can make it challenging to achieve profitability quickly. Fourth, the startup landscape is dynamic and unpredictable, with unforeseen challenges and market changes that could impact profitability. Finally, in highly competitive industries, startups may need to invest heavily in marketing and pricing strategies to gain market share, making it difficult to achieve profitability.

Which is why most of the unicorns BW Businessworld spoke to (we will not take names here, but think of some of the most successful startups) refused to comment on questions regarding their profitability. Understandable.

What is Profitability?

So let us tackle the elephant in the room. What is profitability and how does it differ from profits?