Have You Worked in a Profitable Company?

Do you know if the company you work for is currently profitable or not? As a startup employee, you are one step ahead of your peers if you know the answer. Why? I can think of a few possible reasons:

  1. You clearly have an owner/founder mindset.
  2. You care about your work and the company you work for.
  3. Your founders shared that information in a town hall, or you learned it from some random meeting.
  4. You happen to work in the accounting department.

I hope it’s either 1 or 2 (not that 3 and 4 are bad, though).

This question was asked during an early interview by (potential user) and now colleague from Habyt. Yes, this is for you, Renny. That question is so good, it stuck in my head for days and I made an article about it!😇

Different Return Expectations for Different Types of Companies

Companies exist to make money and be profitable. In reality, they need to balance growth and net profits. It is completely normal for a company to focus on revenue growth first and calibrate towards profitability later.

I like Jason Lemkin’s article here on his thoughts between growth and profitability. Or Paul Graham’s “Ramen Profitable” article here. Both give me unique perspectives.

Nowadays, most startups are expected to be more conscious of spending their money. Growth is still the main attraction, but it has to be achieved with a sustainable profitability level. Post-pandemic, we saw a trend of founders deciding to bootstrap their companies rather than raising funds.

I don’t think one is better than the other; it all depends on the company’s direction, the founder’s preference, and most importantly, the investors’ expectations. I have an interesting article written by Gumroad founder Sahil Lavingia. He shared how changes in his life and lifestyle led him to transition his company from being VC-backed to now privately owned or you can call it a bootstrapped company.

So… what differences does it make for us employees?

It is life and death for a bootstrapped company.

If we spent $100 on ads with a return of $200 in revenue (2x Return on ad spend) and it cost $130 on the cost of goods sold, we are doomed to fail. Because for every $200 of revenue, we already spend $230 on marketing plus COGS, meaning we lose $30.

In a bootstrapped company, the amount of money spent on marketing has to be closely accounted for to the amount of revenue generated. This way, there is more pressure and higher expectations on marketing.

I am fortunate enough to have been exposed to this exercise early in my career since there is no other way for a bootstrapped company to survive. This has helped me cement that mindset to aim for a net positive return on every marketing investment.

It is life and death for a bootstrapped company.

After years of experience in the startup scene, what really bothers me is that so many marketers are not aware (even roughly) of how much the product/service costs to serve customers. They only focus on growth metrics. Or even worse, they are not aware of the amount of revenue we are generating.

We always tell other functions (or ourselves) that marketing will need time to garner results. Sometimes we can be too proud of our metrics and may forget to connect the dots between marketing and supporting the revenue function. At the end of the day, what we do in marketing should help revenue, not the other way around.

It seems to me there are two explanations as to why the above is happening:

[1] Company Focus – The company and the team (including your founder) care more about growth. It’s not necessarily bad, however, it’s always good to question what you deliver to the table along with those cost metrics. Don’t focus on growth for the sake of growth. I experienced it myself, where I was laid off on my previous companies because we technically bankrupt, while there are a lot reason for that I believe one of the biggest reason is that we focused on growth too much.

[2] Revenue Proximity – The further away your role is from the revenue team, the less exposure you have to any revenue-related metrics. This makes you isolated from the business reality. How often do you know if the company’s revenue is going up or down every month? How often do you know if we are profitable or at a loss any given month? This becomes even harder once your company has more than 100-200 employees.

I am not blaming the marketer; it comes down to which mode the company is focusing on (growth/profitability), what is the direction, investor’s expectations and many other reasons. In my opinion, if you are somewhat aware of that and implement that net positive return mindset on any marketing investment (maybe sometimes, not always), you are already one step ahead compared to other marketers.

At the end of the day, companies exist to make a profit. Yes, your company has a lot of funds to play with and a VC-backed startup may have more time because of that, but it will not last forever. You will need to switch or shift slightly to a more sustainable way of doing marketing one day.

Does it matter? Your company being profitable?

We need to look at this from both company and employee perspectives.

What is your company view on these topics?

Which one does your company prioritize? Growth or profitability? If your company is leaning more towards profitability, then it is very important for you to have that holistic view. Your mindset of net positive return will come in very handy.

What if you don’t know what your company’s focus is? I am aware sometimes it is very obvious, but most of the time it isn’t. The way I validate this view of a company is by simply asking: “What is our north star metric?” And if they come up with a few metrics, ask specifically how we should rank them.

Let’s say we know the north star metrics are New User, CAC, ROAS/ROI. I bet with this example most companies will put New User first. However, if they put CAC first, they may focus more on user acquisition (growth). If they pick ROAS/ROI, it means they want to optimize for a better return on every investment for every dollar spent (profitability). I know it’s not that simple, but please seek clarity with your team so you know better!

It is something that is not discussed as often by your employer. However, the owner/founder will value that net positive mindset greatly. It shows that you care about the company’s sustainability, not only about its marketing.

And then from the employee’s perspective

Other than for job safety reasons, I feel that most professionals would never ask that question, to be honest. With the tech winter happening in the last few years followed by a lot of layoffs in various companies, more people are asking that question only to understand how the company performs on a P&L perspective, with the intention to measure the layoff or downsizing potential of the company.

I wish there were more professionals who asked that question for themselves, but I don’t think that is the case. Because for every working professional (especially marketers), showcasing impressive growth metrics without adding net/loss return context to their resume is unnecessary. Unless they have a stronger founder’s mindset or really have some kind of attachment to the company (by years of service or maybe some shares owned).

I mean, who wouldn’t want to have cool growth metrics on their resume? Even better if it can highlight the bigger responsibility indicated with more budget and more people managed on those resume lines, right?

My perspective

I am fully aware that it is a balancing game between both aspects, and I am not here to preach that you pick one over the other. My recommendation to you, especially if you are a marketer are:

[1] Ask questions, try to understand the business situation holistically. Imagine you are the founder, what will you do to market your product better?

[2] Be proactive in measuring customer acquisition metrics and not afraid of presenting hard facts with recommendations. Lastly, influence the team with that net-positive mindset!

This will help you stay fully aligned with revenue and bring a holistic and strategic marketing view to the table, which is not a common sight.

Think bigger, act like an owner!

Thanks to Renny for reading drafts of this.

PS: Would love feedback to my writing, feel free to reach out at faisal.tirtonady@gmail.com