David Cummings on Startups

Transitioning from Profit-Oriented to Growth-Oriented

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David Cummings

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Earlier this month I had lunch with an entrepreneur that described a situation I don’t hear about too often: after several very profitable years they wanted to transition from being profit-oriented to growth-oriented. The business was doing well and the market was continuing to mature around them creating a desire to gain more market share at the expense of near-term profitability. It seems pretty simple, right? Wrong.

Here are a few reasons why transitioning from profit-oriented to growth-oriented was more difficult than expected:

  • Angel investors in the company had grown used to the nice dividends each year and didn’t want them to stop
  • Internal team members were the operationally-focused type and not growth-focused (good people but not necessarily right for the change)
  • Certain managers that excelled at their current size were viewed as not yet having the skills to take it to the next level, and would have to seriously improve or move on from the business

It was interesting to hear about these experiences first-hand as well as the challenges that come from making a dramatic strategic change.

What else? What are some other challenges with transitioning from profit-oriented to growth-oriented for a startup?

Comments

2 responses to “Transitioning from Profit-Oriented to Growth-Oriented”

  1. Dominic Zabriskie Avatar
    Dominic Zabriskie

    The classic rising star vs. cow cash dilemma… I’ve witnessed cash flowing businesses slowly wither away because management either became complacent or just didn’t want to reinvest in other growth opportunities. It is tough to forgo cash distributions today for a potentially larger payoff tomorrow.

    Reply
  2. Rupalli Thacker Avatar
    Rupalli Thacker

    I think this entrepreneur has only angels to keep happy. Imagine if venture funds had invested and heard of this? Worse think about a possible IPO and market expectations! Unimaginable, right? That is what has become of us. Not able to think long-term, or rather not allowed to think long-term.

    I cannot recollect right now, however, there was an article just a few days ago about building a company to last, not to sell. I will post a link if I come across it. Perhaps reading that article will give your friend the boost that he would need, as it kind of reaffirms that long-term growth is better than short-term gain.

    Reply

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