This is the third article in the series I’m writing about the things I learned building a mobile startup in Africa. The first article was titled: Investment is scarce. The second article was titled: Raising funding can distract you.
In the era of tech startups raising a billion dollars and being bought for triple that after a few months, it is increasingly becoming uncool to build an organically grown and profitable business.
The irony of this is that profitable, sustainable and proven business models tend to raise more money more often.
For some strange reason the cool factor of raising money has overtaken the cool factor of profit. This is a strange place to be, the world seems to be on it’s head with this logic. The other odd thing that comes with the glory of raising funding is the perception that businesses become successful overnight. Unfortunately companies like Instagram perpetuate this bullshit myth. It takes years and years to create either a massively viral and fast-growing platform or a profitable, scalable and sustainable business.
The thing that most people forget is that it’s easy to build a business firstly with someone else’s money and secondly with a small team. Scaling growth and maintaining profitability are entirely different things.
Let me put it like this: When you are paying the salary of 2 people, profit depends entirely on overcoming those two salaries. When you are paying the salaries of a team of 300 you need to overcome those salaries before you can even begin to consider the other expenses that come with that staff faction. A business that has organically grown to 300 people and can still maintain profitability is much more impressive to me than a business that is spending someone else’s money to employ 300 people for 2 years in the hope of finding a revenue model that sticks.
There are very few tech companies that are angling at long term, sustainable and scalable growth. One of those on my list of must-haves right now is Evernote. I can’t live without their app. They are so embedded in long term growth that their sales cycle is two years long (you use their app and two years later you upgrade to a paying customer). They are building a 100 year old company starting today, everyday.
Don’t be ashamed of organic growth. Apple took 30 years to get to where they are today. Ferrari is over 80 years old. These are companies who have proved themselves, their product and their model over time. Maybe it’s time we start thinking this way and begin building business for the future.
4 Comments
Shawn Roos
Great article, we’ve been struggling with the same issue. We’re a digital agency wanting to shift towards products. We’ve resolved to bootstrap, and its tough and it will take longer to get our idea to market, but it’s forcing us to spend as much time thinking about the business model as the product – something that mega startups like Color never did.
28 Nov 2012 11:11 am
Nate Kettles
Nic, these are some fantastic thoughts, and I trust that the right people hear them. There is no shortcut to success or profitability, we have to learn to be lean and do the hard work.
03 Dec 2012 08:12 am
Nic
Thanks Nate. I think you're right that most of us need to learn this stuff the hard way.
03 Dec 2012 09:12 am
Adriaan
Hear hear!
Now the challenge for companies seeking to grow organically and profitable is that you have to compete with funded companies for business. In my experience loyal customers would see through this and that you are building long term, which makes running your business so more fun.
10 Dec 2012 10:12 pm
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