Growth vs. profit

bcc423

bcc423

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Dec 16, 2008
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I'm struggling with a decision that has more to do with business in general than marketing.

Can anyone suggest some good reading material on choosing between faster growth vs. profit?

My current projects can either be made instantly profitable or be left losing money while growing rather quickly.

Last month, I made $48k in revenue. The month before it was $34k. The month before $26k. The month before $19k.

So the growth is good.

But my total expense over the last month was $92k (with $48k in revenue). So I'm in the red.

I can either decrease my expenses (mostly advertising) and start taking in cash or I can keep doing what I'm doing for the next year.

If I lower expenses to, say, $30k/mo while getting $50k/mo in revenue, I would be making decent coin and would be profitable instantly. But the growth rate would only be 5%/mo at best.

Alternatively, I could keep losing $30-40k/mo for the next 12 months, and after that, I would have something like $200k+/mo in revenue. At which point, I would be able to either sell my stuff for a shitload of money or I would be able to start taking out $50-70k/mo in profit without taking any hit in growth.

Initially, the latter was the plan. But I'm getting way out of my comfort zone. So I'm having second thoughts.

I have the cash to fund it for a while, but naturally, there is no guarantee that the growth won't plateau.

Any good advice/books/articles to read on this matter?


P.S. The business model doesn't revolve around "directing paid traffic to offers" or something like that. So lowering advertising expenses today won't negatively impact future revenue much, but it will decrease future growth rates.
 


I don't know who'd would buy a business that's been losing money for that long. That's just common sense.

Last time I was trying to do a buy around $100k-200k I was looking for under performing stable businesses however I'd never try to revolutionize an already established business. I am searching for something that can be optimized - not completely turned around, which to me seems like a gamble since I'm looking for long term investments and want to minimize my risk.

I'd assume with a bigger buy like yours buyers would be even more careful and reluctant to shell large amounts for something that's losing money like you're describing.
 
Interesting.

I like problem solving, am pretty good at it with big biz if you want to PM/skype me hit me up I've been in similar shoes a few times.

A few Q's to ask yourself:

* Can your advertising be offset with an aff program? My affiliates create way more awareness and marketing than I ever could even with a 6-7 fig budget re long term sticky campaigns. All on commission and the margin is enough for me to share generously, explore that idea if even for a portion of your biz.

* Negative growth is never good - Can you slow it down and eliminate any elements in your biz (or outsource/automate/find cheaper providers)?

* It sounds like it's a rebill or other offset that's delaying your profit margins well into the future creating your uncertainty.

* Can you still reposition the offer or is it more than established? I doubled rev twice by simply focusing on a) one-click-upsells/downsells post purchase b) alter the price (sometimes lowering the price doubles volume etc. sometimes raising it also raises volume - I just did this with my sig offer - went from 29 to 39 and it literally almost doubled my rev and aff's rev and increased volume, it was undervalued).

I think positioning has a lot to do with it, if you can't budge due to competitors, perhaps REALLY lower the front end just to create a NO BRAINER funnel and focus on retention of the back end, more profiled customers means more interaction downstream. Most of my offers have the front end extremely attractive just for that reason so getting them in on level one is easy and important because I triple that on the back.

* Trying to dig a bit without knowing what you do is hard so none of this might apply but at the end of the day if you have something that IS moving, you've proven demand, there's room to grow, then I'm sure you just have to tweak it accordingly to facilitate less risk short and long term, and maximizing profits in the interim. Sounds like you're 90% of the way there.

Best of luck with it, hollar if you want to sts a bit.
NC.
 
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ncmedia said:
Interesting.

I like problem solving, am pretty good at it with big biz if you want to PM/skype me hit me up I've been in similar shoes a few times.

A few Q's to ask yourself:

* Can your advertising be offset with an aff program? My affiliates create way more awareness and marketing than I ever could even with a 6-7 fig budget re long term sticky campaigns. All on commission and the margin is enough for me to share generously, explore that idea if even for a portion of your biz.

* Negative growth is never good - Can you slow it down and eliminate any elements in your biz (or outsource/automate/find cheaper providers)?

* It sounds like it's a rebill or other offset that's delaying your profit margins well into the future creating your uncertainty.

* Can you still reposition the offer or is it more than established? I doubled rev twice by simply focusing on a) one-click-upsells/downsells post purchase b) alter the price (sometimes lowering the price doubles volume etc. sometimes raising it also raises volume - I just did this with my sig offer - went from 29 to 39 and it literally almost doubled my rev and aff's rev and increased volume, it was undervalued).

I think positioning has a lot to do with it, if you can't budge due to competitors, perhaps REALLY lower the front end just to create a NO BRAINER funnel and focus on retention of the back end, more profiled customers means more interaction downstream. Most of my offers have the front end extremely attractive just for that reason so getting them in on level one is easy and important because I triple that on the back.

* Trying to dig a bit without knowing what you do is hard so none of this might apply but at the end of the day if you have something that IS moving, you've proven demand, there's room to grow, then I'm sure you just have to tweak it accordingly to facilitate less risk short and long term, and maximizing profits in the interim. Sounds like you're 90% of the way there.

Best of luck with it, hollar if you want to sts a bit.
NC.
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some great advice right there.


also, why dont you just try to break even every time? like you make 50k in one month, spend 50k and slowly growing the business without actually losing any money?
 
Yuckystuff said:
See Groupon.
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Like it was also mentioned with Youtube, these things do happen, but it's unrealistic to expect something like that is a common occurrence. These are more like one in a thousand exceptions.

You don't hear about 999 businesses per that 1 that don't get sold and the operation has to shut down or is sold extremely cheap to someone that's willing to take a risk he MIGHT be able to turn the whole thing around in the not so near future.

Though, the whole decision depends on how big of a risk taker OP is since we don't know what's his business model and other crucial information one'd need before making the decision.
 
Not enough info, but from you've written you need to do some serious risk analysis for option B. Even if you take option A, are there any ways that things can go wrong that would cause your income stream to halt before you break even?
 
^ Sorry my bad, you'd break even pretty much immediately with option A. You'd need an actuarial-level analysis of the different things that can go wrong and the probabilities of each.
 
I own a construction company, you know what we call a construction company that looses that kind of money? Out of business. Turn a profit, sleep better. Unless you are far more educated about this shit than I, if that is the case, um, dont ask for advise on a forum?
 
Also lol at all the people saying that you absolutely should not be running at a loss. Do any of you ever have plans on creating a company that is actually worth something?

Why do you think companies like Google and Facebook (and most huge companies) go public or get VC funding? Because they want to have less ownership in the company? Or because in order to scale they need more money (and might need to run at a loss for a period of time)?
 
^ You left out Amazon. Running at a loss for its first five years (and planned that way from the start).
 
Assuming you are being honest and not overly optimistic with your estimates, it seems as though the reward outweighs the risk by orders of magnitude for me. But, we each have a different tolerance for risk.

The only thing that makes me second guess this is that you are hesitating and asking here instead of talking to your advisers.
 
^ Sorry my bad, you'd break even pretty much immediately with option A.
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Yes. That's the key point here. And that's what makes this a tougher choice.

Is the site you're talking about a forum?
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Yes. Which means I can stop spending on advertising at any time and still maintain 90% of the revenue. (It's all about the regulars who would keep coming no matter what.) I might even end up with modest growth. (So comparisons to other kinds of business don't really apply here.)

I own a construction company, you know what we call a construction company that looses that kind of money? Out of business.
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Read above.
With any other kind of business model, I would be thinking the same thing. But not in this case.

If you're not looking to bring in an investor then you should probably not get too greedy and limit your growth if necessary in order to assure you don't lose your ass. Nothing in the future is guaranteed...
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I don't want any investors. But you are right, nothing is guaranteed. That's what worries me. In my case, catastrophic failure of a business is unlikely at this point, but it certainly could unfold in ways which I wouldn't expect.

also, why dont you just try to break even every time? like you make 50k in one month, spend 50k and slowly growing the business without actually losing any money?
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Because it's not enough. I want more and I want it all sooner rather than later.

Here is a little story.

For the past 10 years, I've been slowly grinding away making some losing some. Always watching my bottom line. Always growing slowly and prioritizing profit over revenue growth at every turn.

Well, 2011 was a really good year for me. I made a lot of money. It looks like all the grinding finally paid off. I sold one of my projects and made bank.

And I realized how awesome it is to be rich.

I still remember the moment. I bought a car using a debit card. But that wasn't it.

This magical moment happened the next day, when I logged into my bank's website and didn't notice that transaction.

I mean the transaction was there. But the amount of the transaction was insignificant compared to the account balance.

You know how you always remember *approximately* how much money you have in your checking account, right? You probably don't know the exact amount, but remember the left-most figures of the balance.


Now imagine, making a rather large purchase, logging in to your bank's website and not knowing whether the transaction has been posted or not because you can't tell that by the balance alone.

And then realizing that you could have bought a house with that debit card and still be in the same situation, not knowing if the transaction went through or not only by looking at your balance.

That's the moment I knew I wanted a lot more money than I have now.

The possibilities truly are endless. So I don't want to settle for making $10k-20-50k/mo. That's just not enough. I want to be making so much money so that I and my family can spend all we want without even noticing. That's the only way to live.

And that's why I'm not willing to settle for slow growth.

Hope that answers your question.

If you disregard what I posted above, then I agree that spending only what I make would be a sensible and smart thing to do.

I just don't want to have a million-dollar-website three years from now. Instead, I want to have a 20-million-dollar-website a year from now. So that I would have a 50-million-dollar-website a year later. And so on.

Assuming you are being honest and not overly optimistic with your estimates, it seems as though the reward outweighs the risk by orders of magnitude for me. But, we each have a different tolerance for risk.
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This is the key here. There is no way to know if I'm right in my estimates or not. If I'm right, then I should be spending a lot more and grow as quickly as I possibly can. But if I'm wrong, then I'll end up spending hundreds of thousands only to be making tens of thousands later on.

The only thing that makes me second guess this is that you are hesitating and asking here instead of talking to your advisers.
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Because there aren't any advisors who could help with this.
If they exist, then I don't know how to get to them.

There are consultants who would be happy to take your money in return for some bullshit opinion, but that's it.

This I already learned. Not just with consultants, but with lawyers too. You are the one who has to do the homework, and then tell the professional you hired what to do. Not the other way around.

That's why I'm looking for some general reading material on this topic. So that I could collect more thoughts and ideas before deciding how to proceed.
 
bcc423 said:
There are consultants who would be happy to take your money in return for some bullshit opinion, but that's it.

This I already learned. Not just with consultants, but with lawyers too. You are the one who has to do the homework, and then tell the professional you hired what to do. Not the other way around.
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So true, most of the time.
 
OP, I respect your view on life. I follow a very similar belief in that enough is actually enough when I can go throughout my day, buy what I want, without ever second guessing if I have enough and if it would put anything in potential risk.


I'll send you a few good reads on the topic of growth vs seeing a profit in the short term profiting
 
Pb.com said:
OP, I respect your view on life. I follow a very similar belief in that enough is actually enough when I can go throughout my day, buy what I want, without ever second guessing if I have enough and if it would put anything in potential risk.


I'll send you a few good reads on the topic of growth vs seeing a profit in the short term profiting
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if you don't mind, can you share them here?
 
bcc423 said:
your post
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Based on everything you said here (the business you have, where you are now, where you want to be later in life) I would say absolutely keep spending for growth.

It seems like you answered your own question. You have enough money to comfortably run at a loss to grow your business, you have high ambitions and you have direction to help you reach your goals. Unless you are leaving something out, there is no reason not to go all out here for as long as you keep getting those types of growth numbers.
 
Anyone that's taken a corporate finance class should know the answer here...compare the NPV of the two different paths your project can take.
 
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