When Profitability is a Red Flag

Or, The Difference Between a Business and a Startup

I don’t have a business degree. I do have entrepreneurial parents. My father has a commercial real estate development company with a number of employees. My mother is a Dietician running a solo private practice. Their businesses are completely different in almost every way, except for one: profitability is the main goal.

This is what I grew up knowing about business.

In a recent interview with Jason Cohen, Founder of WP Engine, we got to talking about business goals. He said something that, at the time, seemed jarring to me, though I’ve since come to understand his point. He said:

“Profitability is the last thing you want. Profitability indicates you’re out of ideas.”

What he means is: If you had ideas of how to continue to grow, you’d invest back into the company to pursue those avenues, and grow until the seams burst (or you IPO ☺). Then you grow some more. You wouldn’t kick back in your Herman Miller chair and brag to your investors about the massive profits you’re piling up (you’d probably scare the crap out of them).

Jason Cohen is running a startup.

So what’s the difference between a Business and a Startup?

Trick question - they’re both businesses. The difference is their objectives. And the difference in objectives means big differences in how they operate.

Businesses are, in fact, driven by profitability and stable long-term value. Sure, you’ll invest some portion of profits back into the company to continue to grow at a stable rate, but profitability is still your north star. 

Startups on the other hand, are focused on top-end revenue, but most importantly, growth potential. Growth trumps profitability, which is why most VC backed startups are operating at seemingly huge losses. It’s an investment in growth potential, and this is a very different kind of business.

Which one is better? That’s like asking if chocolate or vanilla is better. It all depends on what you want.

Steve Blank shares his fantastic perspective in this short 2 minute video:

So I guess the reason Jason’s comment took me a little while to process is because it went against everything I knew (at that point in time) about running a business. (I still have a lot to learn).

Profitability has always been my bottom-line goal (and still is) for my product HookFeed. Yet, if you ask me to describe what I do, the word ‘startup’ is one of the first words out of my mouth.

So what is HookFeed? Is it a startup, or a business? Or, rather, a better question might be: what do I want it to be? Because the answer to that would (and should) drastically change the things I work on (and towards) today.

If you’re in a similar boat, trying to figure out what you are or what you want to be, I’ll leave you with this: there’s a reason the rate of failure for startups is so high. It’s the same reason the payoff for success is also high. 

It’s a risk : reward ratio. 

And while figuring out your risk tolerance is important, and will certainly help guide you in the right direction in a practical sense, it should only be a piece of your evaluation. Ultimately, it comes down to asking yourself:

What’s your idea of success? What will make you happy?

Once you can answer that, you’ll know what to work on today.

For me, I can’t help but think of myself at the frozen yogurt shop faced with the cliché choice of chocolate or vanilla. I’m a swirl kinda girl…maybe that’s a sign?

About the Author

Joelle SteinigerTwitter

Co-Founder of HookFeed. Currently focused on Marketing.

"What's HookFeed?" It's a software product that helps your whole team understand your customers on a deeper level based on their behavior and our research about them. Check it out  >