Is It Profitable To Always Be Growing?

You'd think that a growing company would also be increasing its sales and strengthening its positions in the market. However, the one doesn't automatically follow the other. Profits probably won't start flowing in right away, or even at all. When it comes to profitability and growth, business owners inevitably face a trade-off situation at some point.

When is your business growing?

Experts measure a company's revenue, number of employees and number of customers to show how a company is growing. Even if all the growth factors perform exceptionally, an expanding company may lose or not earn any profit. It depends on several factors, including what expenses to accommodate growth are balancing revenue.

Investors, though, keep an eye on growing businesses despite profitability uncertainty. It could eventually present great investment opportunities. Otherwise, each company's primary goal is profitability, and many business owners put profits before expansion.

Money in the bank gives companies a sense of control, and substantial revenue attracts investment and acquisition offers. Also, a profitable company doesn't need to take risks like going public to build and prove its market presence. Yet, even if the current profitability may be great, a company that's here to stay needs to explore growth opportunities as well. This will seriously motivate and keep its investors interested in the long run. In addition, many other newcomers will unavoidably show up to conquer your market niche.

The drive you need

Growth or profits don't happen by themselves. The more ambitious the entrepreneurs are and the more they believe in the benefits of the product they offer, they are more likely to invest in marketing features. These include market penetration and product development.

To see growth, you need to develop a consistent strategy, extend to new market territories, or lower your prices to keep the competition at bay. And so, the business owner's intent and plan have a lot to do with whether or not the business will be growing.

Startups tend to capitalize on growth, catching the media's attention and, therefore, potential investors. However, there's always a little more financing necessary for the business to keep going forward in most cases, which means more risk involved. And indeed, this growth companies pursue eventually slows down.

Case in point

One of the priciest startup failures was that of Quibi Holdings LLC, a mobile device streaming platform. Producer Jeffrey Katzenberg launched the company in 2020, amid the COVID crisis. Large companies like Goldman Sachs, NBC Universal and JP Morgan Chase injected around $1.75 billion into the company.

The platform ambitiously aimed to attract well-known names like Reese Witherspoon, Steven Spielberg, LeBron James, Ridley Scott and Jennifer Lopez, paying out millions of dollars. It didn't take long for this bold action to upset the streaming service employees, who were beginning to fear layoffs as no money was coming into the company.

Going further, Quibi targeted Gen Z users and, as a result, received criticism that it made its shows available only on mobile devices. Also, its free version supported ads and a lot of them! It was difficult for the platform to get ranking close to the well-established free TikTok. Was this aggressive growth the optimal strategy that the startup could go after? Probably not. The Wall Street Journal reported Quibi was shutting down just six months after it launched.

Resolving the issue

To summarize, while growing your company, you may run out of cash because you'll need more equipment, more facilities and more staff members. You may also feel you're losing control. To manage the increasing workload, you would most likely need to entrust others with your duties. So before spending all your money, you might consider the good old SWOT (strengths, weaknesses, opportunities and threats) analysis.

All of this means that both are crucial, with profit needed for the basic short-term existence of the company and growth needed for its long-term successful presence in the market.