Patient for growth, impatient for profit

How to build a business that lasts

In Clayton Christensen and Michael Raynor’s The Innovator’s Solution, they write:

“When new ventures are expected to generate profit relatively quickly, management is forced to test as quickly as possible the assumption that customers will be happy to pay a profitable price for the product—that is, to see whether real products create enough real value for which customers will pay real money. If a venture’s management can keep returning to the corporate treasury to fund continuing losses, managers can postpone this critical test and pursue the wrong strategy for a long time.”

If you’re too patient for profit, focusing on growth alone—which is a common problem in modern business—you’ll wait too long to find out if anyone actually wants to spend money on your product.

That turns merely waiting to monetize into waiting to find out if we ever actually can monetize, which is a much more dangerous place to be. If you choose to grow until you can capture a market, and then flip the profit switch later, you may find out that the switch wasn’t really connected to anything.

And if you add impatience to that mix—like from outside investors—you can send yourself into a spending spree along the way, increasing the eventual profit necessary to provide a return to you or your investors.

It’s easy to do. The pressure for growth is so strong. But remind yourself of why you started your business in the first place. It was probably to have more freedom in your life, or to get to do the things you always wanted to do. For that, you’ll need the time that profit buys. Not the endless hustle of growth at all costs.

Of course, that doesn’t mean profit is easy. It requires saying no to opportunities, making hard decisions about spending, and narrowing your focus. But it’s worth it.

The best part is, a profitable company can take all the time it needs to grow, because profit is oxygen for a business.

As Jason Fried says:

“As long as you remain profitable, you can go in any direction you want and take as much time as you need. But if you can’t generate enough of your own cash through operations, and you have to go outside to borrow or sell off pieces of your company to generate the cash you need to continue, then the ones you owe are the ones who own your time. If someone else owns your time, you aren’t free.”

Remember that you started your business so you could have more freedom, not less.

So be patient for growth, but impatient for profit.