What is more important: Revenue growth or Profitability?

In my view, there is no right answer. As the majority of responses in running a business, the answer is: “it depends”. And the answer can also change according to the stage of the business.

Revenue growth is usually more relevant for companies that already have financial stability to fund its operations and is not facing challenges to meet its working capital needs (payment of suppliers, taxes, payroll, interest of loans, etc.).

It could also be more relevant for companies that have financial support from external parties, such as venture capital or private equity investors that are always ready to pour money into invested companies to ensure that revenue grows and penetration in a specific market is established to later on focus on profitability.

For self funded or bootstrapped companies, profit comes first by the simple fact that you need to pay the bills with cash originated with operations. This means that if there is no profit, there is no business. On the upside, self funded businesses usually provide higher returns for founders since there is no dilution of ownership, and the business is not under so much pressure for growth.

Overall, both metrics are extremely relevant and as everything related to business and finance, should not be taken as conflicting metrics but as complementary: healthy growth with path for profitability is the best way to go.

The most relevant thing that founders and business owners need to be mindful of is to ensure that they have solid finance processes in their companies in order to have accurate and solid financials statements prepared, in a timely manner. Speed of access to information is a key driver for acting fast, and if you don’t have visibility of the financial situation of your company - then neither revenue or profit would be relevant.

Curious to hear thoughts of IH :)

What is more relevant for a startup?
  1. Profitability
  2. Revenue growth
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