Why Being Profitable is a Business Strategy in Itself Profitability is a part of the strategic effort to be a hyper-growth, customer-centric and commercially-minded organization. And yes, it's a strategy.
By Max Faldin Edited by Micah Zimmerman
Key Takeaways
- For some product work, you can copy your competitors and best practices.
- Profitability is not just an outcome but a whole strategy for becoming a thriving organization.
Opinions expressed by Entrepreneur contributors are their own.
Everybody speaks about a company's culture. But there is an important quote from a professor at Stanford that I remember very clearly: "Being very profitable is a strategy in itself."
Profitability is a part of the strategic effort to be a hyper-growth, customer-centric and commercially-minded organization. And yes, it's a strategy. However, not enough people think about it in such terms. In the best case, they think of profitability as a given — "you have to be profitable!" — and don't do anything specific to work towards this goal.
The founders fail to build a solid foundation and put the key pieces in place. In the worst case, they ignore profitability altogether, hoping to raise another round of funding to cover their losses. But WeWork, crypto and other Silicon Valley crashes have shown us that the laws of physics apply to everyone, even billionaires. Being profitable is a strategy. And a very good one to follow too.
Less people, more technology
Not to sound against hiring or nurturing talent, but one of the critical pillars of profitability in the modern world is opting to build a low-people, high-tech organization.
You normally scale with a small number of people and with highly leveraged technology to get your variable costs to the bare minimum. At my company, compliance is our largest bottleneck to growth and profitability, as for most regulated fintech. We work hard and seek new technological ways to reduce this bottleneck, integrating with providers and adding AI technology to make compliance costs less in the percentage of the revenue gradually. That is how you make your company a customer-centric organization but, simultaneously, very commercially viable.
In August of last year, we were very young and only made an average of five weekly compliance decisions. But in January of this year, we made 50 to 100 weekly compliance decisions. And in May and June, we made between 100 to 200 couplers per week. Currently, the objective is to get to 300 standard compliance decisions per week in September. That is how quickly we aim to grow. We also need to improve economics because we want to scale by automating processes.
Related: How to Enhance Business Automation and Unlock New Levels of Operational Efficiency
You can't scale compliance simply by hiring more people
Scaling compliance cannot be achieved merely by increasing the number of personnel. If your target is to be a low-people organization with a highly technological operating model, nearly 50% of your personnel should be product or technology. If you want to scale compliance, you should consider it a product and calculate compliance costs as a share of revenue.
So, it's not just about hyper-growth. It's not just about being customer-centric. It's about finding a way to work towards profitability by investing in technology and building sustainable business practices.
Don't sacrifice profitability strategically (although you can sacrifice it tactically)
Too many people work towards profitability from a purely strategic perspective. I think you can sacrifice profitability tactically, but you can't sacrifice profitability strategically. For instance, consider pricing. I get criticized a lot that we are priced too high, and we have a lot of customers that don't like us because we're too expensive for their budgets.
However, if less than 5% of our customers leave us because of the pricing, we are good. Moreover, if nobody leaves us because of the pricing, our prices are not high enough. Part of having a good pricing model is that people will push back a little bit. The business is fine if this segment is less than 5%. Pricing should be punchy. Otherwise, you are likely not going to be a commercially viable organization. It just doesn't work that way.
Do discovery work
For some product work, you can copy your competitors and best practices. But certain features and products need customer discovery — this type of product work requires innovation. You need to differentiate, and you need to build diversity through customer discovery. This requires working with your customer to understand their wants, pains and needs.
Through discovery work in the early days at Silverbird, we figured out the key problem we're solving: banks don't trust their customers. Months before we launched, we interviewed 180 customers across 9 countries. We heard many stories about banking abuse — from shutting down accounts because of missing software to limiting accounts based on arbitrary rules imposed by African central banks. These stories have been fuelling our mission to bring trust back into the hands of the customer.
You have to balance making incremental changes versus being truly innovative, and a lot of work is required to understand what customers want and how you will address their needs.
Your product team should talk to your customers and your sales team on an ongoing basis – not just at the beginning of the company — to understand their pain points, thinking, and how and why they behave.
Your unit economics improves as you scale based on your customer discovery insights. That is the key equation: how quickly your marketing enhances your sales efforts will boost your customer economics. When you're in a hyper-growth phase and scaling quickly, it is tempting to ignore customer acquisition metrics. But immediately leaning in and focusing on customer economics is going to be key to setting up your business for success.
Related: You Need to Spy On Your Competition to Succeed: Business Spying 101
Allow chaos to happen
It's all about sacrificing certain things for the sake of growth. It's about being right 70% of the time instead of being exactly 99% of the time. Because when you grow fast, you need to let chaos happen. Otherwise, you are not creating an environment for hyper-growth.
Profitability is not just an outcome but a whole strategy for becoming a thriving organization. By prioritizing profitability, you can ensure sustainable growth and the ability to provide exceptional value to your customers while fostering a strong commercial focus that drives innovation and continuous improvement in your products and services.
