January 24th, 2024 | By: Wil Schroter
Here's a crazy idea — what about a startup that just makes money?
I know, I know — crazy talk! But it turns out that while 1% of the startup world is busy chasing venture capital and trying to create outsized returns, 99% of the rest of businesses are just trying to build a business that consistently turns a profit.
"How dare you question the wisdom of VC!" — echoes the startup world.
But seriously, it turns out even grizzled veterans of the startup world, especially those who have raised venture capital before, are getting really excited about building companies that guarantee a profit versus potentially generating an exit.
It's a confluence of factors, really. When the Nuclear Winter of Funding hit in 2022 and beyond, an awful lot of funded companies got wiped out, and those that survived struggled hard. It was a painful lesson to everyone, and a recent one, that while the promise of big outcomes sounds amazing, and those big checks look pretty, the reality for everyone (even investors) can look very ugly.
That left a very large swathe of investors, Founders, and all the people who worked for them a little bit salty about the idea of risking everything now for a return later. More importantly, it took almost a decade of work for everyone involved and set it on fire.
Every single person involved lost up to a decade of their life, which means we all had to take a hard look at how badly we wanted to risk another decade to do it again. All of a sudden, spending that time on something that would generate a more reliable outcome got sexy.
Unlike our big exits, a profitable business is valuable at nearly all levels of scale. Whether the business is generating $100k in profit or $100m in profit, we actually get paid. That's not so much the way when it comes to funded startups, where it tends to be "all or nothing," with an emphasis on "nothing."
Personally, I've done both — venture-funded and profitable, bootstrapped companies, and I've tended to find that the profitable ones never look sexy at first. but over time that profit not only scales, it compounds, because we're actually putting money in our bank accounts year over year. We've been bootstrapped and profitable for 10+ years at Startups.com and I can tell you — it adds up.
Let's say our startup idea never turns into a "big outcome" by VC standards, or even our own. At least we have something to show for it. Maybe we create something we thought was going to be a massive success but it only ends up generating $50k per year in profit. It's not earth-shattering by any means, but it's $50,000 more than zero.
Aside from the economics, I think we're now seeing a generation or two of Founders who are just tired of the whole "money raising game," whereby instead of focusing on the fundamentals of making money, we're focused on trends and the whims of investors. We're focused on "what will look good in a fundraise" versus "what will make us more money."
We're tired of building something for other people instead of building something for ourselves. We're tired of chasing the validation that inherently comes with having to woo investors and cater to their needs. We just want to go back to focusing on our product, team, and customers and turn that into something that turns a profit.
The irony is that this renewed focus on "just building a profitable company" is likely what will become the fabric of a new generation of more healthy companies, which in turn, will likely be more investable anyhow. It's funny how that comes full circle.
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Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.