The technology and non-technology spaces in India have seen the entry of many new players with the start-up boom. The number of start-ups is estimated to be over 11,500 by 2020. These new brands are now redefining start-up market strategy and entrepreneurship.
Although 98% start-ups would prefer to focus on profits, the necessity and need for profitability differs from business to business. For instance, there are 22% start-ups in India’s funded by VCs, which expect them to turn profitable within a year.
While some of these firms aim to create a niche, increase market reach, and focus on profitability right from the beginning, several others believe in raising their companies’ valuation through big spending and bigger impact for a long-term growth.
Nevertheless, all start-ups at a certain point need a balance between profit and growth. For any business to sustain, it is crucial that it keeps an eye on both.
The pressure of innovating constantly challenges today’s entrepreneurs. At the same time, the increasingly dynamic business fundamentals are posing an unprecedented challenge before him to stay relevant by defining a comprehensive value proposal to the customer.
At the operational level, the process of making customer experience unified and seamless faces an entirely different set of problems. The overall growth strategy involves:
-Improving staff productivity by lifting their morale, thereby boosting sales
-Substantial investment in data analytics
-Stepping up investments to raise the efficacy of supply chain management
The competition around you is ever-growing. There is a choice to make between scaling up your business and sustaining market visibility.
A clever way is to present the calculations of profitability – by working out the total costs of marketing and expansion — while pitching a business concept to an investor. The business plan, with costs-to-be-incurred, revenue projections and timelines, should allow you to take the profitability path.
You might need to modify the business plan at different stages to create cash reserves that can enable you to cope with changing economic conditions, low sales, company expenses, etc. And these are just some initial steps to ensure that a business model is profitable. As the business progresses, the dynamics change drastically. For example, there will be more opportunities for a product that has a wider consumption base.
A strong access to investors for a robust investment back up will raise the management team’s risk appetite. According to a 2015 NASSCOM report, “Startup India – Momentous Rise of the Indian Startup Ecosystem,” the number of PEs, VCs and angel investors in India’s start-up ecosystem grew by 100 per cent.
The investors, determined to join the growth story of India, are keenly watching out for entrepreneurs with the ability to strike a balance between growth and profitability.
A focus on profitability is essential for a start-up in its initial phase. But that initial profitability cannot be achieved without a growth plan. Even after a company has achieved profitability, it should keep exploring the opportunities for growth, as this will bring greater possibilities of profitability while also bringing the company into the line of sight of potential investors.
Profitability and growth therefore go hand in hand when it comes to determining business success. While profit helps basic financial survival of a company, growth is the key to both profit and long-term success.