The age of “grow at all costs” has faded in the tech world.
For years, tech giants grew by continually pouring money into their product, while profitability often went on the back-burner. That model boosted valuations quickly…but inflation and macroeconomic downturn seen over the last few months has brought more focus on startups that can actually profitability front and center again across the startup world.
We’ve been hearing a lot of startups talk about their focus on profitability recently. So asked seasoned entrepreneurs to tell us how they’ve reached this milestone and what has worked for their companies this year.
Here’s how 7 founders and startup executives think about profitability:
Supered may only be weeks old, but it is already posting impressive numbers. The Atlanta-based startup, providing just-in-time learning integrations for the marketing world, is set to hit $100k ARR. Co-founder Matthew Bolian said the team is on track to reach profitability next month.
Bolian said Supered has been focused on “sustainable growth from the very beginning.”
Bolian’s advice for reaching profitability? He gave us 4 tangible actions to take:
- “Do not scale. Do everything until it is painful, then switch. And that doesn’t necessarily mean adding a person. It means maybe switching your process.”
- “Scarcity creates innovation. So create scarcity. If you give yourself less time for a goal or if you give yourself less money to spend, you will create scarcity and you will create innovative things.
- “Do not send cold emails. It is a waste of time. Create a brand at the very beginning. It is the most sustainable type of CAC (customer acquisition cost).”
- “Don’t hire sales first. Hire marketing. The tried and true method is to hire a salesperson because you can see the results immediately and if they’re not working, you can fire them and just rinse and repeat until you get it right. But you should hire marketing first and double down on your brand. It will create the flywheel the fastest and it will be cheaper in the long term. Your future self will love your past self.”
Exotec Chief Revenue Officer Arthur Bellamy
French startup Exotec set up its US HQ along the Atlanta BeltLine last year. The warehouse robots startup was “very close to breaking even” last year, Bellamy told Hypepotamus, so profitability is top of mind for the entire company right now.
While profitability is a main goal for the company this year, Bellamy said it has been part of Exotec’s business strategy from the beginning.
“I think the most important decisions we made were decisions at the beginning of the company,” said Bellamy. “We decided to work on products, not projects. There’s a subtle difference, but it has a huge impact on how profitable you can be as a company. A product is something that is standard. It’s something that you build in the exact same way no matter who the client is.”
Focusing on projects “generates a huge amount of additional complexity and additional cost internally,” added Bellamy. “You don’t have the economies of scale and you can have reliability issues” that can cost money and team hours.
“Building something once and for all and then replicating that is something that has been extremely helpful for Exotec as we build something that’s solid and that’s financially profitable.”
Bellamy’s pieces of advice for other founders? Pay attention to gross margin and if you are a hardware-focused startup, make sure that you get the hardware right at the beginning.
“If you get [the hardware] wrong, replacing it is going to cost you so much that it can kill your company early on.”
Raleigh entrepreneur Brian Handly has built startups during the dot-com bubble, the Great Recession, and now through the post-COVID world.
His most recent company, a location data platform called Reveal Mobile, Handly said he’s had to make pretty big financial decisions recently since most of his customers are in the advertising and media space.
“As the economy has some signs of uncertainty, marketing and ad dollars are some of the first things that you start to pull back on….and [customers] are a little nervous about adding a new expense line,” he said.
Despite the downturn, Handly told Hypepotamus that Reveal Mobile is moving quickly towards that profitability mark.
“During 2021 and into 2022, it was ‘grow at all costs’ for us. But we saw the writing on the wall…we really needed to start to focusing on costs and getting the gross margins up,” he added. “We needed to become a company with good solid metrics.”
Handly took a practical cost-cutting approach, sharing that he went through his data vendors (one of the biggest expenses for the startup), ranking them in order to the value they provided.
“We went to the bottom and just started cutting,” he said. “Then we worked hard to try to renegotiate pricing with those vendors to really drive up gross margins.”
Handly’s advice? Analyze every expense item in your business and be discerning about starting new deals.
“If you are at a ‘grow at all cost’ mode, you might do a deal where the margins aren’t as high as you’d like it to be. We are really focused on the deal sizes and the customer types that offer the highest level of profit,” he added. “If you want to get to profitability, you really have to be a numbers-focused organization.”
Memik: Co-founder and CEO Amari Ruff
When 3x founder Amari Ruff saw the economic climate start to change recently, he wasted no time repositioning his startup Memik into a B2B business.
Memik started out as a social media platform for content creators, but Ruff said he saw the opportunity to create “a platform that allows for brands to leverage augmented reality tech to better engage their customers and community.”
That move into the B2B space has been lucrative for Ruff and the team, as Memik has already reached profitability. He said keeping a lean team, hiring people with multiple skill sets, and building up a strong customer base in his hometown of Atlanta were all helpful tactics to reach profitability so early on.
Ruff’s advice for reaching profitability? Focus on your relationships and keep your product simple in the beginning, because you can always build something more complex down the road.
“Some of your best customers will come from relationships, because people like to do business with people that they know, that they trust, and that they like,” he said. “
Puzzle: Founder and CEO of Carlos A. Delcid
From $200 in the bank to a seven figure business in just two years? That’s what Puzzle, a recruiting and nearshore staffing company in Atlanta, has been able to accomplish.
Delcid has a unique perspective on what it takes to create a profitable business. Working mainly with startups who have passed the proof of concept phase, he said the outsourcing model has helped Puzzle – and the clients it works with – reach that profitability marker faster.
Delcid’s advice to founders working towards profitability? Focused on what can help your business scale.
“Before, everyone was trying to hire as many people as they could just because they were forecasting a labor shortage. But did they really need all those people? It is really about understanding what are the market conditions, what are the trends, and most importantly, what does your business model need,” Delcid told Hypepotamus.
Fraction: Founder and CEO Praveen Ghanta
It’s “profitability or bust” for bootstrapped founder Praveen Ghanta. After his last startup, a FinTech in Atlanta called HiddenLevers, was acquired by Orion Advisor Technology, he started working on Fraction as a platform to help other startups find the best fractional talent.
“As we were just starting out, we sketched out an absolute minimum revenue needed to get to break even, based on minimum salaries (for our team of 3), a minimum marketing budget, and other absolute min expenses. We used this to figure out exactly how many clients we needed to have in order to get to breakeven,” he told Hypepotamus. “We gave ourselves a deadline to get to our target breakeven client count. If we were nowhere close to breakeven by our deadline (Jan 2023 in our case), we would have considered pivoting or even shutting down.”
Ghanta’s tip on getting to profitability? “Failing fast is better than meandering to nowhere.”
Fraction looks to have hit its stride, as it’s started to reach profitability after just one year of business under its belt.
The last time Hypepotamus caught up with The RunnerBox, the subscription-based startup out of Asheville had been gaining some impressive traction through its bimonthly shipping options and shoutouts from big names in the running industry.
In fact, the company has already reached the profitability mark and Jorgensen said the team is now “looking more long term than day-to-day profitability.”
Jorgensen’s advice on working towards profitability? “Work smarter, not harder. Oftentimes taking the time to really know your financials and making data-driven decisions gets pushed to the back burner when there are a million other things on the to-do-list,” she told Hypepotamus. “However, getting your pricing right and nailing down your CLTV (customer lifetime value) and CAC (customer acquisition costs) will make every decision you make from there on out so much easier and will allow you to hone in on a roadmap to profitability.