Real entrepreneurs don’t make profits, and for good reasons. Huge oil companies make excess profits, sure. Smart entrepreneurs don’t.
And I don’t mean just the land-grab web companies like Facebook and Twitter don’t make profits. Growing companies don’t make profits. Can you be more successful than amazon.com and Jeff Bezos? Amazon didn’t make profits until relatively recently. No, I mean small business everywhere.
Ideally, you do want enough in profits to support an increase in working capital, which would be a single-digit percent of sales. But that’s rare in growing companies.
Where do profits come from? Money you take in as sales that you don’t spend in cost of sales or expenses. And if you want to grow, then money that might have been profits goes right back into expenses as more product development, more marketing, more smart people on payroll.
When Palo Alto Software was growing at double-digit rates during its teenage years, I made the order of priorities as clear as I could: cash flow break-even first (we didn’t have outside investors); growth second; profits third.
What do you think?