There’s a mixed debate on whether startups should be concerned about profitability in their early stages of growth. While most sober entrepreneurs would get behind the debate in support of profitability for startups, the question on resource allocation remains a challenging one.
The matter of fact is, where you allocate your resources as an early-stage start-up will determine how fast you reach profitability – if you get on course to profitability in the first place.
Even though the road to profitability will often differ depending on the form of business you are creating, there are considerations that remain essential across the board.
- Is your business customer-funded?
Your industry or type of business notwithstanding, you’ll be better off with a business model that encourages your customers to pay you money upfront. Such a business allows you to finance the development of your product from the revenue so collected.
A matchmaker business for instance is a good example here. The business is funded by customers and the site owner pays the sellers from the revenue collected from the buyers. Notice that matchmaking business model brings together buyers and sellers to the site. You get paid by buyers before you pay the seller, and as such you tend to always have revenue upfront.
Your customer funded business can take the subscription model in which users pay up before accessing the product; or the scarcity model in which the business advertises limited edition products and collects payments from customers upfront before goods are manufactured and dispatched.
- Is there a complementary skillset you could get from a co-founder?
It’s good idea to consider for a cofounder someone whose strengths balance your weaknesses out. Otherwise you’ll end up spending quite some cash on sourcing for the skills at the time of need.
You could be a developer who is green in bookkeeping, you’ll need to find a cofounder who can sufficiently plug in that skill gap.
- Are there small markets you can dominate first?
Chances are, the big fish are already commanding the bigger markets. Besides, there are economies of scale they enjoy, and they essentially have little difficulty serving these markets.
As a startup, it’s not ideal to target a mainstream market much early in your lifecycle – even if you have a global mindset, there’s so much marketing work to do before you gain enough market command.
In addition, if your startup is funded by a micro loan from banks or alternative lenders like FAM, you’ll want to watch your expenditure so you don’t run out of working capital along the way.