What’s the best way to think about profitability?

Slava Akhmechet (Founder at RethinkDB)
57 startup lessons

If you can’t get to ramen profitability with a team of 2 – 4 within six months to a year, something’s wrong. (You can choose not to be profitable, but it must be your choice, not something forced on you by the market).

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
Cash Flow and Destiny – Ben’s Blog

I do not want to have to tell all of our employees that we will do what we think is right until investors tell us we have to do otherwise. I want to control my destiny.

David Jackson (Founder, Seeking Alpha)
Profitability = control of your own destiny | A Founder’s Notebook

Profitability = control of your own destiny

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Profitless Prosperity – AVC

Profits are critical to the health of a business, but that doesn’t mean a healthy business has to currently profitable. It needs to be able to be profitable if it wants to be and it needs to be profitable at some point in the future, at least hypothetically. So when you read that a company is losing money, don’t read that as a bad thing. It could be a very good thing. It all depends on why.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

Price > CAC + COGS
… That means the price you charge must be greater than the cost you must pay to acquire a customer plus the cost you must pay to make or deliver the service. If your product or service is sold on a subscription basis, then you must also know the amount and timing of churn to expect and the lifetime value of a customer (LTV). In a subscription offering, the above formula becomes
LTV > CAC + COGS

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

You must know the price elasticity of your product or service. You must know how much it costs to produce. You must know how much it costs to acquire a customer. And if your model is subscription, you must know your churn and lifetime value. From all of that comes the data and knowledge that allows you to optimize price, margins, and profitability. Which, after all, is the goal of a business, all the other bullshit you read on the internet notwit… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Profitable: To Be Or Not To Be? – AVC

This is tricky stuff. If you are going to take all of your potential profits and reinvest them in the businesss in search of higher growth and greater profits in the future, you had better be right about those investments. And it is often hard for investors to see how those investments are going to pay off, so at times you can be penalized for making those choices. Right now the public markets seem to be paying companies more for long term growth… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Profitable: To Be Or Not To Be? – AVC

Many high growth companies can be profitable. They have enough revenue to cover their essential costs and could easily decide to show a profitable income statement. But they don’t make that choice. Instead they invest heavily in the business with the expectations that those investments will produce more revenue (by hiring salespeople), or additional products (by hiring engineers and product managers), or additional geographies (by hiring an inter… (read more)