The question of growth vs. profitability

When I was in secondary school, we had a class activity about entrepreneurship. The details are pretty foggy, given that this was over a decade ago, but I distinctly recall learning about how to price items. Remember this was secondary school, so the whole experience was extremely simplified and the advice was loosely along the lines of “price your products based on the cost of production, plus a little extra for profit.”

Over the years, I’ve come to understand, to some extent, the logic behind how companies price their goods, the value of unit economics, and the multitude of factors that affect a company’s ability to make money.

But the thing that threw me for a loop when I first started writing about startups was the idea of focusing on growth instead of profit. What do you mean the company is operating at a loss? How can its marketing spend outstrip its revenue? And yet, the startup is still attracting tons of capital?

The question is: Where did the money come from?

The entrepreneurship activity I did in school emphasized that you had to bring in more money than you spent, and the pursuit of growth seemed counterintuitive to whatever I’d learned about running a business.

But since then I’ve realized that growth is important for businesses, especially venture-backed startups that have to prove that they’ve got the potential to make it big. After all, venture capitalists want to put their money behind high-growth startups with unicorn, or even decacorn, potential. You don’t get there by playing it safe.

But on the flip side, founders can’t just chase growth blindly. It’s all well and good to have a huge market share or have a presence in many markets, but if you aren’t able to monetize, it’s a house of cards just waiting to topple. And in light of recent economic and market conditions, growth isn’t enough to entice investors anymore – founders also need to show potential backers that they’ve got a sustainable business model, and striking a balance between the two can be very difficult.

In the latest episode of Tech in Asia Explains, we dive deep into this conundrum, looking at both sides of the equation to see how growth and profitability stack up against each other.

Together with B Capital principal Trang Tran, East Ventures partner Melisa Irene, Beam co-founder and CEO Alan Jiang, and Foodpanda chief operating officer Pedram Assadi, we take a look at what it means for a company to pursue growth or profitability and what founders should keep in mind when deciding which approach to go for. We also question the dichotomy that seems to be inherent in the debate and explore the possibility of having the best of both worlds.

After all, the 2020s are shaping up to be pretty different from the decade that came before, and finding that balance between growth and profitability would definitely help a startup stand out from the pack.

I learned a lot while working on this episode, and I’m pretty sure you’ll learn a lot from watching it as well. Check out Tech in Asia Explains: Growth vs. Profitability – it’s a fun one.

Stay tuned for more Tech in Asia Originals because we’ve got a few other gems in the works.