Some people will remember this scene and many won’t. If you haven’t seen the movie Monty Python and the Holy Grail, download it and watch it. It’s funny. 100% satire.
When you are a startup, it’s all about survival. We can speak in the language of flowery MBA speak. We can abbreviate all kinds of metrics to sound smart…KPI, CAC, COGS, EBITDA. But, the game is really about growing top line revenue with lesser expenses leading to bottom line revenue.
Of course, at early stages the company won’t make money. But, if you can grow top line revenue without seeing expenses increase exponentially, you can get funding for another round so the business survives.
As the company evolves, there are certainly expenses that you can cut to improve profitability. Evolution implies change, so you might do things differently after a Series B round than you did in your seed stage. You will most certainly add expenses as you grow though.
As the company progresses, it will hit rough patches. There isn’t one company I have ever invested in that didn’t look like it was going out of business several times during its life. Even at CME, the financial press and soothsayers left it for dead in 1998. Seat values plummeted 72% off their highs. When you hit a rough patch, figuring out the right things to cut back on is healthy management. Why? Because it’s about survival. You have to live to be able to fight another day.
At the same time, you can’t cut expenses constantly to increase profitability if top line revenue isn’t growing. That’s the Black Knight Strategy for growth and it ends fatally.