Growth vs Profitability debate for Pakistani startups in times of Covid-19

(Photo by Volodymyr Hryshchenko)

It is not easy to run and grow a startup in Pakistan. Contract enforcement, talent management, and our overall business ecosystem make growing a startup a real struggle here. COVID-19 will increase this struggle. 

To sustain themselves during these times, what should startups be focusing on today? Before I answer this key question, let us look at strategies most local startups follow. 

Broadly, many local startups follow one of these three strategies:

• Focus more on growth by capturing more customers and market-share, even if they have to spend more than they earn.
• Focus more on profitability by caring to earn more than they spend. 
• Focus equally on both profit and growth. 

For the last couple of years, many local startups have been focusing more on growth. Many think that is the right approach. Well, not any more, at least not in these trying times. 

It is time for startups to change their focus from growth to profit. In times like these, the only industry where focus on growth makes the most sense is the one working on saving human lives. In other areas, startups should focus more on profitability, because profitability will help them survive. And survival will help startups enjoy future growth. 

But why does not a strong focus on growth make much sense now?

Well, growth is mostly driven by consumer demand. Demand shrinks, barring in few industries, in uncertain times. Consumers tend to be careful about how they spend in tough times. As a consumer, right now, I worry more about keeping my family and community safe than carelessly spending money. So trying to grow fast by spending more than you earn, in the absence of strong demand, is not a prudent use of money. 

Another thing that makes fast growth hard to attain, at the moment, is that growing fast in itself requires much investment. Without investment in sales, marketing, great talent, infrastructure and systems, you cannot grow your customers or revenues by leaps and bounds. So saving money, to fuel such investments at some point in the future, sounds more prudent. 

“But my company is going to raise money and intend to attract investors; should we not focus on growth?” Well, I think, even investors at this point would like a startup that is profitable. 

So the focus in these harrowing times should be on profit. 

This focus on profit can help a startup save cash. Cash is supreme for a startup. It not only improves the buying power of a startup over suppliers and vendors but also the likelihood of attracting good future talent. Cash can also fuel investments. To survive in turbulent times, nothing helps a startup more than cash. 

A focus on profit can also help eliminate waste. The intent to eliminate waste can lead to a focus on improving the efficiency of a business. This focus on efficiency highlights many activities that startups otherwise ignore. It can help a startup discard unnecessary tools and activities. Also, this efficiency can make a startup renegotiate existing contracts and ask for discounts. Further, this emphasis on efficiency highlights the importance of using scarce resources to build innovative solutions, since scarcity breeds innovation. All this can help a startup remain alive and hopefully one day thrive. 

The focus on profit also provides peace of mind. If your startup is struggling today, do you not think you would have had peace of mind now if your startup had focussed more on profit before the pandemic hit? 

Lastly, business strategy is also a reflection of the risk appetite of entrepreneurs. If it were me, even in normal times, I would focus more on profit from day one while also paying attention to growth. Growth in itself is not a bad thing. It is just that, especially now, focusing on profitability, staying afloat and waiting for better times sounds more prudent to me.

Thanks to Anas Munir, Colin Nederkoorn, and Kashif Ali for reading drafts of this.