Profit is the primary signal of sustainable and scalable customer value. If you’re not profiting, you don’t know what value you’re providing.
Building a product that creates an experience of value for your customers, and that delivers more value to them over time, is what you should be striving to do in your business. Yes, there are situations when accepting investment or taking on debt is the right choice. But there are also times when tuning up your “economic engine” so that it can create more profit to fuel growth is a better choice. And tuning that engine requires understanding the value your customers experience with your offerings, which in turn requires the signals of profit and loss.
Given the changes in in our economic climate, especially rising interest rates and inflation, many previously “wise” choices are being shown to be foolish and unsustainable. Unfortunately, a lot of “business gambling” happens when there are artificially low interest rates, politically expedient money creation, and an expectation, based on previous actions, of bailouts to socialize the losses for the biggest lenders.
This is not to say that we should be “perma-bears”, and there are many more layers, details, and nuance, to this discussion. But we do need to adjust our sails to deal with the new weather, and those who’ve made a habit of sailing with the weather rather than counting on the tides and our supply chain of diesel fuel to get us where the fish are.
David Heinemeier Hansson posted a blog earlier today that inspired this topic. In that blog he looks at some of the huge losses being reported by the venture funded competitors of Basecamp. He concludes with the following hopeful outlook and encouragement:
This recession isn’t going to last forever, but it’s also barely even begun! We haven’t even begun to feel the hurt in the industry at large from the excessive exuberance that propelled the madness of the last few years. The fallout is not contained. The situation is not transitory.
But amongst all this misery, there’s also opportunity. Opportunity to start and grow businesses based on sustainable thinking of profitability. Or at least an aspiration to getting there in less time than it took to build the pyramids. You don’t need to sign up for whole or half billion dollar losses over four years to have a shoot at building something awesome, something you can be proud of.
Now is the time to RECONSIDER. Not just for the entrepreneurs who aspire to build, but also to employees thinking about where to join, and for the customers who don’t want to be collateral damage in another dot-bomb implosion.
The bubble has popped for unprofitable software companies
We experience recessions because the structure of the economy has become so unsustainable, filled with so many malinvestments, that it can no longer support its own weight. Recessions are a great opportunity for challenger companies. For those who have been disciplined through the artificial boom, the recession and restructuring of the economy is an opportunity for them to grow into a new position within it. (Even those who have not been disciplined but are able to hold on enough to persevere through their own challenges, can find new opportunity through a recession.)
At SImbiotrek (sim-bÄ“-‘ä-‘trek) we always work with challenger firms. While the route to growth is never linear, and each day brings a different sea, setting out with a seasoned navigator, or even with a flotilla of co-journeying peers, increases your likelihood of success. It also helps you have more peace and happiness on the way. I would love to talk to you and hear about the challenges and opportunities you’re facing in your entrepreneurial journey. Contact me!
