What Is The Average Time To Reach Profitability?

A question that comes up with every novice business owner — When will my startup be profitable? The short answer: it takes 3–4 years for startups to be profitable. The long answer, not all will come out on top, and startup success is influenced by a number of factors like industry, financing, and concept.

More than 9 out of 10 startups fail — Failory

How Does A Startup Fail?

Fire is raging in the beginning stages of a company. For reasons unbeknownst to many CEOs, the venture fails. With startups you assume a level of risk, not to mention the business world runs full speed, making it easy for important details to go astray.

Here are the 3 most common reasons why startups fail:

Lack of product-market fit

Financial trouble

Poor leadership

If you resonate with any of these reasons we are here to help you change course. Let’s deep dive into each of these factors and how they affect startup profitability.

1. Do I Have A Product-Market Fit?

Product-market fit is business lingo for an audience that is doing the selling for you. First, you have a minimum viable product (MVP), beyond the prototype, that is selling in the market. Second, part of the equation — the market. A targeted niche finds value in your product, and sustainable sales either via your advertising efforts or word of mouth.

Many startups have a hard time breaking into a market. As a little fish doesn’t make waves in a vast ocean. It is not for lack of will, but lack of resources to perform substantive product testing and market research. Having a clearly defined customer profile before throwing down money on advertising, makes startup profit margins within reach.

Ask Yourself:

Who is my target customer?

What is my unique value proposition?

How is your solution better than competitors?

2. How To Measure Startup Profitability

Recall a scene in The Office called “Broke,” episode 25, season 5. The Michael Scott Paper Company meets with an analyst to crunch the numbers on growth. Ryan expertly creates a fixed revenue model showing the company is in a good position to hire a delivery driver. The analyst informs them they will be broke in a month if their revenue doesn’t increase.

So you have a product, sales, and your market share is increasing. Yet your startup is still not profitable. We’ll be the analyst in this situation and say review your finances. It’s a most basic business tenet — with more revenue, comes more expenses. Startup profit comes when you consistently earn enough revenue to manage your costs, plus have more leftover.

Here is the difference between revenue and profit. Revenue is everything you are bringing in before expenses are accounted for. Profit is your take home after expenses are paid.

3. Poor Leadership In Startups

When discussing startup profitability, leadership is by far the hardest factor to judge. Poor executive management in operations to general company direction will cause a startup to fail. Fortunately, operational management is easier to solve than creative problem solving; people don’t become thought leaders overnight.

As investors weigh in on the vision, pressure to meet quarterly earnings will cause problems down the line. A lack of foresight, like not investing in startup innovation, is a recipe for failure.

Research and development are critical throughout the lifecycle of the business. If you are not keeping tabs on how your industry and audience are evolving you. will. lose. customers. Time and again the companies that outperform, emphasize research and development over immediate profits.

By: Michael Pirumov
Founder-Partner
Lets Ledger

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