Evaluating New Age Startups: Profitability Vs Growth

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Key Insights

Startups prioritize growth, but venture capital investors expect large returns, which requires rapid user growth and pricing power.
Growth versus profits is a constant balancing act, depending on the business type (e.g., Ecommerce vs. SaaS).
The Startup Glide Path framework guides the balance between growth and profitability across different stages (Early, Mid, Late).
Early-stage startups focus on PMF and growth over profits, while late-stage companies prioritize profitability and established revenue lines.
The Indian Tech Startup IPOs of Q1'22 saw a crash, raising questions about the growth versus profitability equation, but the problem is valuation.

#powerlaw #growth #startups #VentureCapital #TechStartups #startupeconomics #BusinessModels #profitability #funding #valuations #growthhacking

Evaluating New Age Startups:
Profitability Vs Growth

1/13

Startups = Growth
“A startup is a company designed to grow fast”
Paul Graham - YCombinator

2/13

Startups are Risky: Most Die, Few
Change the World
• Traditional finance (debt) ruled out
• En…

3/13

Venture Capital Model – Power Law
Fund Life ~ 7 yrs | 1/10 Success Probability | Large Outcomes (1…

4/13

Large Outcomes (100X) Imply
• Large TAM
• Rapidly shifting user behavior – new habits, repeat us…

5/13

Growth v/s Profits is a Constant Balancing Act
Depends also on business types – Ecommerce v/s Mark…

6/13

7/13

Early Stage
(Seed – Series A)
• Focus on PMF
• Cash Burn funds Growth
• Early Monetization
…

8/13

Indian Tech Startup IPOs Q1’22 Crash??
Is the Growth v/s Profitability equation to blame?

9/13

Experiential / Platforms

• Defensible competitive advantage
• Less competitive, no offline eq…

10/13

Problem is Valuation, Not Growth vs Profits
• Post 2008 QE, Easy liquidity -> Hot Money into Asset…

11/13

Credits
• http://www.paulgraham.com/growth.html
• https://www.nfx.com/post/new-rules-growth-profi…

12/13

https://twitter.com/amitranjan
https://twitter.com/amitranjan
Thank You...
https://webyantra.com…

13/13

Evaluating New Age Startups: Profitability Vs Growth

1. Evaluating New Age Startups: Profitability Vs Growth

2. Startups = Growth “A startup is a company designed to grow fast” Paul Graham - YCombinator

3. Startups are Risky: Most Die, Few Change the World • Traditional finance (debt) ruled out • Enter Venture capital 3

4. Venture Capital Model – Power Law Fund Life ~ 7 yrs | 1/10 Success Probability | Large Outcomes (100X) 4 Returns don’t follow Normal Distribution, Skewed towards Outliers stocks, human life expectancy, avg height venture capital, music sales, video games

5. Large Outcomes (100X) Imply • Large TAM • Rapidly shifting user behavior – new habits, repeat usage • Fast growth / distribution • Command pricing power 5

6. Growth v/s Profits is a Constant Balancing Act Depends also on business types – Ecommerce v/s Marketplaces v/s Social Networks v/s SAAS v/s CoreTech

7. The Startup Glide Path Framework

8. Early Stage (Seed – Series A) • Focus on PMF • Cash Burn funds Growth • Early Monetization Experiments • Growth over Profits! Mid Stage (Series B – Series D) Late Stage (Series E – IPO) • Achieve Networks Effects • Revenue Lines Emerge • LTV > CAC • +ve Unit Economics • EBITDA +ve • Stable Product • Established Revenue Lines • Profitable, Generating Cash • Financial Budgets & Forecasting

9. Indian Tech Startup IPOs Q1’22 Crash?? Is the Growth v/s Profitability equation to blame?

10. Experiential / Platforms • Defensible competitive advantage • Less competitive, no offline equivalent • High Gross Margin • SAAS, Social Networks, CoreTech Transactional • Digital equivalent of offline process • Competes with offline, omnichannel • Low competitive advantage • Low Gross Margin, No/low pricing power • Ecommerce, Marketplaces, Payments Startups Business Models – Diff Types

11. Problem is Valuation, Not Growth vs Profits • Post 2008 QE, Easy liquidity -> Hot Money into Assets • Mismatch b/w Public vs Private Market Valuations • Few IPOs look premature, ahead of time • Markets will resolve this eventually, correction is due 11

12. Credits • http://www.paulgraham.com/growth.html • https://www.nfx.com/post/new-rules-growth-profitability/ • https://fabricegrinda.com/playing-with-unicorns-episode-3-how-vcs-evaluate-startups/ • https://tradebrains.in/upcoming-ipos-indian-startups-2021/ • https://www.youtube.com/watch?v=cvaDvnp2USA • https://timesofindia.indiatimes.com/business/india-business/ipo-listings-see-rs-2-lakh-crore-erosion-techstartups-account-for-half/articleshow/89103838.cms 12

13. https://twitter.com/amitranjan https://twitter.com/amitranjan Thank You... https://webyantra.com https://webyantra.com

@amitranjan

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1 month ago @amitranjan

how is design in startups different than design in large companies?

That's a great question! Here's a breakdown of how design typically differs between startups and large companies:

Startups:

Focus:
- Problem Validation & Finding Product-Market Fit: Design is heavily focused on understanding user needs, validating the core problem the startup is solving, and iterating to achieve product-market fit.
- Speed & Agility: The emphasis is on rapid prototyping, testing, and iteration. Designers need to be able to move quickly and adapt to changing requirements.
- Breadth of Skills: Designers often wear many hats, handling UX, UI, visual design, user research, and even some marketing design. They need to be generalists.
- Early Adoption and Iteration: The focus is on getting something out there that is usable and desirable and learning how it works, not on the best experience out of the gate
Resources:
- Limited Budget: Resources are often scarce, so designers need to be creative and resourceful in finding ways to conduct user research and create effective designs without breaking the bank.
- Small Teams: Design teams are usually small, sometimes even a single designer.
Processes:
- Lean UX: Startups often adopt a lean UX approach, focusing on rapid prototyping and iterative testing to validate design decisions.
- Close Collaboration: Designers work closely with engineers and product managers in a highly collaborative and iterative environment.
- Less Formalized Processes: Startups tend to have less formal design processes and documentation compared to larger companies.
Impact:
- High Impact: Designers have a significant impact on the overall direction of the product and the company.
- Direct User Feedback: Designers often have direct access to users and can quickly incorporate feedback into their designs.
Risk:
- Higher Risk, Higher Reward: Design decisions can have a make-or-break impact on the startup's success.
Tooling:
- Utilizes basic tooling. There is little time to try and adopt more complex tools

Large Companies:

Focus:
- Refining Existing Products & Scalability: Design is often focused on improving existing products, scaling designs across multiple platforms, and ensuring brand consistency.
- Specialization & Depth: Designers tend to specialize in specific areas, such as UX research, interaction design, visual design, or content strategy.
- Mature Products with Wide Adoption: The design goals are to improve the experience, while not taking away from those who have mature habits
Resources:
- Larger Budgets: Large companies typically have more generous budgets for design research, tools, and staffing.
- Larger Teams: Design teams are larger and more structured, with dedicated roles for different design disciplines.
Processes:
- Established Design Systems: Large companies often have well-defined design systems to ensure consistency across all products and platforms.
- Formal Design Processes: Design processes are more formalized and documented, with clear approval workflows and sign-offs.
- Siloed Teams: Teams can become more siloed as a large company grows.
Impact:
- Focused Impact: Designers typically work on specific features or areas of the product, rather than having a broad impact on the overall direction.
- Indirect User Feedback: Designers may rely more on research reports and data analysis than direct user interaction.
Risk:
- Lower Risk, More Measured Changes: Design changes are often introduced gradually and tested thoroughly to minimize disruption to existing users.
Tooling:
- Will use more complex design tools to help with scale and design systems

Here's a table summarizing the key differences:

Feature	Startup	Large Company
Focus	Product-Market Fit, Speed	Scaling, Consistency, Refinement
Skills	Generalist	Specialist
Resources	Limited	Abundant
Team Size	Small	Large
Processes	Lean, Agile, Informal	Formal, Structured
Impact	High, Direct User Feedback	Focused, Indirect User Feedback
Risk	High	Lower
Tooling	Basic	Complex

In essence:

Startups are about finding the right product, while large companies are about optimizing existing products.
Startup design is about exploration and adaptation, while large company design is about execution and consistency.

It's important to note that these are general trends, and there can be exceptions depending on the specific company and industry.

Just now @

- @amitranjan
- 5m
Recent talk I gave on that eternal startup dilemma - should you focus on growth, or profitability?
- @skilleduplife
- 3m
Hi @amitranjan there is a hybrid model where you take one or two rounds. A classic example is Buffer where he took one round in addition to whatever Joel got from the accelerator.

What we are trying to do with https://skilledup.life is to help de-risk for investors by helping tech founders in early stages.

Love to hear your thoughts on what we do.

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Evaluating New Age Startups: Profitability Vs Growth

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Evaluating New Age Startups: Profitability Vs Growth

how is design in startups different than design in large companies?

@amitranjan

@skilleduplife

Evaluating New Age Startups: Profitability Vs Growth

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