Startups are like baby chicks. One day they won’t be baby chicks anymore. They’ll look different and act different. But when does that actually happen for startups?
I like Steve Blank’s take: a startup is an organization formed to search for a repeatable and scalable business model.
Taking from this, you can say once the startup has found that repeatable and scalable business model, it’s no longer the same organism. It’s now something else. Three events can change the course of a startup:
- It gets acquired.
- It gets customers that grow revenues (as opposed to just a handful of customers that barely pay the light bill).
- It receives sizeable funding (more than seed money).
At that point, while it’s subjective, I’d say the startup becomes something else. Maybe it’s now a division of a larger corporation (like when Yahoo! Music bought MusicMatch), or on its way to becoming its own corporation (like Skype).
It can be a heady thing to start making profit with your small business. But before you blow it all on a yacht (or even a tiny replica of one), set aside some money to invest back in your company.
Gordon Hester makes a good point about the difference between an investment and an expense. An expense is something that has to be paid, like the light bill. No one’s forcing you to invest back in your company, but as he says:
“the desired outcome of ANY investment in a business is to produce a result greater than the investment itself.”
So while profit is great, growth is better. Consider what you want your business to look like in a year, three, five, ten. Likely you’d love to add some employees to lighten your work load. Expand your facility to store more inventory. Buy larger orders to realize cost savings. Open new branches. Take a vacation. All of this takes money, so in order to do these things, you have to help your business grow.