Should start-ups be concerned about profitability? More news at 10 o’clock

There are certain topics that even some of the most intelligent people I speak to, who are not focused on start-ups, cannot fully comprehend. All of them are important in terms of profitability. It usually takes place during the fiestas with a gentle affirmation and security that the startup conocida está destinada al fracaso.

O ya sabes, el otro, en que Snapchat perdió 2000 millones de dólares en solo un trimestre. Two billion, wow! What a disaster! Except that they didn’t actually lose $2 billion in cash. It was an “expense” related to a stock option incentive, but I bet you didn’t know that because, in an age where we only read the headlines, they must be a disaster for losing billions of dollars. (They actually lost about $175 million in cash that quarter, if that’s any consolation. See the appendix if you want to know more about it.)

“How could they possibly succeed if they’re not even profitable!”

If you hire six senior sales representatives in January at a salary of $120,000 a year, you’ve incurred an additional cost of $60,000 per month, but these salespeople might not close any new deals for six months. Your profitability will decrease for two quarters, while your growth may increase dramatically in quarters 3-12.
I know this seems obvious, but I assure you that even intelligent people forget this when talking about profitability. Between 70% and 80% of the costs for most startups are personnel costs, so when a company is not profitable, what is really happening is that it is increasing its workforce ahead of its revenue.