Earning profit in small scale businesses and start-ups is important as profitability impact the working of the company, attracts investors, and boost the morale of the workers. However, in today’s technologically advanced world, start-up companies are paying more attention to growth than profit. Entrepreneurs are trying to follow the footsteps of Jeff Bezos, who managed and operated Amazon with ever-growing revenue and zero profits for decades. Initially, people thought that the business’s narrow margins are the signs that Amazon will unsustainable in the long run. However, Bezos proved everyone wrong and made Amazon the biggest online retailer and the richest man in the world. Therefore, businesspersons are now accepting the fact of reinvesting every single penny into the business and following the fundamental strategy that made Amazon the world leader in e-commerce. Here are few reasons to sacrifice profit for attaining growth.
- To gain new customers by providing high quantity and quality of products and services at nominal rates.
- In order to establish your identity in the new market or industry, you can do market penetration to achieve long term growth.
- To increase volume by improving the cash flow. The increase in volume will help in diluting the overhead expenses and remove operating efficiency.
- To build your goodwill and customer relationship.
- To outlast the competition and introduce new technology in the market.
Along you should remember that the market of businesses having very low marginal costs as the cost of adding one additional customer, and a strong network in which the offering of the business becomes more valuable makes the company a winner that takes all over the economy. It is a fact that a market leader always becomes a monopoly, and direct competitors basically cannot generate sufficient added value to oppress the accumulated network effects of the leader.
For such a market, the rapid growth of the business is a necessary thing more than desirable. If you want to become a market leader, then you need to understand that taking one step at a time and moving slowly can enable the risk of moving one step back from the competitors and giving them an opportunity to move ahead. You need to understand that becoming a market leader requires you to take active actions and make effective strategies so that you can constantly be in one first place. Subsequently, many small businesses and their investors realize that there are many start-ups that not only operates with zero profits but bear massive losses for the sake of growth and expansion.
You also need to understand that if your business is operating in a traditional competitive environment, then sacrificing profitability can be dangerous, as it can increase the exposure of risk. Also, remember that any adverse events on the market can drive you over the edge. Besides, the growth you have gained might not be worthwhile because, in the long run, this growth can be overcome by the competitors with better products and services.
Precisely, in this technologically invented market, scaling the business is not the only thing determining the success, so you are not required to pay attention to the premium only. You should make an effective marketing and financial strategy to attract more people. So, if you are planning to sacrifice profits for the sake of growth, then you need to make sure that you are in the right kind of market.