Are profits making a comeback in the startup lexicon?

Photo by Stephen Phillips on Unsplash

For years, the assumption was that scale outranked profit. Venture capitalists urged founders to seize market share and worry about earnings later. By 2021, that logic had reached its apex: almost 80 per cent of companies listing on public markets in the US that year were unprofitable . As one investor observed, the cost of capital was so low that losses were almost a badge of honour.

That era has ended. In a recent survey of Indian founders, 62 per cent said profitability was their priority in 2023, a sharp jump driven by funding scarcity and a reassessment of sustainable business models . The data match a global trend. Revenue multiples,the price investors will pay per dollar of sales , fell from 13.4× in January 2022 to 5.7× by January 2023 , reflecting a harsher view of growth narratives unsupported by cash flow.

The shift is not about abandoning ambition. Rather, it recognises that profit is the proof that a business can stand on its own. Peter Drucker likened profit to oxygen: essential for survival, even if not the purpose of life. Warren Buffett goes further, noting that in the long run a business must generate more cash than it consumes or it will perish.

What does that mean for founders and boards? Three lessons emerge:

• Validate unit economics early. The ability to make a margin on each sale is no longer optional. Investors want to see when the business turns positive, not just how many users have signed up .

• Spend with discipline. The era of free capital allowed extravagance. Now the cost of expansion must be weighed against its contribution to profit. That may mean delaying certain hires or projects until the numbers justify them.

• Communicate the path to profitability. A credible timeline, with milestones and contingencies, reassures stakeholders that growth is anchored in reality. The companies that survived past downturns often had clear narratives about how they would make money.

Profitability, once unfashionable, is regaining its place as a measure of a venture’s health. That does not mean shunning investment or innovation; it means pairing them with prudence.

As Buffett famously said, price is what you pay but value is what you get,and value, in the end, is sustained by profits.