In the mid-2010s, VC-backed media like BuzzFeed operated under a "growth at all costs" mandate where achieving profitability was seen as a failure to spend enough on expansion. This created an unsustainable competitive landscape for privately-owned, profit-focused businesses that couldn't afford to "sell $1 for 50 cents."
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In today's market, achieving massive growth is seen as the hardest problem to solve. Investors are comfortable backing companies with initially poor retention or margins, like early ChatGPT, as long as they demonstrate hypergrowth. The belief is that growth is paramount, and other metrics can be optimized over time.
Roka News chose profitability over further VC funding, recognizing a fundamental misalignment. Even successful news media exits, like Morning Brew's $75M sale, are considered small outcomes for VCs. This pressure for unicorn-scale returns can corrupt a news organization's mission and independence.
Club Penguin's co-founder warns that accepting VC money creates immense pressure to become a billion-dollar company. This often crushes otherwise successful businesses that could have been profitable at a smaller scale, making founders worse off in the long run.
In a market with extreme growth outliers, the opportunity cost of supporting a slower-moving company is immense. This pressure causes both investors and founders to quit on ventures much earlier, seeking to redeploy capital and time into potential breakout hits.
Mark Cuban warns that the biggest mistake startups make is prioritizing revenue growth over profitability. Chasing sales often leads to burning cash on stocking fees and advertising, jeopardizing long-term survival.
Lerer advises against the venture-backed media model of chasing massive scale. Broadening the user base to justify valuations dilutes the product, kills the joy of creation, and forces an unwinnable fight against big tech platforms for ad revenue. Profitability at a smaller, passionate scale is the better path.
Venture capitalists may value a solid $15M revenue company at zero. Their model is not built on backing good businesses, but on funding 'upside options'—companies with the potential for explosive, outlier growth, even if they are currently unprofitable.
Despite landing on the Inc. 5000 list, the company was losing money on a massive scale. The 'growth at all costs' mindset meant they ignored profitability, with founders admitting they didn't even know what COGS were.
The industry glorifies aggressive revenue growth, but scaling an unprofitable model is a trap. If a business isn't profitable at $1 million, it will only amplify its losses at $5 million. Sustainable growth requires a strong financial foundation and a focus on the bottom line, not just the top.
Many founders believe growing top-line revenue will solve their bottom-line profit issues. However, if the underlying business model is unprofitable, scaling revenue simply scales the losses. The focus should be on fixing profitability at the current size before pursuing growth.
