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The New Rules of Growth vs. Proﬁtability
NFX Managing Partner, Pete Flint
Navigating A New reality
This presentation is meant to help Founders adjust
their short-term and long-term strategy in a novel
environment. Principles include:
● Survive: Understand your cash position & extend
● Thrive: Take advantage of cheap growth
● Plan for the long-term balancing act using the
“Startup Glide Path”
The Crisis Playbook for Startups
● Set a cash ﬂoor
● Exercise extreme frugality to become cash ﬂow
neutral / positive (inﬁnite runway)
● Iterate on product to identify proﬁtable streams
● Achieve short CAC / LTV payback periods
● Scale the business so revenue matches cost
The Balancing Act
● You’ll hear conﬂicting advice on what to prioritize between growth vs. proﬁtability
● The truth is that it is a balancing act throughout the life of a startup
The Rule of 40: Growth vs.
Proﬁtability is a False Dichotomy
● In reality, growth & proﬁtability are not mutually
● Example: the “Rule of 40” shows top-performing
companies need both.
● Rule of thumb particularly for late-stage SaaS
companies that says that growth rate + proﬁt
margin combined should = 40%+
Early Stage (Seed - Series A): Grow
● If you’re early stage, you need to be aggressive
● First, make sure you have a strong cash position
& fast CAC / LTV payback.
● Find product-market ﬁt before spending
aggressively on growth.
● Once you have product-market ﬁt, a strong cash
position, and fast CAC / LTV payback, you need
3-5x annual growth.
Mid-Stage (Series B & C): Create
● At these stages, it’s about creating conditions for
● One route to optionality is having eﬃcient,
scalable customer acquisition.
● Another is to launch in adjacent markets, or by
expanding to capture greater market share in
Late Stage: Gliding Towards Greater
● For later stage companies approaching their IPO
or another type of liquidity event, growth is still
more important than proﬁts.
● The best case, of course, is when a company is
both highly proﬁtable and growing quickly.
● A company’s business model can also impact how
late-stage investors and the public market react to
the rate of growth and proﬁts.
Weaker Network Effect Business
Models = Less Tolerance For Losses
● For weak network eﬀects business models, the
risk is highest because the churn and replacement
eﬀect may be high but not high enough to
immediately create warning signs.
● For companies like this, public investors will
forgive lack of proﬁts for a time. If losses continue
to mount, growth needs to be absolutely
outstanding for the company to maintain its share
price and the conﬁdence of investors.
Network Effects & “Blitzscaling”
● In an environment of abundant capital, network
eﬀects businesses pursued extremely aggressive
“blitzscaling” growth strategies.
● Investors have in the past shown increased
tolerance for loss-making in a winner-take-most
● Low-margin businesses without signiﬁcant
network eﬀects can’t use the same playbook.
● The environment is turning against aggressive
blitzscaling, especially in a downturn.
Takeaways for Founders
1. Understand your cash position.
2. Extend your runway to 18-24 months until you can nail
your unit economics and be in a position to raise capital.
3. Improve your contribution margins to ensure you’re
making money on every transaction. Optimize for
proﬁtability on a transaction basis as opposed to growth.
4. Tighten your CAC/LTV payback period.
5. After that’s secured, aggressively pursue growth and
acquisition while the market is cheap.