Every startup invariably chooses between two distinct paths to profit, whether on purpose or by happenstance.
They can follow the money and try to maximize revenue at every turn or they can be mindful of margins and budgets, making sure that every dollar out has a high ROI. Each path has its own benefits and drawbacks. Lately, according to entrepreneur and VC Chris Dixon, more companies have chosen revenue over margin. But in the end, you still have to subtract costs from revenue before you can see your true profits.
In the era of the lean startup, it’s curious to see the accounting history of many of today’s IPO companies continually demonstrate somewhat of a disregard for margins (Dixon believes that it’s a byproduct of the VC-driven era that they’re from). Ideally, every company would like both revenue and margin, but it’s usually one or the other. And it seems that most recently successful technology companies have gravitated toward revenue, says Dixon.
How did the tech industry come to this? Some of it, explains Dixon, can be traced back to a long-held belief that exceptional revenue streams are more common than exceptional margins. That is, it’s much harder to find a company creating profit by relying on the latter, rather than the former. For more on revenue versus margin, read the full article by Dixon.