Sprint When You See It

There are a lot of companies who’ve been perpetually 18 months away from profitability.

In 2021 they were 18 months away. In 2022 they were still 18 months away. And today? You guessed it.

An investor once told me you should sprint to profitability once you are within striking distance. Almost all other goals should become subservient when you sense you’re in reach. In other words: “Don’t hang around the hoop.”

Why?

It shows you are serious.

When you get there, you’ve de-risked your story. Like it or not, regardless of your stellar growth rate, there will always be some sort of discount applied to the fact that you don’t yet fully control your own destiny.

And once you’re breakeven, your annual growth rate essentially becomes your investor’s new IRR (internal rate of return).

We have to remember that the value of a company is predicated on the value of it’s future cash flows, discounted back to the present. So if you don’t have real cash flows yet, we’re estimating a future state in which you are at that point.

And it’s a lot easier to believe a story that you’ll eventually get to +25% free cash flows at scale when you’re even just 2% to 3% of the way there today, versus making that same claim while you’re -10% below the line.

No matter how small, once you cross that line, you enter a hallowed club of businesses that actually make money. And members of that club get better treatment in analyst models.