Just like the trappings of the rich – a mansion, a Mercedes and a holiday house in Majorca – give the impression of success, so too do the many ways in which we often evaluate businesses such as revenue, share price, number of employees, percentage of annual revenue growth, size of warehouse, and number of products sold.
It may look as if there are different kinds of success – however, there is only one true way to know if you’re successful, and that’s profit. I can beat around the bush, but unless the company that you are building is generating clear profits after paying for its weekly/quarterly/yearly expenses and providing nice dividends to its shareholders, then it is not really successful.
Without profit, you don’t have a business for very long. Limousines and Learjets don’t mean a thing if you travel on borrowed cash. A seemingly successful start-up brimming with sales is unsustainable without profit. Meeting expenses is survival, earning beyond them is success.
Many start-ups today focus too much on generating top-line revenue while behind the scenes the founders have to raise more and more funds to cover their burn. It looks sexy to have a million-dollar company in a very short time, but it is only if that million-dollar company is not glossing over the $5 million in start-up capital it has not yet paid back to its investors that you could call it successful.
The CRAP model
CatchOfTheDay was built for profit out of necessity, from the garage upwards. We had no choice but to make sure there was profit in the bank so we could see another day and pay the bills; not just for the business, but for our families as well. Unless we made clear profits from day one, we would have gone hungry.
There are lots of companies in the online space that I like to define as CRAP, which stands for Cannot Realise Any Profit. They focus more on revenues and market share but don’t really think about the big picture, which is the bottom line. Companies like that are generally financed by international backers that are happy to spend the investment funds of other international backers, and so it goes. They may be examples of success in doing deals, but unless the company is profitable it is not successful.
By this measure, CatchOfTheDay was successful from the start as we were profitable from day one. By making sure we ran the business smart and lean we were in the black in no time.
Those early days required a few us working 18-hour days, running a million miles an hour and for pretty low salaries because we had no choice. But for lasting success I would have to include the elements that contribute to ongoing profit in the measurement. Those things are the intangible, non-material indices such as work-life balance, employee satisfaction and a positive working environment.
The drive to succeed kept us going in the early days, but that level of sacrifice was not sustainable. It is only now that we can see that the energy we put in was well worth it because we can now celebrate our profitability by being able to afford a better work-life balance, a holiday or two per year, great remuneration for staff, an enviable work environment with bonus basketball court and gym – alongside nice dividends for our shareholders.
So while start-up success can only really be measured in profitability, overall success needs to be measured in other ways, and they can be as individual as each business. How will you know when you’re successful?
Hezi Leibovich is the co-founder of online shopping group The Catch Group, incorporating CatchOfTheDay.com.au, Scoopon.com.au, Groceryrun.com.au, Vinomofo.com, Mumgo.com.au and Eatnow.com.au.