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Value: John Warrillow

Fixating on immediate profit can stymie growth Add to ...

Sometimes the very skills and attributes that make a successful startup can be less helpful – even liabilities – as the business tries to grow.

In Wednesday's column, I discussed how being flexible can be key to starting a business, but then undermine its growth after the early years.

Now I’d like to explore how attitudes toward money can be a strength that turns into a weakness.

Wanting an instant return on investment: First an asset, then a liability

If you’re bootstrapping a startup, you have no choice but to make everything you do profitable from day one. Your time horizon for a return on investment is measured in days, not years. Simply put, if it doesn’t make you money today, you don’t do it.

This discipline of getting an instant return on cash invested – bordering on obsession for some of us – allows us to get a business off the ground. But fixating on immediate profit can undermine your ability to grow.

For example, redesigning your website won’t make you more profitable this month, but could be a necessary investment to attract larger contracts from bigger customers in the future. The startup’s natural inclination is to leave well enough alone, but the growth-oriented leader needs to make the investment.

When you hire a new salesperson, you will have to carry him or her for a few months until that first sale is made. This employee will drag your profits down during that year but could be the key to making your business more valuable and sellable down the road. Your startup genes say wait –your customers are buying your expertise, after all– but you need a salesperson to pull you out of the day-to-day responsibilities.

I’m not advocating making wild investments and ignoring profitability altogether. But I am saying that, once you have some cash in the bank, placing an equal emphasis on top- and bottom-line growth requires you to invest in some things that don’t necessarily pay off right away. After a successful startup, that just might feel very unnatural at first.

Next Tuesday: How the management style that got you started won’t keep you growing.

Special to The Globe and Mail

John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company.

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Follow on Twitter: @JohnWarrillow

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