Should start-ups focus on top line or bottom line?
Many entrepreneurs tend to be riddled when it comes to making the trade-off between growing their top line and maximizing their bottom line. After all, there is no way for start-ups to succeed if it doesn’t rake in profits, which requires revenue.
When it is your job to grow the company, it is important to know what type of growth you are after, as most tend to be confused with what to prioritize. The conventional approach would be finding a balance between profitability and growth, yet some would argue that such a balance does not automatically lead to a higher success rate in achieving both at the same time.
Such is the case of online restaurant guide and food ordering firm Zomato. Back in 2013, the company was profitable in India and the UAE, but not in other countries. Since then, its founders opted to invest heavily in building teams and focused on retaining investor interest to maintain growth. Now, the start-up has hit EBITDA break-even globally while maintaining good growth levels. Zomato’s overall revenue reached $74 million this year, up nearly 45% from $51 million last year as it focused both on diversifying its revenue base and aggressively promoting their online ordering and subscription services. By carefully focusing on top line growth, the company gained momentum and grew at a fast pace because it has managed to contain losses as its revenues grew over the last few months.
High focus on top line growth is largely associated with companies that grow rapidly because of the need to invest more to maintain or gain momentum. After all, a start-up should grab the opportunity to scale up and not settle with a borderline return of investment.
When it comes to your company’s value, size really does matter. It may take years for revenue to catch up and outpace expenses, but growth is necessary if you want your company to mature and become sustainable.
Focusing on bottom line growth or profitability is usually achieved at the expense of growth, and putting too much focus on it tends to result to a highly-profitable company that will usually yield modest multiple earnings when you sell it. This is not to say that one type of growth should be neglected over the other. Of course, a business will not flourish without a realistic grasp on expenses, which is why many companies make it a point to ensure that the bottom line remains positive. Likewise, it would also be good to keep in mind the importance of knowing exactly how revenue and expenses work as a whole.
Ultimately, the decision to choose one type of growth over the other rests on several internal and external factors. Focusing on top line does not necessarily mean profits will soon follow, but growth is crucial in the long run if your business is highly competitive in nature such as B2C or B2B companies.