• by Cory Treffiletti , Featured Contributor, March 8, 2023

“Revenue is vanity, profit is sanity, and cash is king.” I saw that written in an op-ed piece I read over the weekend.  It was the first time I had seen such an effective summary of the world of start-ups, so I immediately had to go look up the genesis of that catchphrase to better understand its implications on today’s business landscape.

It appears to have been coined some time around 2017, though it's possible it was around before that. It's generally attributed to Alan Miltz (his LinkedIn profile says he’s a “Global Thought Leader on improving your Profit, Cash & Value") which was not a name I was familiar with.

I love the phrase because it resonates with my experiences in the start-up world, and across all the companies I have been a part of, especially as they face uncertain times.

Revenue is vanity.  More accurately, valuing a company based on annual recurring revenue is rather crazy.  It leads to overinflated valuations and what is typically referred to as a “frothy” market, because all the sharks are swimming in the same place.

Profit is sanity.  This feels better because it is a measure of health.  A profitable company is a growing company, but profit by itself is not enough because while you are profitable, you are likely investing in growth, and you could be spending what you make as quickly as you get it.

Cash is king.  This is simple.  If you are growing revenues, making money, and being careful of how you invest back into the business, you are also conscious of the funding you retain.  If you can do all the above, and retain cash, you are a growing business with a bright future.

Start-ups in the digital space are too often focused solely on revenue as a means of driving growth.  They make money, but they invest more than they have, relying on funding rounds to grow.

A seed round, a series A and even a series B make sense to me.  I have always been skeptical of companies that need to go beyond series B and start chalking up rounds for C, D, E and beyond.  That is a lot of other people’s money you are spending to try and figure out how to make a business successful.

I realize there are mitigating circumstances, changes in strategy, and more that can rationalize that kind of trajectory.  I just personally don’t want to be responsible for the home run required to make all those initial investors their money back.

I bring this up because we are entering another cycle where cash is king, and profitability allows you to manage your own future.  This year will see a number of start-up companies close their doors.  They could be media companies, fintechs, AR/VR tech platforms, or others.

This year will be vicious for companies who are not in control of their own destiny.  But iif you are in control of your cash, this is an amazing opportunity for you.

I have been lucky enough to be part of six successful exits (selling to a larger entity for a good price), and all of these situations had two things in common:  First, they had great teams.  Second, they were all created and grew during periods of economic pressure.

Good times create unfair confidence.  Hard times create more focus to make sure you are doing what is right for your business rather than what simply feels right.

I know investors have been warning their companies of this challenge for months now, but I felt the poetic way it was summarized by Miltz was a valuable nugget to share. This could be the best year for your growing business if you keep it smart, keep it tight and focus on the right things to drive your growth.