Growth Traps in a Downturn

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For venture-backed companies, growth is usually the top priority. 

In good times, when investors are bullish, losing money to grow sales is a viable strategy. In bad times, when investors pull back, having a reasonable short-term path to breakeven is usually your best option.  

If you don’t pay attention to the changing economic environment (here in June 2022) you risk being stuck in: 

Trap 1 – “If we discount heavily to grow sales, even at a loss, we’ll be able to eventually stop discounting and generate big profits.”  That’s because a) we’ll be such an important player that we’ll be able to stop discounting, and b) higher volume will reduce our costs.  Will it work in this downturn?  Check with your investors and make a Plan B to get to breakeven. 

2 – “If we invest heavily in ads and promotion, even if we’re losing money, we’ll eventually build momentum and grow steadily without the extra expense. If you’re doing this, make sure you also have a Plan B to get to break-even faster. And talk to your investment community. Make sure they’re still on board.   

So be real, develop a Plan B that gets you to faster break even and talk to your investors to make sure you’re in synch. 

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