Gokul Rajaram’s Post

Gokul Rajaram How do you think about cash flow breakeven vs EBITDA profitable?

Where does a company go when they’re at 10% EBITDA and 10% growth, though?

Gokul , always love your insights! We still have our coffee overdue. A few thoughts: - This brought my mentor’s (Clay Christensen), advice to mind - be patient for growth, impatient for profits. Profits prove a viable business model. - The path to profitability is accelerating because of leveraging and stitching together varied innovations ( analytic platform, advertising, customer engagement, product design, etc) - if we look at the corporate environments across 4 time based evolutionary stages(legacy operations, fragmentation, reassembly, exponential value), the bulk of the industry, especially the larger players, are between fragmentation (driven by data, analytics) and reassembly (new relationships / ecosystems to unlock value). Setting exits along that value proposition may drive more M&A? So maybe the exit model changes from ipo to acquisitions. - maybe the large, blockbuster, model itself is going to be rarer due to hyper personalization and smaller “markets”? We already see how midjourney (30 people) challenges Adobe (43k), WhatsApp (13), challenged an entire text based base (~100k) across telco, and of course more recent examples. Thoughts/ reactions especially on the exit timeline and smaller markets?

This would be much healthier for the ecosystem. But will admit to being a bit skeptical. Having lived through a couple cycles, I’ve learned memories can be surprisingly short.

Mindless “investment” to fuel growth - aka growth at all costs - is done. However, be careful with this facade (or fad) of CF positive at the expense of growth that is the in-thing among investor types these days. Small companies cannot afford to trade growth off forever. What I wish the advice from investors be is to cut down drastically on meaningless spend - headcount, M&A, free lunches, expensive offsites, not availing of global talent etc etc. You need to conserve cash to be ready to mindfully invest when conditions are better. BTW post SBC cash flow positive (phase 3 in one of the comments) is not helpful & founders may want to ignore that.

I agree with your analysis if we would be setting ai aside in the conversation. If you take ai into account, I actually predict that all that you described will occur, but within a set of companies or industries that cannot adopt ai readily due to regulations or physical limits. There already is a growing crop of ai companies that are creating their own trajectory, biz models, and pace towards profitability with less resources that defy a lot of traditional analyses you put forth here or collapse steps. Perhaps this crop of ai startups will have even a steeper power-law distribution than we've historically had in startups or there will be a bimodal distribution among these companies, meaning a group of high-flyers and a group of steady growth companies that focus on profits and cost structure in slower-to-adopt markets. If your analysis is focused on current companies that raised on 2021 - mid 2022 expectations, you may need to be even more bearish among this set. Who knows what will happen, though, all just prognosticating :)

We all are responding to the macro shift, and the speed and consensus with which such shifts happen today is phenomenal. By extension, as soon as money finds a way to be cheap again, I doubt all this newfound discipline will have leg muscles that can stand that dry-powder flood that always seeks a race to the next funding round. above all (including costs)

"it's addicting to generate cash vs consume it" 🔥🔥

This post couldn’t have come at a more opportune time. I was mentioning to my India product cohort this: I think fundamentally founders in India should be taught they have to make profits; not grow and show random vanity metrics to VC’s. It’s perverted incentives that are spoiling our India startup story. Founders just got easy funding for last decade and they made enough money by secondaries that they don’t have a real need to really “build companies for long term” and exit via the only two ways known: IPO or sell out to a larger profitable co.

Sounds spot on Gokul Rajaram I think two things are worth calling out: 1. This will likely make seed investment more competitive for VCs. More money from late stage will flow down to participate in the action. 2. In some businesses that are heavy on operational aspects automation (genAI or otherwise) will move up the roadmap, eating into growth or other roadmaps that aren’t as directly relevant for CF generation.