My pathetic Profit & Loss Statement from 2006

This is a snail

Photo source: Wikipedia

Businesses take time to grow.

What I hate about Silicon Valley is that this ecosystem puts a lot of pressure on entrepreneurs to grow their companies at unnaturally fast speeds, across all dimensions: user acquisition, headcount, revenue, even expenses.

I’m not saying that growth is bad. But I do believe that more often than not, a slower and more deliberate pace of growth early on can set an entrepreneur up for success later on.

What is the root cause of this pre-mature growth pressure among founders? It’s investors. When you raise money, you buy into a rat race that compels you to show progress toward a huge ROI for your investors. Some investors are patient, but many are not and want to see fast returns on their investment in a startup, pressuring founders to raise more funds or take quick exits. The way to get to higher valuations fast for the investor is fast growth.

I chose to bootstrap my last startup because I didn’t want to deal with investor pressure. I wanted to grow organically, at a speed that I dictated.

Today I’m proud to say that my company pulls in substantial revenue and is highly profitable. But the earliest days were ridiculously modest in terms of performance. The following screenshot is my company’s actual Profit & Loss Statement from 2006. Keep in mind this is eighteen months after I started my startup:

Beat The GMAT - Profit & Loss 2006

A breakdown of my 2006 Profit & Loss

As you can see, my 2006 P&L is laughably simple. Let’s take a look at the numbers:

Income:

  • Advertising & Affiliate Revenue – I made the bulk of my income by placing Google AdSense ads on my website and by earning money through book referrals via Amazon.
  • Donations Revenue – I put a simple PayPal donate link at the top of my website and surprisingly got many people to donate a few bucks here and there.

Expense:

  • Advertising & Marketing – I didn’t know how to spread the word about my site, so I tried Google AdWords. That was a waste of money.
  • Internet Domain & Hosting Fees – That was the website domain name and servers.
  • Professional Fees, Legal – What the hell I was thinking spending $275 on a trademark registration!?
  • Professional Fees, Other – I had no coding abilities so I spent $100 on a contractor to tweak some simple HTML on my site. I should have just bought a $20 book on HTML and made the changes myself.
  • Scholarship – Back in 2006, I wasn’t interested in keeping the profits from my business, so I started a scholarship campaign to provide money to low-income people aspiring for higher education.

Notice that there was no line item for payroll because I was working full time at a real job as I incubated this business on the side.

So does this look like a business with promise?

Hell no!

Would you ever call a business with $1,100 in income running at a $160 loss promising?

The truth is that I had no idea what I was doing back in 2006. This was my first startup; I had no business background (Sociology major, yay); and I possessed zero technical skills.

But I did have the luxury of time to learn new skills, run experiments, and speak to customers. Over time a serious business model formed organically. And with a solid foundation that came out of my slow growth, my startup was then able to blow up in terms of user acquisition and revenue starting the following year.

My message to future entrepreneurs is as follows: take it slow with your startup (and try to bootstrap if you can). Your great ideas should never be rushed.

3 thoughts on “My pathetic Profit & Loss Statement from 2006

  1. Bhavin Parikh (@bkparikh)

    Hey Eric! So I’ll play devil’s advocate…healthy discussion is a good thing, right? 🙂

    I disagree with the notion that there’s unrealistic growth pressure for most companies in the Valley. I’d argue that those stories get talked about more often than stories such as mine (supportive investors who understand that businesses can take time to grow), but the friendly investor stories inevitable get less press 🙂 In fact, I’d even argue that some entrepreneurs create this “mess” for themselves by pitching a high-growth story to investors rather than setting proper expectations at the beginning of the relationship.

    That being said, I love that you’re sharing your story and love seeing the 2006 P&L. I’m incredibly impressed by your journey and what you built, and I think you definitely made the right choice by bootstrapping and growing organically.

    Reply
    1. Eric Post author

      Thanks Bhavin for sharing perspective. Your company (Magoosh) is definitely a great example of having investors who believe in your long-term vision. I’ve always been impressed by how you’ve handled your business, growing linearly early on and then skyrocketing over the past few years.

      Probably true that entrepreneurs themselves are setting themselves up for failure by pitching high growth to investors. But this logic gets a bit circular as well–sometimes you need to pitch high growth in order to close the funding.

      Appreciate your chiming in, and keep up the great work at Magoosh.com!

      Reply
  2. bkparikh

    You’re right about circular logic, Eric! An unsolicited tip for future entrepreneurs: be honest about your vision — it might take longer to find an investor who’s a good fit, but it’s well worth it.

    Reply

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