This is a guide to help Founders build iconic businesses during challenging times and navigate the new rules of growth vs. profitability post-COVID-19.

1. The New Rules of Growth vs. Profitability
NFX Managing Partner, Pete Flint

2. Navigating A New reality
NFX 2
This presentation is meant to help Founders adjust
their short-term and long-term strategy in a novel
environment. Principles include:
● Survive: Understand your cash position & extend
runway
● Thrive: Take advantage of cheap growth
● Plan for the long-term balancing act using the
“Startup Glide Path”

3. Do you have enough cash?
NFX 3

4. The Crisis Playbook for Startups
NFX 4
● Set a cash floor
● Exercise extreme frugality to become cash flow
neutral / positive (infinite runway)
● Iterate on product to identify profitable streams
● Achieve short CAC / LTV payback periods
● Scale the business so revenue matches cost

5. The Balancing Act
NFX 5
● You’ll hear conflicting advice on what to prioritize between growth vs. profitability
● The truth is that it is a balancing act throughout the life of a startup

6. The Rule of 40: Growth vs.
Profitability is a False Dichotomy
NFX 6
● In reality, growth & profitability are not mutually
exclusive.
● Example: the “Rule of 40” shows top-performing
companies need both.
● Rule of thumb particularly for late-stage SaaS
companies that says that growth rate + profit
margin combined should = 40%+

7. The Startup Glide Path
NFX 7

8. Early Stage (Seed - Series A): Grow
Aggressively
NFX 8
● If you’re early stage, you need to be aggressive
about growth.
● First, make sure you have a strong cash position
& fast CAC / LTV payback.
● Find product-market fit before spending
aggressively on growth.
● Once you have product-market fit, a strong cash
position, and fast CAC / LTV payback, you need
3-5x annual growth.

9. Mid-Stage (Series B & C): Create
Optionality
NFX 9
● At these stages, it’s about creating conditions for
optionality.
● One route to optionality is having efficient,
scalable customer acquisition.
● Another is to launch in adjacent markets, or by
expanding to capture greater market share in
existing markets.

10. Late Stage: Gliding Towards Greater
Profitability
NFX 10
● For later stage companies approaching their IPO
or another type of liquidity event, growth is still
more important than profits.
● The best case, of course, is when a company is
both highly profitable and growing quickly.
● A company’s business model can also impact how
late-stage investors and the public market react to
the rate of growth and profits.

11. Weaker Network Effect Business
Models = Less Tolerance For Losses
NFX 11
● For weak network effects business models, the
risk is highest because the churn and replacement
effect may be high but not high enough to
immediately create warning signs.
● For companies like this, public investors will
forgive lack of profits for a time. If losses continue
to mount, growth needs to be absolutely
outstanding for the company to maintain its share
price and the confidence of investors.

12. Network Effects & “Blitzscaling”
NFX 12
● In an environment of abundant capital, network
effects businesses pursued extremely aggressive
“blitzscaling” growth strategies.
● Investors have in the past shown increased
tolerance for loss-making in a winner-take-most
situation.
● Low-margin businesses without significant
network effects can’t use the same playbook.
● The environment is turning against aggressive
blitzscaling, especially in a downturn.

13. Takeaways for Founders
NFX 13
1. Understand your cash position.
2. Extend your runway to 18-24 months until you can nail
your unit economics and be in a position to raise capital.
3. Improve your contribution margins to ensure you’re
making money on every transaction. Optimize for
profitability on a transaction basis as opposed to growth.
4. Tighten your CAC/LTV payback period.
5. After that’s secured, aggressively pursue growth and
acquisition while the market is cheap.