We began with the objective of driving exponential forever profitable growth. The word “profitable” is important; without profits, the dependency deepens on an infinite pool of investor capital. While the times are good today, they will not last forever. Smart CEOs and CMOs need to start the groundwork today to lay the foundation for the coming Martech era and creating built to last profitable businesses which also can drive exponential and forever growth.
Profits are important for an additional purpose. They deprive the competition of the oxygen they need for their growth. The profit pool in a category is finite and a zero-sum game. Customers cannot keep buying the same products from multiple sellers. A mobile phone bought from Flipkart is a mobile phone that will not be bought from Amazon.
In a world obsessed about growth, it may seem heresy to talk about profits. Maybe I am a bit old-fashioned, but I believe that a business needs to craft a path to profitability. In today’s world of cheap and seemingly infinite capital, profits in consumer tech (and enterprise tech) are not discussed in boardrooms. The only question is: what will it take for you to grow faster? The answer to that question can lead to habits and business practises which are not easily reversible when the tide turns. I had learnt this the hard way when I chased valuation rather than profitability many years ago. I strongly believe that the best businesses which endure and become great are the ones that can combine growth and profits. What the new world of digital is also enabling is faster growth (exponential, rather than linear) and ensuring that growth can last (become forever) with ensuring great experiences powered by data.
By using the secrets outlined here (smart segmentation, 4 Rs, full stack, progency and rebudgeting), brands can drive up the profitability in their business by ensuring the Best customers stay forever, the Rest customers are moved along the customer journey to become tomorrow’s Best, the Test customers are reactivated instead of being reacquired, and the Next customers come from referrals and a higher profitability pool of customers.
By working to maximise and then monopolise the profits in a category, brands create a profits flywheel to lead to a “profipoly”. This works as a double moat in the coming Martech era: the most profitable customers are retained to maximise lifetime revenues, and competitors are deprived oxygen of growth capital in the form of profits. The profipoly is thus the endgame. It also works as the beginning – because the profits can power the expansion into new categories – either organically or via acquisitions. Creating a profipoly is the real secret of creating a model that can power the “rinse and repeat” of exponential forever profitable growth.