Capital Burn vs Profitable Growth

A comparison of two business approaches: a Scottish software company (Petroleum Exports/PetEx) that grew slowly but highly profitably versus Hims, which scaled rapidly through heavy capital investment. The discussion highlights the trade-offs between capital efficiency and rapid growth.

PetEx (The Capital Efficient Approach):

• Financial Performance:

  • £78M revenue ($100M USD)
  • £67M profit
  • £41M ($60M) paid in dividends to owner
  • Takes about 50¢ of every dollar directly to owner's pocket

• Growth Pattern:

  • Took 15 years to reach $10M in revenue
  • Focused on building a sustainable, profitable machine
  • Perfect hockey stick growth curve, but over a long period

• Business Model:

  • Only 420 customers
  • Charges $300,000 per year per license
  • 86 employees, generating £911,000 in revenue per employee
  • Based in UK with lower software engineer salaries (£101,000/year average)

Hims (The Growth-at-all-costs Approach):

• Revenue Growth:

  • Year 1: $15M
  • Year 2: $90M
  • Year 3: $150M
  • 2023 Projection: $800M

• Capital Requirements:

  • Raised $200M+ before going public
  • Additional $200-300M through SPAC
  • Burns significant capital for growth
  • Only 2% EBITDA margin at $500M revenue

• Customer Economics:

  • $100-150 customer acquisition cost
  • 3x return on customer investment over 3 years
  • Long payback period (over a year)

Key Observations:

• PetEx demonstrates you can build a highly profitable business without rapid scaling

• Hims shows you can achieve massive scale quickly, but at the cost of profitability

• The choice between approaches depends on:

  • Market opportunity
  • Competition
  • Capital availability
  • Personal goals and risk tolerance

• Neither approach is inherently better, but they represent fundamentally different philosophies about business building and value creation