Pool Edge Swimming Strategy

A framework for balancing growth and profitability in startups, using Touch of Modern's experience of transitioning from growth to profitability.

Key Decision Factors for Growth vs. Profitability

• Amount of money raised vs. annual revenue

  • Too much funding can limit future options
  • Creates expectations for growth from investors
  • Higher valuations require higher multiples in next rounds

• Market conditions and timing

  • Understand what's more valuable at any given time (growth vs. profitability)
  • Consider investor sentiment in your space
  • Watch competitor failures and successes

• Company positioning

  • Proximity to EBITDA profitability
  • Understanding of key business levers
  • Ability to execute the chosen strategy

The "Pool Edge Swimming" Strategy

• Maintain growth while staying close to profitability
  • Always keep profitability within reach
  • Know your path to profitability before needed
  • Understand key metrics that drive profitability

Risks When Pivoting to Profitability

• Cultural shifts

  • Management focuses on smaller numbers
  • Switch from GMV/revenue to actual profits
  • Different metrics become priorities

• Competitive challenges

  • Competitors may continue heavy spending
  • Need strategy to compete with less marketing spend
  • Must find alternative growth drivers

Touch of Modern's Profitability Pivot Success

• Focus on loyal customer base

  • 10% of users return daily
  • 40% return weekly
  • 80% return monthly
  • Daily visitors 10x more likely to purchase

• Revenue concentration

  • 80% of revenue from top 20% of customers
  • Maintained category mix despite different preferences
  • Balanced new user acquisition with loyal customer focus

• Results

  • Achieved 10 months of EBITDA profitability
  • Successfully reduced marketing spend
  • Maintained growth through existing customer base