#43: The Startup Profitability Problem (Most) Executives Ignore

Chip Royce, Flywheel Advisors

Two years ago, I sat in a conference room watching a CEO present numbers that would make your head spin. Revenue projections showing 500% growth. User acquisition curves that looked like hockey sticks. TAM calculations reaching into the billions.

The pitch deck was beautiful. The story was compelling. The founder was charismatic.

And I knew, sitting there, that this company would probably be dead within three years.

Not because the product was bad. Not because the team wasn’t talented. But somewhere between slide twelve and slide thirty-seven, they’d forgotten the most basic rule of business: you have to make more money than you spend.

The Numbers Don’t Lie (But We Keep Ignoring Them)

Here’s what nobody talks about at those glossy startup conferences: 90% of startups fail, and only 2 in 5 become profitable. On average, it takes 2–3 years for the lucky ones to stop bleeding money.

But here’s the kicker: 34% of failed startups cite poor product-market fit as their cause of death. Translation? They built something nobody wanted to buy.

We’ve created an entire ecosystem that rewards everything except the one thing that matters: building a business that customers will pay for.

Why Your Brilliant Business Plan Might Be Killing You

The venture game has created some perverse incentives. When someone else’s money is funding your burn rate, it’s easy to confuse activity with progress.

I once worked with a company that had raised $50 million. They had 200 employees, beautiful offices in three cities, and a product that had won industry awards.

They also had zero paying customers.

“We’re pre-revenue,” they’d say, as if that were a badge of honor instead of a business emergency.

Only 40% of startups ever become profitable. One third break even, and one third continuously lose money until they run out of runway. Cash flow problems and mispricing contribute to about 15–16% of failures.

The uncomfortable truth? Most startup failures aren’t mysterious. They’re predictable.

Five Hard Truths About Building Something That Lasts

1. Your CFO Shouldn’t Own Your P&L (Your CEO Should)

I’ve seen this movie before. The CEO focuses on vision and product. The CRO chases growth metrics. And the CFO gets stuck explaining why the numbers don’t work.

18% of startup failures are due to team problems, and this is often where it starts. The people closest to customers and market realities should be the ones forecasting revenue, not just the person who’s good with spreadsheets.

When more than 87% of customers consider price a key purchase factor, your CEO had better understand what drives pricing decisions. Your sales leader better know what customers will pay. Your CFO can help execute the plan, but they shouldn’t be creating it in isolation.

2. Price Like You Mean It

Here’s something that’ll make you uncomfortable: if nobody complains about your prices, they’re too low.

Pricing is a critical component of a sustainable business model. It’s also one of the fastest ways to validate whether people want what you’re building.

I know a founder who spent eighteen months building features nobody asked for. His “customers” loved using the free version. They raved about it in surveys. They referred their friends.

And they wouldn’t pay a dime for it.

Attempting to grow “at all costs” through discounts or free usage can mask the lack of true willingness to pay. Free users aren’t customers. They’re tourists.

3. Growth Targets That Don’t Completely Terrify You Are Too Small

The math on startup projections is wild. Average projected revenue growth rates look like this:

• Year 1: 522%
• Year 2: 236%
• Year 3: 136%

Those numbers sound insane because they are insane. And yet, startups with $250,000+ in annual revenue consistently hit lower but steadier growth rates.

The successful companies I’ve worked with set targets that scared them a little. Not fantasy numbers, but numbers that required them to do things they’d never done before. Numbers that forced them to get creative about customer acquisition, retention, and monetization.

Most companies require 2–3 years to reach breakeven. The ones that make it are obsessively explicit about when and how that’ll happen.

4. Vanity Metrics Will Kill You Slowly

User growth is not a business model. Monthly active users are not revenue. Engagement is not profit.

Monetization has the largest impact on the bottom line. Improving retention and monetization has up to four times the impact of focusing solely on acquisition. 34% of startup failures are due to a lack of product-market fit.

I can’t say this loudly enough. Monetization is the ultimate validation of product-market fit. If people won’t pay for it, you don’t have product-market fit. You have a hobby.

The companies that survive focus on revenue per customer, customer lifetime value, and payback periods. The ones that don’t make it focus on downloads, signups, and social media mentions.

5. Don’t Build a Feature Wearing a Business Plan Costume

I can’t tell you how many pitch decks I’ve seen that are essentially features of existing platforms. “It’s like Slack, but for doctors.” “It’s like Uber, but for dog walkers.” “It’s like LinkedIn, but for teenagers.”

22% of startups fail due to poor marketing or competitive positioning. 19% of failures result from a business model that isn’t robust enough to withstand platform changes, new competitors, or market shifts.

The companies that last build something defensible. Something that can’t be replicated by a competitor with deeper pockets or eliminated by a platform update.

The Metrics That Matter

Most founders are drowning in data but starving for insights. Here’s what you should be watching:

The Reality Check Nobody Wants to Hear

Building a profitable business isn’t sexy. It doesn’t get you on conference stages or magazine covers. It won’t make you feel like you’re changing the world on a Tuesday afternoon when you’re arguing about pricing strategies and collection policies.

But it will keep you in business.

The companies I’ve worked with that last, still operating five, ten, fifteen years later, all figured out the same thing: sustainable businesses combine disciplined planning, real price testing, genuine monetization, and defensible differentiation.

They stopped optimizing for vanity metrics and started optimizing for profit. They stopped building features and started building businesses. They stopped trying to be everything to everyone and started being something valuable to someone willing to pay for it. That’s not as exciting as a hockey stick growth chart. But it’s a lot more exciting than going out of business.

Want to dive deeper into building profitable B2B businesses?

The strategies in this article come from our work with over 50 companies navigating the gap between growth and profitability.

The ones that make it don’t just track different metrics—they think about business fundamentally differently.