Most leaders treat profitability as something that happens to them.
They talk about it the way you talk about weather, as a downstream condition that will eventually arrive once enough revenue accumulates, enough scale kicks in, enough efficiencies emerge. “We’ll be profitable at $50M ARR.” “We’ll be profitable after the next round.” “We’ll be profitable when the market turns.”
None of those sentences are strategies. They are forecasts dressed up as plans.
Profitability is not a lagging indicator. It is a strategic choice. And the most important thing a leadership team can do right now is understand the difference.
The myth of the lagging indicator
There is a comfortable myth in growth-stage companies: that profitability is what happens automatically after you’ve earned the right to focus on it. Build the product, scale the revenue, capture the market, and the margins will be waiting at the end of the road.
This was never quite true. It has become spectacularly untrue over the last three years.
The companies that are winning right now did not arrive at profitability by accident. They made specific, often uncomfortable choices, about which customers to keep, which products to kill, which hires to defer, which markets to exit, which contracts to renegotiate, long before the market forced them to. They treated profitability the way they treated product strategy: as a thing you design, not a thing you wait for.
The companies that are struggling right now made the opposite bet. They optimized for top-line growth and assumed the operating model would catch up. It hasn’t, because operating models do not self-organize. They are built. And the companies that didn’t build them are now trying to retrofit profitability into businesses that were designed without it.
What “choice” actually means
When I say profitability is a choice, I do not mean it is a feeling or a value or a cultural priority. I mean it is a set of specific operating decisions that show up on specific lines of the P&L.
Here is what those decisions actually look like.
Gross margin: the choice nobody wants to make
Most companies underprice. They underprice because their sales teams are compensated on bookings, not margin. They underprice because their pricing was set two products ago and nobody has revisited it. They underprice because they are afraid of losing the deal.
The choice is: are we willing to lose 10% of our deals to gain 15 points of gross margin on the rest? In most cases the answer is yes, but it requires the CFO and the CRO to be in the same room, looking at the same data, willing to walk away from revenue that destroys value. That conversation is rare, and the absence of it shows up directly in gross margin.
Cost of goods is the other side of this equation. Most growth-stage companies have a cost stack that was negotiated when they were a third of their current size. Cloud contracts, hosting, third-party APIs, professional services, all of it scales with the business but rarely gets re-negotiated against the business’s new size. The choice: do you have someone whose job is to actively manage the cost stack as a quarterly discipline? If the answer is no, you are leaving margin on the table by default.
Operating expense: where conviction shows up
The growth-at-all-costs era taught a generation of operators to treat headcount as the answer to every problem. Need more revenue? Hire more sales. Need more product? Hire more engineers. Need more customers retained? Hire more CS.
The choice is: for every incremental headcount, what is the explicit revenue or margin commitment that justifies it, and over what timeframe? If you cannot answer that for every open req on your roadmap, you are not operating, you are reacting.
Profitable operators have a hire-to-revenue ratio they manage to. They have a clear point of view on which functions scale linearly with revenue and which scale sub-linearly. They are willing to leave seats open when the business case isn’t there. That is not austerity. That is design.
Working capital: the silent profit lever
This is the line that finance people obsess over and the rest of the executive team ignores. It is a mistake.
Days sales outstanding, days payable outstanding, cash conversion cycle, these are not just accounting metrics. They are operating choices. Are your contracts annual-paid-up-front, or are you financing your customers’ deployments for them at zero interest? Are you paying suppliers in 30 days when 60 was on the table? Are you renewing customers automatically, or chasing them every cycle and losing weeks of cash float?
Working capital is where the smartest CFOs find 5–10 points of free cash flow that nobody else on the team realizes is available. That money is sitting on the table because nobody made it someone’s job to pick it up.
Why this is so hard
None of what I just described is intellectually difficult. Any competent CFO knows the levers. The reason profitability remains a lagging indicator at most companies is not that the math is hard. It is that the choices are uncomfortable.
Choosing margin over bookings means having a data driven, and potentially heated, discussion with the CRO. Choosing hire discipline over headcount means educating functional leaders and bringing them along in the strategy discussion. Choosing tighter working capital means renegotiating with customers and suppliers who would prefer the looser terms. Choosing to kill an underperforming product means admitting an earlier investment was wrong.
These are not analytical problems. They are organizational ones. And they are why profitability stays a quarter-end discussion at most companies instead of an operating principle.
The companies that have figured this out treat profitability the way they treat customer experience or product quality, as a thing the entire organization owns, not a thing the finance team reports on. That cultural shift is the actual unlock. The math is just the math.
The CFO’s job in all of this
If profitability is a strategic choice, the CFO’s job is not to score it after the fact. It is to make sure the choice is being made, actively, deliberately, every quarter, and to put the trade-offs in front of the rest of the leadership team in a form they cannot avoid.
That means a different kind of finance organization. Less variance reporting. More forward-looking scenario work. Less “here is what happened.” More “here is what is about to happen if we don’t change this lever.” Less scorekeeping. More navigation.
I will write about that shift in a future post. For now, the move I would ask every leader to make this quarter is smaller than that. It is one question, asked in your next executive team meeting:
Where exactly are we choosing growth over profitability? And is that choice still the right one?
If you cannot answer that question with specifics, specific customers, specific products, specific cost lines, specific timeframes, then you are not making the choice. You are letting it be made for you.
That has never been a great strategy. In this market, it is an expensive one.
Next week: the 3-in-1 Operator: why generalists who can hold engineering, finance, and strategy at the same time are winning transformations, and what specialists need to do about it.
If this provoked something — agreement, pushback, a story from your own seat — reply. I read everything.
— Shannon