What Should You Focus on First: Revenue or Profits?

Market share or margin? Top-line or bottom-line? It’s the age-old question.

And now there seems to be a fairly strong empirical answer.

Cyrine Ben-Hafaiedh, PhD & Anaïs hamelin replicated a study from 2009, this time with a dataset that covers nearly 40% of all small & midsize firms in the EU, across a range of industries, ages, and sizes. That’s 650,000 firms across 28 countries. Yowza!

The main finding? If you can choose, CHOOSE PROFITS FIRST. You’re 2.5X more likely to become a star if you begin from a high-profit-low-growth position than from a high-growth-low-profit position.

Their second finding was that if you can choose, CHOOSE PROFITS FIRST. Because you’re 2.5X more likely to become a dud if you are growth-oriented than if you are profit-oriented.

The effect was strongest for 1-year changes (about 2.5X vs 2X) then diminished a little in 2- & 3-year windows.

Note that over half of firms stayed in their quadrants from year to year, too. And over 1 in 10 growth-oriented firms became stars.

So can you be a star if you start with a growth-orientation? Of course. Notable anecdotes abound (paging Jeff Bezos).

But assume you are not Amazon.

The odds are against you.

Read the paper. It's a good one.