In 1942, when Earl Tupper was given inflexible pieces of black polyethylene slag from his supervisor at DuPont Chemical, the seed was planted for unlikely success. Of course, most people wouldn’t see this as an historic exchange at the time: The slag was nothing more than a waste product of the oil-refining process. In other words, it was garbage. But Tupper didn’t see garbage. He saw an empire.
By purifying the slag and molding it, he was able to create lightweight, non-breakable containers, tableware and even gas masks that were used in World War II. This paved the way for the founding of Tupperware in 1946.
However, despite advertising and a showroom on Fifth Avenue, Tupper wasn’t faring very well financially. That all changed when Brownie Wise began hosting the Tupperware Home Party in 1948. By 1951, Tupper realized that the Tupperware parties were more effective than selling his product in stores. Tupper eventually sold his company for a cool $16 million to the Rexall Drug Company in 1957. And the rest is history.
Success Without Profits
Today, nearly every household in the world has some form of Tupperware in its kitchen, but it took nearly a decade for Tupper to cash-in on his invention. More often than not, the most successful companies in the world do not materialize out of a vacuum—they are forged and hammered into existence over several, sometimes many, unpromising years. And even then, they don’t necessarily turn a profit.
The moment where your business does finally turn a profit is called the “breakeven point.” It’s that hallelujah moment when you’ve earned enough revenue to cover all of your expenses (i.e. payroll, rent, input costs, marketing, etc.). Some businesses hit their breakeven points relatively quickly, while others take a bit more time to reach that threshold.
While it might be surprising, there are also companies that ignore profit altogether. Here’s a look at some modern examples of major brands that are huge game-changers despite not being very profitable.
Like Tupperware, Tesla didn’t experience its first profitable quarter until 2013—a decade after its launch. In 2013, Wiredreported “Tesla recorded sales of $562 million, a gain of over 80% from the last quarter, with 4,900 Model S sedans delivered.” The company then went on to post four unprofitable quarters in a row.
Though some of that revenue was from cutting production costs, Tesla also made money by selling development services for the Mercedes-Benz B-Class Electric and Toyota RAV4 EV. And even though profits did dry up, the future is looking bright for Tesla.
$10 billion is enough to make Snapchat one of the world’s most valuable private tech startups, and this is a conservative estimate. Yet the messaging service generates little revenue—let alone profits—and it recently sparked privacy concerns because of third-party apps that can save incoming photos, rendering Snapchat’s premise obsolete.
Investors, however, are lining up to grab a piece of the company, which stands at over 200 million users, and invested nearly $500 million in 2014.
More than a year after its much-hyped IPO, Twitter is still posting huge losses. The social network has failed to reach the must-have status that Facebook landed years ago, yet it maintains its foothold in social media culture with no signs of slipping anytime soon.
Facebook acquired Instagram for $1 billion back in 2012, but some analysts say the photo-sharing app is unlikely to be profitable. Yet it could soon be in the black, as users continue to flock to the service.
The company is also enlisting the help of Facebook Regional Director James Quarles, who has joined the companyas Global Head of Business and Brand Development. Quarles’ mission is to help turn the popular app into a money-making machine.
And Then There’s Amazon…
You’ve probably heard of its mythical origins by now.
Jeff Bezos left Wall Street and moved to Seattle to sell books online from his garage in 1994. Whether this move was visionary or the act of a madman with no sense of self-preservation can be argued. What can’t be argued is that, by 1996, Amazon had sales that reached $15.7 million and increased to $147.8 million in 1997.
Needless to say, people took notice.But by the end of the decade, Amazon wasn’t as promising as it once seemed. Despite having revenues of $1.6 billion in 1999, Amazon still managed to lose $719 million.
Things didn’t get better in 2000, when it was found that Amazon only had around $350 million in its wallet, despite raising billions of dollars.Amazon finally turned a profit in 2003, which was nine years after being founded and seven years after going public. Bezos was able to turn things around by firing one-seventh of Amazon’s workforce and closing some distribution centers.
In the five years after 2004, Amazon’s profits nearly doubled to $902 million. But in the same time period, total sales increased over 250% to $24.5 billion. You could just about squeeze that profit margin ratio into the Grand Canyon. But with a favorable investor climate, Jeff Bezos could argue that growth is growth and such epic margins are basically irrelevant.
In the decade following Amazon’s first profit, there’s still debate as to whether it actually makes money. For example, an article from NASDAQ in October 2013 asked “Will Amazon Ever Make Money?”Jeff Bezos has also driven Amazon investors crazy by investing so heavily in the company (e.g. drone delivery), which is wiping out their profits. Yet it’s tough to argue with Amazon’s track record given its $138 billion market valuation.
The No Profit Startup
To put Amazon’s lack of profits into perspective, you need to a particular class of unprofitable company: the high-tech startup. Historically speaking, tech companies backed by venture capitalists often become popular without showing profits. This often becomes a source of confusion when, for example, Instagram sells for $1 billion to Facebook with no revenue, or when Snapchat turns down a $3 billion buyout offer with, again, no revenue.
The prevailing theory in Silicon Valley is that it’s a mistake for new companies to focus too much on developing revenue. As with Field of Dreams, the adage “if you build it, [they] will come” becomes a driving philosophy behind many tech startups.
Consider that social services such as Pinterest are popular, in part, simply because many other people are using it. Under these circumstances, it makes sense for a company to focus first and foremost on building a great product and getting people hooked. Once you’ve reached a critical mass of users, thencomes the time to think about revenue strategies.
Let’s not forget that, once upon a time in a galaxy far, far away, Google and Facebook were just impressive products with little or no revenue. Today, they’re financial titans that shake the earth with every step they take. They have leveraged their user bases by turning them into captive audiences for advertising platforms that didn’t exist even 15 years ago. In short, they sparked their own, nearly self-contained advertising feeding-frenzies.
The takeaway here should be fairly obvious: If the stars align, then all you need to do is create a product that people will love to use, and the ads (and money) will follow. But as the aforementioned examples show, don’t hold your breath to turn a profit.
But if you run a business bereft of fawning adoration measured in the millions, and you’re wondering if and when your business will become profitable, then conducting a breakeven analysis should be in your future.
But remember: Just because you’re losing money doesn’t mean you aren’t awesome.
Rasalkhaimah, ras, al, khaimah, dubai, university, salford, manchester, @hishamsafadi, hisham, safadi, European, medical, center, business, entrepreneur, startup, economy, money, motivation, education, Leadership, Transactional, analysis, emotional, intelligence, organisations, development, innovative, technology, care, health, investor, investment, production, shark, tank, sharktank, USA, UK, London, group, european, canada, india, china, japan, KSA, projectmanagement, datascience, bigdata, IOT, internetofthings, cloud