Tipping the Scale: The SG&A Inflection Point 

I was recently invited to be a guest on a podcast called “DealMakers” which features weekly interviews with entrepreneurs that have been successful at raising capital and securing acquisition transactions. One of the topics host Alejandro Cremedes and I covered was the roller coaster of capital needs at different phases of a start-up and the importance of a 360-degree view on the impact of growth. 

I have found that while many founders believe (perhaps hope) that when revenue hits certain target levels, SG&A will decrease, the opposite is actually true. As revenue grows, SG&A also goes up. Think about that first big client acquisition. Suddenly there’s a cash infusion but, in almost all cases, the systems and resources required to deliver the services or products cannot absorb the increased load without additional investment.   

There is a learning curve and over time founders adjust the P&L to reflect this reality. The inflection point comes when the revenue growth percentage exceeds the SG&A percentage increase. That’s when you can take a deep breath and start to build profitable growth. Until that point it’s important to recognize that you’re building a business, not leading a business.  

If you’d like to hear more about this topic and others relating to the roller coaster ride of a founder, please click here to listen to the DealMakers podcast.