A software company is growing 40% a year and still losing money. How would you assess whether that is a problem?

I'd want to know a bit more first. How big are the losses compared with revenue, and how much cash do they have? Whether it's a problem depends on why they're losing money. Losses that buy profitable growth are fine. Losses from a product that can't pay its way are not. So I'd test three things. First, do they make money on each customer? I'd look at revenue and cost per customer. Second, do customers stay? Growth of 40% means little if a lot of customers leave each year. Third, where does the loss come from? I'd split spending into sales, product development and overhead. Last, I'd check how long the cash lasts. I'd start with the customer numbers, since they tell us if growth is worth paying for. Are they available?

I'd want to know a bit more first. How big are the losses compared with revenue, and how much cash do they have? I'll assume $50 million in revenue, a $15 million loss and about two years of cash. Whether it's a problem depends on why they're losing money. Losses that buy profitable growth are fine. Losses from a product that can't pay its way are not. So I'd test three things. First, do they make money on each customer? I'd look at revenue and cost per customer. That starts with gross margin, which should be 70% or more for software. Then I'd compare what it costs to win a customer with what that customer brings in. If the sales and marketing spend comes back in gross profit within about 18 months, that's healthy. Second, do customers stay? Growth of 40% means little if a lot of customers leave each year. I'd check net revenue retention. Above 100% means existing customers spend more each year and growth compounds. Below 90% means they're refilling a leaky bucket. Third, where does the loss come from? I'd split spending into sales, product development and overhead. The question is how much of it is a choice. If they stopped spending on new customers tomorrow, would the existing base be profitable? Last, I'd check how long the cash lasts. With two years of runway they have time, as long as the trend is toward break-even. My hypothesis is that it's not a problem if payback is under two years and retention is above 100%, because then the loss is an investment. I'd start with customer cohorts. Can we see those?