Why Growth Rate Matters More Than Profit for Some Buyers
For most founders, profitability feels like the ultimate validation. It’s tangible. It’s responsible. It’s proof that the business works. So when a buyer starts asking more questions about growth rate than profit margin, it can feel backward—almost reckless.
But in many M&A scenarios, especially in certain industries and at certain stages, growth does matter more than profit. Not always. Not universally. And not without tradeoffs. But understanding why some buyers prioritize growth—and when that mindset applies—is critical if you want to position your company correctly and avoid misreading buyer signals.
In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I talk about valuation as a function of perceived future value, not just current performance. And if you’ve listened to the Legacy Advisors Podcast, you’ve heard Ed and me explain that buyers aren’t all solving for the same equation. Some are buying earnings. Others are buying momentum. The mistake founders make is assuming those equations are interchangeable.
They aren’t.
The Core Tension: Stability vs. Trajectory
Profitability answers one question very well: Is this business sustainable today?
Growth answers a different question: What could this business become tomorrow?
Some buyers—particularly financial buyers in mature industries—prioritize stability. They want predictable cash flow, margin discipline, and downside protection. For them, profit is king.
Other buyers—especially strategics and growth-oriented investors—are trying to solve a different problem. They’re asking:
- How fast can this scale?
- How big could this get inside our platform?
- What happens if we apply resources the founder didn’t have?
- What’s the opportunity cost of waiting or building internally?
In those scenarios, growth rate becomes a proxy for future dominance, not present efficiency.
Why Growth Can Signal More Than Profit
Profitability can be engineered in the short term. Growth is harder to fake.
Buyers often view strong, consistent growth as evidence of:
- Product-market fit
- Market demand
- Competitive advantage
- Customer willingness to pay
- Expansion potential
A business growing 40% year-over-year with modest profit may be far more interesting than a flat, highly profitable business—depending on the buyer’s goals.
That doesn’t mean profit doesn’t matter. It means profit isn’t always the primary signal buyers are optimizing for.
The Buyer Perspective: What Growth Unlocks
When buyers prioritize growth, they’re often thinking several moves ahead.
For strategic buyers, growth can mean:
- Faster entry into new markets
- Immediate scale they couldn’t build internally
- Revenue acceleration across an existing customer base
- Defensive positioning against competitors
For certain financial buyers, growth can mean:
- Multiple expansion at exit
- Platform-building opportunities
- Add-on acquisition leverage
- Equity value creation beyond cash flow
In both cases, buyers may be willing to accept lower current profitability if they believe growth can be sustained—and made more profitable later with scale, systems, or capital.
Industries Where Growth Often Trumps Profit
This dynamic is especially common in:
- SaaS and subscription businesses
- Technology-enabled services
- Marketplaces and platforms
- Media and content businesses
- Consumer brands with momentum
- Data-driven businesses
In these models, early profitability may actually limit growth if it comes from under-investment in sales, product, or expansion. Buyers familiar with these industries understand that tradeoff and often prefer to see controlled losses or modest profits paired with strong growth.
In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I caution founders not to optimize blindly for EBITDA if it starves the business of momentum that buyers actually value.
Growth as a Leading Indicator of Future Profit
One reason buyers sometimes discount current profit is because profit can lag growth.
Growth drives:
- Operating leverage
- Brand awareness
- Market share
- Customer lifetime value
- Pricing power over time
Buyers who believe those dynamics are in place may see today’s margin profile as temporary. They’re underwriting what the business could look like at scale—not what it looks like in its current form.
That belief isn’t naive—but it is conditional. Buyers must believe growth is:
- Real
- Repeatable
- Efficient
- Sustainable
- Defensible
Without those characteristics, growth becomes a liability, not an asset.
When Growth Hurts Valuation
Here’s where founders often get tripped up: not all growth is good growth.
Buyers discount growth when it is:
- Highly volatile
- Recently accelerated without history
- Dependent on unsustainable spend
- Driven by a single customer or channel
- Founder-led without systems
- Margin-destructive without a path to leverage
I’ve seen founders grow revenue aggressively only to see valuation compress because buyers viewed that growth as fragile or risky.
On the Legacy Advisors Podcast, Ed and I often say that buyers don’t pay for speed alone—they pay for control at speed.
Profitability Still Matters—Just Differently
Even when buyers prioritize growth, profitability doesn’t disappear. It changes roles.
Profit becomes:
- A proof point of unit economics
- A signal of discipline
- A backstop against downside
- A lever that can be pulled later
Buyers want to know that profit can be generated—even if it isn’t maximized today. A business that grows quickly but loses money without understanding why is very different from one that grows quickly by choice.
The best-positioned companies can explain:
- Where profit is being reinvested
- Why margins look the way they do
- How profit would scale under different assumptions
That explanation matters more than the absolute margin percentage.
Founder Intentions Matter More Than Founders Realize
Buyers pay close attention to why a business isn’t more profitable.
Is it because:
- The founder chose to reinvest?
- The market is still forming?
- Scale hasn’t been reached yet?
- Systems are still maturing?
Or is it because:
- Pricing power is weak?
- Costs are uncontrolled?
- The model doesn’t scale?
- Competition is intense?
Two companies with identical margins can be valued very differently based on those answers.
In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I emphasize that buyers don’t just analyze numbers—they interpret intent.
Growth and Buyer Type
Growth-heavy valuation dynamics often correlate strongly with buyer type.
Strategic buyers are more likely to prioritize growth when:
- The acquisition accelerates their roadmap
- They can monetize growth more effectively
- They already have scale to absorb costs
- Speed matters more than efficiency
Certain financial buyers—particularly growth equity or platform-focused private equity—may also prioritize growth, especially when:
- Exit multiples reward scale
- Add-on strategies are viable
- Market leadership matters
Traditional cash-flow-focused buyers, by contrast, will prioritize profit almost every time.
Understanding which buyers you’re likely to attract—and optimizing for the wrong metric—is a common and costly mistake.
The Risk of Chasing Growth Too Late
One of the most dangerous moves founders make is trying to “turn on growth” right before going to market.
Buyers are skeptical of:
- Sudden accelerations without history
- Short-term growth driven by unsustainable spend
- Late-stage pivots meant to boost optics
Growth is most valuable when it’s consistent and observable over time. Buyers want to see patterns, not spikes.
If you want growth to matter more than profit, it needs to be earned well before you’re ready to sell.
The Role of Narrative in Growth-Driven Valuation
When growth matters more than profit, narrative becomes even more important.
Founders must clearly articulate:
- Why growth is prioritized
- How growth is achieved
- Where growth leads
- What risks exist
- How profitability scales later
This isn’t spin—it’s explanation. Buyers want to know they’re buying a trajectory, not just a trend.
On the Legacy Advisors Podcast, we often see deals fall apart not because growth was weak, but because founders couldn’t explain it convincingly.
How Buyers Reconcile Growth and Profit
Sophisticated buyers don’t choose growth or profit—they reconcile them.
They ask:
- What’s the tradeoff?
- Is it intentional?
- Is it reversible?
- Is it defensible?
- Does it align with our strategy?
When founders can answer those questions clearly, valuation conversations become far more productive.
When they can’t, buyers default to caution.
Preparing Your Business for Growth-Oriented Buyers
If you believe growth is a key driver of your company’s value, preparation matters.
That includes:
- Clean, segmented financials
- Clear unit economics
- Documented growth drivers
- Repeatable acquisition channels
- Leadership depth beyond the founder
- A credible path to margin expansion
Growth without discipline scares buyers. Growth with clarity attracts them.
At Legacy Advisors, this is where much of the real work happens—helping founders align growth narratives with buyer logic long before valuation is negotiated.
The Founder’s Mental Shift
Perhaps the hardest shift for founders is letting go of the idea that there’s a single “right” metric.
Some buyers value profit first.
Some value growth first.
Most value confidence first.
Confidence comes from understanding your own business deeply—and knowing which buyers are most likely to value what you’ve built.
In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I stress that exits aren’t about pleasing all buyers. They’re about attracting the right ones.
Final Thought: Growth Is a Bet—Make Sure It’s a Good One
When buyers prioritize growth over profit, they’re placing a bet on the future. They’re saying, “We believe this business can become more valuable than it is today.”
Your job as a founder is to make that bet feel informed, not speculative.
Growth matters more than profit only when:
- It’s real
- It’s repeatable
- It’s intentional
- It’s defensible
- It leads somewhere
When those conditions exist, growth doesn’t replace profit—it postpones it in service of something larger.
And when buyers believe that story, valuation follows.
Find the Right Partner to Help Sell Your Business
Understanding when growth drives value—and when it undermines it—requires perspective and experience. If you want help positioning your business for the buyers who value what you’ve built, Legacy Advisors can help you navigate that decision with clarity and confidence.
Frequently Asked Questions About Growth vs. Profit in Valuation
1. Why would a buyer value growth more than profitability in an acquisition?
Buyers prioritize growth when they believe it signals future dominance rather than current efficiency. Strong, consistent growth often indicates product-market fit, customer demand, and expansion potential that can be amplified with additional capital, systems, or distribution. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I explain that buyers don’t just buy today’s earnings—they buy confidence in tomorrow’s outcomes. On the Legacy Advisors Podcast, Ed and I often discuss how growth becomes a proxy for opportunity when buyers can see a clear path to scaling profitably later. In those scenarios, near-term margins matter less than long-term trajectory.
2. Does prioritizing growth over profit always lead to a higher valuation?
No—and this is where founders get into trouble. Growth only increases valuation when it’s perceived as sustainable, repeatable, and efficient. Buyers discount growth that’s volatile, founder-dependent, margin-destructive, or driven by unsustainable spend. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I stress that growth without discipline increases risk, which compresses valuation. On the Legacy Advisors Podcast, we regularly see buyers penalize companies that chase growth late or can’t explain unit economics. Growth helps valuation only when buyers believe it leads to stronger future profitability—not when it obscures weaknesses.
3. How do buyers assess whether growth is “good” growth?
Buyers look beneath the headline rate. They evaluate customer acquisition costs, retention, cohort behavior, channel diversification, and the systems supporting growth. They want to know if growth is repeatable without heroic effort from the founder. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I emphasize that buyers value control at speed, not speed alone. On the Legacy Advisors Podcast, Ed and I often explain that good growth reduces uncertainty over time. If growth requires increasing risk or complexity without clear leverage, buyers will discount it—even if the top line looks impressive.
4. Should founders sacrifice profitability to boost growth before selling?
Only with intention—and well in advance. Buyers are skeptical of sudden growth pushes designed to improve optics right before a sale. If profitability is sacrificed, founders must clearly explain why, how long it will last, and how margins can be restored. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I caution against reactive decisions made for valuation theater. On the Legacy Advisors Podcast, we’ve seen founders hurt outcomes by chasing growth too late. Growth is most valuable when it’s earned consistently over time, not manufactured for a process.
5. How should founders decide whether to emphasize growth or profit when preparing for an exit?
The answer depends on buyer type, industry, and personal goals. Strategic buyers and growth-oriented investors may value momentum more than margins, while traditional financial buyers prioritize cash flow and predictability. Founders should align metrics with the buyers most likely to value their business—not with abstract ideals. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I emphasize that exits aren’t about optimizing for everyone; they’re about attracting the right buyer. If you want help making that decision based on real buyer behavior, Legacy Advisors can help you suggestively position growth and profit in a way that maximizes outcomes.