So My Dear Watson, which one would you pick ?
Why debates like 'High Growth vs. High Gross Margin' sound smart, but end up distorting the way we build and back businesses.
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Am experimenting with the medium, subject matter and the length of the work. I want you to reap the most value per minute, this piece is a little out of my regular writing style. Let me know your thoughts :)
We always have a choice.
To be intellectually curious, or to blindly follow age-old advice dressed up as wisdom.
I was reminded of this recently while observing a debate in the startup ecosystem:
Should investors back high-growth companies, or high gross margin companies?
It was a polarizing conversation, with seasoned voices from both camps weighing in with strong rationale. Some argued that growth at all costs is what attracts capital. Others insisted that high gross margins are the true indicator of long-term sustainability.
And yet, I couldn’t shake off a deeper discomfort with the debate itself.
The Real Danger: Binary Thinking
When we reduce complex business decisions to a one-or-the-other framework, we do something dangerous:
We encourage founders to reverse engineer their startups just to fit popular investor theses.
Businesses stop being built for value and start being built for validation.
They prioritize users over usage.
They follow growth metrics over fundamentals.
The result? Startups that raise headlines, not health.
Let’s Talk About High Growth
Yes, high growth is exciting. Keeping all things constant, it suggests traction, market demand, and promise.
But growth is not magic, it’s a function of headroom.
The larger the untapped market, the more room there is to grow.
But here’s where things get tricky:
All things are never constant.
Headroom invites competitors.
As the market matures, competition intensifies.
Margins get squeezed. CAC rises. Differentiation becomes harder.
In short: past growth, even with headroom, is no guarantee of future dominance.
So, What About Gross Margins?
Gross margins offer something different, a look into the business's financial engine.
A business with healthy gross margins can, in theory, fund its own future. It doesn't need to rely endlessly on external capital to scale.
It sounds safe. It feels prudent.
But even this can mislead.
Working capital inefficiencies can quietly erode those attractive margins.
Leverage-fueled growth decisions can drain the ability to reinvest profits organically.
So even a margin-rich company can be fragile, just in different ways.
The Real Equation: Growth + Margins + Judgment
No single metric will ever capture the full reality of a business.
To evaluate a company properly, we need a layered view:
Historical performance (What has this business done?)
Future headroom (Where can it go?)
Competitive dynamics (Who else is playing?)
Margin sustainability (Can it fund itself?)
Capital discipline (Is it growing wisely?)
Only then can investors get close to answering:
What’s the likely outcome of backing this company?
So My Dear Watson, which one would you pick ?
If you’re a founder:
Don’t fall for these binary narratives.
Yes, listen to the noise, it’s FREE.
But then, zoom out.
Build for value. Build for usage.
If you’re an investor:
Let’s move beyond the poles.
Our job is to underwrite long-term value, not short-term sentiment.
We have a fiduciary duty to allocate capital where it’s most likely to create durable returns. Debates like these are fun. But unless we zoom out and see the full picture, they risk making us all [founders and investors alike] worse at our jobs.
The takeaway?
Don’t pick sides. Pick sense.
For the 20 of you who subscribed, thank you.
And for the everyone,
If you’ve read till here, thank you. You’re incredibly patient and kind. I mean it, I’m experimenting currently, with the medium, the format and the length. Honestly, I wish there was an easier way to do this. I’ll let you know when I reach there.
I’ve tried to keep this mobile friendly, let me know how it goes if you’re reading from the small screen.
Curiosity guides me and I continue to follow the light, as dim as it may be. So please, feel free to write to me and let me know how I can improve this further. You can reach me at rajamruth06@gmail.com
Thanks for staying with me on this, until next time :)