????Both companies look the exact same after one year. They both raised angel / seed money of $1.5 million to fund operations in their first year of operations. Both companies lost $1 million in their first year.
????Gross margins at 66% is fine (they're selling through a reseller who takes a 33% margin) but their sales aren't yet large enough to cover the costs of their IT development team + management + marketing + office costs, etc. In many Internet startups 80% of the operating costs will be people.
????So which company is better run?
????The answer is that you have no way of knowing. A naive journalist might lament the fact that Company B is "not profitable" or is being a typical Internet startup and not worried about costs. After all, it doubled their operating costs when it wasn't even profitable.
????What did it actually do? It raised $5 million in venture capital to fund growth. It used the money to hire a bigger tech team so it could roll out its second product line. It hired a marketing team to promote its products more broadly. It hired a biz dev team to work on deals where its product could be embedded in other people's products as a way to increase customer demand. It got a bigger office space so its employees would feel comfortable and it could improve employee retention.
????If there was strong market demand for their product then this investment might pay off handsomely.
