Deeply Flawed Perspective on Business18 Jun 2008
[The entrepreneur] is dedicated to one mission in his business life – to maximize profit.
There’s a quote from a noted philanthropist that pretty much sums up my opinion on this matter:
That’s the stupidest thing I have ever heard.
– Bill Gates
Take, for example, the woman profiled in the New York Times last week, who has been running her start-up bakery at a loss for a year, and is hoping, sometime in the next year, to start paying herself a salary! This woman has been feeding the people of West Acton, Mass. subsidized baked goods for twelve months, working for free, and plans to keep it up – I’m guessing that profit maximization is probably not her primary motivation. I’m guessing that it is, let me see, that she really like baking things?!?
People who haven’t run a business tend to get all worked up about “profit”, but bear in mind that for fortunate businesses profit is 20-30% of revenue, and for most businesses it is less than 10%. That leaves the other 90% of the revenue that has to be tracked down, brought in the door, and worked, just to keep the doors open. Proportionate to the profits earned, most business are basically break-even affairs.
My revised, more accurate, formulation of Yunus’ axiom is that “the entrepreneur is dedicated to one mission in his business life – to cover his costs. Everything after that is gravy.” Most entrepreneurs go home happy knowing they’ve kept the doors open for another day, doing something that they (at least when they started) enjoy.