While many startup enterprises begin unprofitable, an enterprise that does not eventually become profitable will find it difficult to grow and impossible to attract investors. As obvious as this is, seeking profitability is often deemed an amoral if not in fact an immoral pursuit. It is claimed money is the root of all evil in general and thus profits in business are in particular. Greed is claimed to motivate entrepreneurs who seek to maximize profits, with minimizing profits to maximize benefits to meet the needs of society being more virtuous. But why?
“So you think that money is the root of all evil? . . . Have you ever asked what is the root of money?”
Ayn Rand
The rational argument in defense of profits begins with properly defining profit. Profit is the net difference between the entrepreneur’s cost to produce their product and the price customers are willing to pay for it. Note, I did not say the difference between the entrepreneur’s cost to produce a product and the price they seek to sell it for. The latter is what an entrepreneur hopes will be their profits. The former is what profit they will actually achieve. While an entrepreneur is in control of what it costs them to produce a product they are not in control of what a customer is willing to pay for it. While they may seek a price they are willing to sell their product for, no sales and thereby no profit arises from products priced at a level customers aren’t willing to pay. The profit equation has only two variables, the cost for the entrepreneur to produce it and the price customers are willing to pay for it. Profit is the difference between the two. Customers determine profitability, not the entrepreneur.
Ultimately this means the only variable the entrepreneur has real control over is the cost to produce something of sufficient value a customer is willing to pay. Their only means for doing so is by applying their creative skills to produce something better, cheaper, faster or better yet different, that is of sufficient value to their customer they are willing to purchase it. Being creative, innovative and productive are virtues we should admire in entrepreneurs capable of achieving them? Do not their streams of continuous achievements continuously improve our lives? What incentive would there be for an entrepreneur to strive to innovate products if they did not benefit from it? Profit generated through productive achievement is a virtue not a vice.
.“Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them.”
Ayn Rand
The next argument in defense of profitability is based on the reality that virtually nothing we require for human flourishing falls from the sky free of charge. Everything that is produced must be produced by someone. By virtue of the fact some entrepreneur has produced something of value, it belongs to them. No one has a claim on what they have produced without their voluntary agreement to exchange it for something they value in return, purchasing their product. Whatever profit an entrepreneur achieves through this voluntary exchange, be it large or small, is theirs and theirs alone. It is not greed that drives an entrepreneur’s desire to maximize profits, nor need that motivates them to minimize it. No man’s need is a claim on another man’s wealth, no matter how great the need nor how great the wealth. For an Objectivist entrepreneur, profit is simply a measure of their productive achievement; delivering maximum value at the lowest production cost to maximize profitability.
“I have never understood why it’s “greed” to want to keep the money you have earned but not greed to want to take somebody else’s money.”
Thomas Sowell