5 Reasons why Profits Should Not define a Company
Aug 22, 2017
In an age where firms are increasingly delving into previously uncharted waters, upon the surface, every business still continues to be birthed for the sake of achieving one, singular ambition - turning profitable.
But, of course, more substance exists to a business than what might seem like its primary goal to the layman, and here are 5 reasons to explain why the presence of profits neither moulds a firm's present trajectory, nor shape it's future.
Re-investment - Re-investment has, over the years, donned the garb of a shrewd financial tool for those willing to bide their time, even if they're, in fact, sitting upon a potent gold-mine.
Companies have innumerable times in the past displayed their unwillingness to actualize potential profits for the sake of re-investment and, thereby, facilitate the creation of a better product and service to couple it with.
Be it the myriad of re-investment options available to procure for public investment schemes such as mutual funds or the corporate behemoths with their eye on rapid expansion and capturing market share, the phenomenon remains the reason why firms in the 21st century might "choose" to be devoid of profits.
It's also re-investment that sheds light on the misguided perception most hold of the term "profit" itself, for it exists merely upon a balance sheet and it's marked absence from the same doesn't spell a revenue-generation disaster for the firm - just that it chooses to be prudent with the sum it turns over.
Philanthropy - Charity boils down simply to parting with one's resources and, as a by-product, only suited for those who have them.
20 of Fortune magazine's top 500 companies donated a combined 3.5 billion dollars in cash alone through the course of the year 2015, while the network of donations in the form of aid materials and the like remain entirely unaccounted for, meaning that the figure could be vastly above the mentioned one.
Humanitarian projects launched in the past decade have, more often than not, possessed corporate or financial backing to spur them forward and that the companies mentioned above are only a few of those today partnering on a regular basis with renowned aid organizations, most prominently Red Cross, has developed to become something of a norm.
Pricing - In theory, the price of a product often relies upon either the fluctuations witnessed in a particular market, or how easily the materials necessary to create it are procured, if the product in question is indeed a physical asset.
The recent imposition of the Goods and Services Tax (GST) brought forth a panoply of companies in it's lead-up that were able and willing to slash prices in half for products that would then fail to sell even in the near future due the greater price tag they would don as a result of having incurred the infant tax.
Such external factors are responsible for adverse pricing changes on a consistent basis, though the phenomenon can often also stem from within a firm's framework, all for capturing the sacred "profit" everyone desires.
This requires us to discuss why profits SHOULDN'T be the primary goal of a firm, for it's a guiding philosophy which pales in comparison to facets such as growth.
Any company exists to deliver a satisfactory product to consumers, which, along with the service it grants through mediums such as customer support, in turn establish the brand loyalty that continues to forge billion-dollar corporations even in the field of technology, the meteoric growth of e-retailers bearing ample testimony. But all that the company strives to establish with its customers through the above can swiftly be brought crashing down simply due the hunt for profits - and increasing prices in the name of achieving the same.
Firms today opt for the much more prudent, highly patient scheme of the above mentioned re-investment, with a foundation philosophy for many being that while unrealized profits can be actualised at any time, a market share can be lost without a concerted effort toward the same, and working toward capturing it remains the greatest goal, even if it means sacrificing available margins.
Potential - Increasingly, it's not the mere profitability of a firm that lures investors anymore, but rather their potential to further build upon existing revenue streams and, thus, net more profits in the distant future, no matter how far down the line it may be, a reason why the absence of profits doesn't necessarily present itself as a nail in any company's coffin.
Therefore, potential, both of growth and profits, is essential to any firm, even more than simply actualizing the latter. India's very own e-commerce sector thrives upon the potential it possesses, with analysts having time and again employed the phrase "scratching the surface" to describe its current scenario, thus pinning hopes for the industry's greater future upon the Indian population's increasing digitalisation. Undoubtedly, irrational optimism isn't a viable option either, best displayed by the billions that were poured into the American IT sector during the late 90's, later crashing through the infamous "dot-com bubble" and wiping off trillions from the stock markets, dealing a greater loss than the initial, uneducated investment itself.
Another facet of potential, and indeed the most important one for a majority of firms, is that it attracts private investment, the lifeline for companies that don't have profits not because of prudent re-investments, but due their lack of revenue in the first place. Of course, it goes without saying that even profitable ventures sometimes require further investment rounds to aid expansion and, not to forget, are often established because of private backing they receive due their product's potential even from the onset.
Employment - Although achieving margins on production might comfortably sit atop the priority list of each and every firm in existence, businesses often provide an invaluable boon to a nation's economy that even governments acquiesce toward and encourage - the provision of jobs.
According to the Reserve Bank of India (RBI), almost 3% of the Indian workforce is currently employed by the formal, organised private sector of the economy.
Prime Minister Narendra Modi's plea for global firms with an established presence in the Indian market to step forward and encourage native production through the Make in India initiative was a testament to the dire need for employment in our nation, and is something that only a rising private sector can facilitate both here and around the world over.
The process initiated by 1991's fabled economic liberalization continues to stamp its ripple effects upon the Indian economy's growth, but has certainly helped the government and its policies steer toward a financial landscape reliant on the private sector, thereby bequeathing them with purpose more than just their own.
Thus, now more than ever before, there exists abundant clarity that a business can be established for more than just being profitable and minting cash, but perhaps even serve the functioning of the particular society it thrives within.