GO BEYOND THE BOTTOM LINE
Manilka Ediriweera asks if a singular focus on profitability limits growth
Does the old philosophy or traditional approach to business of maximising profits still apply in today’s landscape? Many believe the sole purpose of a business is to make money and the ultimate goal of any enterprise is profit maximisation. But do corporate entities now have newer purposes other than earning profits?
Think of brands such as Pinterest, Snap, Airbnb and Uber. All of these have a common denominator where none of them are profitable. Strange, isn’t it?
Surprising as it may seem, this shows that a business’ sole focus need not be to make a profit and that its success doesn’t depend on this. Those businesses may lose millions every quarter but their growth potential keeps them in business.
And this potential is of more value and importance than high profit margins. Unbelievably, Amazon didn’t show a profit for an extended period – until after it had been a decade in the industry.
Bringing more money into your business and achieving profitability may make you feel good but it doesn’t necessarily mean your business is experiencing meaningful growth. So it makes sense to rule out profitability as the sole factor indicating meaningful growth.
However, this doesn’t mean that profit and its maximisation isn’t necessary. Irrespective of the type of business, or whether it’s for profit or a nonprofit, all business organisations must strive to achieve profitability. But profit needn’t be the sole or primary purpose of a business.
Profit is essential for enterprises in the same way oxygen is needed by living beings. In the current context and with the rapid advancement of technology, businesses need to invest in developing and adopting technology. Therefore, making a profit and possessing long-term profitability is important.
But in the event you make it the purpose of your business, it may lead to a lack of consideration of other elements required for the success of your business. And it can also result in competitors with different foci seizing your market.
Therefore, if a business’ purpose is not simply to maximise profits, what should it be? In a nontraditional approach, the purpose of doing business is to effect change and disrupt an industry, promote social change, and satisfy and delight not only customers but all stakeholders of the entity, as well as create a legacy for future generations.
By now, it’s clear that the goal of your business shouldn’t be profit. Here are some of the aspects your organisation should focus on instead.
Focussing on a growth culture is important because it’s the framework that’s needed to drive any business forward. It propels all operations, projects and initiatives of enterprises. Even in the case of the brands mentioned above, they’re operating even today (despite not being profitable) because growth is in the DNA of their business.
The reasons such brands aren’t making profits could be due to several factors. Perhaps they prioritise growth over profitability. Or they may be reinvesting their earnings to keep growing the business. It could be they’re focussed on providing a new offering to the market or doing so at a competitive price point. And what’s even better is that growth focussed businesses have proven to attract some of the best talent.
If an organisation’s focus on growth attracts the best talent out there, its next responsibility is to ensure that all employees are satisfied. Therefore, workers must feel they are valued, and should be given the right tools and opportunities to do their jobs.
When this happens, the time and effort they put into their work exceed what’s expected. This will lead to a highly satisfactory performance and make the business successful while increasing your profits.
However, let’s say your focus is making a profit and not employee satisfaction. In such instances, decisions could adversely affect your employees and their satisfaction with the organisation.
Focussing on improving products and services is an area that businesses can focus on. If you wish to increase revenue, improving your product or service offerings is one way you can do so. Why? Because by providing a superior offering, your clients are bound to build the business for you by becoming repeat customers and spreading the word.
Regardless of whether you’re focussed on growth or revenue, it is essential to balance and incorporate all the aforementioned information into the culture and operations of your business. So it’s necessary to have a clear idea of what your organisation’s goals are and communicate the same to everyone while providing required resources for success.
Rapid growth and achieving a high level of profitability are no easy tasks; but if you find the right balance, that will lead to success.