How do companies which haven’t turned a profit continue to operate despite losses?

What makes people correlate “profit” with success??

Profit is an excess of revenue greater than costs. And that profit gets taxed; sent to the government.

Companies rarely have cause to profit. Maybe if they need to save money for something OR because public share holders expect profit, and something like dividend payments, then sure… profit.

And yes, “profit” is a concept that drives businesses because it pressures the team to reduce costs and increase revenue. But that doesn’t mean they must nor should profit, it’s a driving force.

Think of the word capitalism, for example. Capitalism, “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.”

That doesn’t mean literally only to make the most money possible while eliminating costs. It doesn’t mean profit in the $$$ sense of the word. It means profit as in, “as preferred in the best interest of the owners.”

Companies, and investors, operate for a host of reasons beyond profit. Primarily, it’s to create “shareholder value.”

Shareholder value means the ownership in the company is worth something of greater value than invested.

If I put $1 into a company and I can get $3 back… I don’t care at all if the company is profitable.

How is that possible??

Value is determine by other buyers of those assets.

And there are lots of ways that people (and other companies) value assets:

  1. Patents
  2. Market share
  3. Brand
  4. Employees
  5. Customers

To name a few.

Companies (and startups) have such things.

They’re reinvesting revenue in the company. They’re choosing to allow costs to exceed revenue, as they build more, hire, invent, or promote. They’re creating more value.

Consider, even just paying your people more, or paying yourself more, eliminates “profit.” Having profit when you could (and should) just paying yourself better is silly.

This is, by the way, the very definition of what a “startup” is and does. A “startup,” distinct from a new business, is purposefully spending more than it can make; startups don’t profit. New businesses can and should profit, they know their model, don’t have much need to invest in something… they just do what similar businesses do and make money respective of known costs.

Companies don’t need to profit.

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