One of the core functions of a business is to generate profit. Unprofitable businesses flounder or fail. Sometimes, they take their owners down with the ship. Since profit is critical to the success of your business, it follows that a responsible business owner will pay close attention to the profitability of their firm.
Business education backs this up: many business students are taught that the path to success is to figure out what’s profitable and squeeze it like a boa squeezing a rat. And while that approach can certainly make you money, that money comes at a cost.
Don’t choke on your golden eggs: there’s more to running a company than just profit.
Of course, profit is important, but while it is a business-critical concern, focusing on profit to the exclusion of other things is a huge mistake for your business.
Disney’s recent behavior is instructive. Disney has long been known as a brand that provided exceptional customer service. A trip to one of Disney’s theme parks or resorts was an astonishing experience. Customers noticed Disney’s attention to the customer experience and they loved it.
Recently, however, the equation has changed. Disney has been raising their prices while slashing the services it offers. Visitors will notice fewer performers, fewer perks, higher prices on food and goods, and more extraneous fees for things like parking. Disney is hugely profitable and is now making more money than ever. But this extreme profitability comes at a cost. Once-loyal customers are becoming disgusted with the brand. They know that profits are up, and they can tell that the quality and quantity of services offered are down.
Eventually, they’ll get tired of paying more for less and simply walk away.
Which Disney would you rather run: the fun, high-quality brand that made a healthy profit? Or the brand that’s gouging their customers to make record profits?
Disney’s current leaders, like wealthy and powerful people everywhere, seem to be fixated on profit.
Don’t Be Greedy
Saying that Disney’s leadership is fixated on profit is a fancy way of saying that they’ve gotten greedy. There’s a distinction between paying attention to your business’ financials so you can run a profitable operation and becoming fixated on profit as your single metric of success.
A good businessperson will always find ways to make their business profitable, but they’ll balance that against the need to provide competitive goods and services. It might be profitable for a hospital to, say, steal superfluous organs and sell them on the black market or provide unnecessary heart surgeries. Still, it would be seriously detrimental to other aspects of their business.
A businessperson who is fixated on profit is likely to fixate on short-term returns at the expense of long-term stability, cut corners by reducing the quality of their products or services, steal wages from employees, or otherwise engage in unethical behavior.
While the evil that spawns from greed might seem self-evident, many modern pundits go to great lengths to make greed seem like a good thing.
After all, greedy executives drive company profits to record highs, which translates to better market performance, which benefits shareholders – so even us little people benefit from greed, right?
Besides, our culture is built around consumerism, the drive to display wealth and success by flaunting material goods. Who doesn’t want to ride their private helicopter out to the yacht for dinner or take the Bentley around the neighborhood for a spin?
While there might be some compelling arguments in favor of greed, the fact is that it’s usually associated with unethical or illegal behaviors such as deception, theft, fraud, and corruption. It can motivate unethical behavior among your employees or even cause you to break ethical norms.
On a large enough scale, greed can drive behaviors that cause economic collapse.
Greed isn’t just bad for businesses. It’s also bad for human beings. It is associated with an inability to be satisfied and a constant need for more. This drives avaricious and antisocial behavior.
No entrepreneur wants to grow up to be the next Ken Lay, who has been unironically described as evil.
We don’t want our kids to become the next Bernie Madoff.
Tempting as the shiny things and dollar signs are, greed does not lead to favorable business results.
More importantly, greed is bad for our mental health.
Profit Fixation and Mental Health
I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains to learn the news. - John Muir
The human experience is about more than just making money.
Our existence is fragile, tenuous. We live on a thin line of biochemical reactions and environmental conditions.
Our heritage dates back to the first simians who climbed out of the trees, and before that to the first organisms struggling to survive. More recently, our ancestors took a more lackadaisical approach to working: no medieval peasant was voluntarily putting in overtime or spending twelve hours a day stressing about meetings and metrics.
From an evolutionary and historical perspective, the notion that living beings should exist to largely make a profit is fairly new. If you prefer a theological perspective, most major religions teach that a love of money is evil. Fixating on profits might tickle the primitive parts of our brain responsible for other aberrant behaviors, but for advanced organisms with big brains, focusing on money isn’t healthy.
First, fixating on profits is likely to lead to toxic work habits such as overworking. If your new startup is not making money, or is not making as much money as you like, you will likely feel motivated to put in long hours to find and fix the problem.
On the surface, this seems like a great idea: the solution to an unprofitable business obviously involves working harder to fix the business.
But overworking is bad for your mental health. It is associated with chronic fatigue, stress, anxiety, alcoholism and substance use, tobacco abuse, and depression. If your fixation on turning a profit is driving you to work harder, your “all-cause mortality” – medical speak for the likelihood of dying for any reason – is much higher.
Fixating on profit can lead to serious mental and physical health problems.
No Time For Fun, I'm Chasing Profits
Second, fixating on profits is likely to reduce the time you devote to leisure and recreation. We live in a very work-forward society. Americans say they value hard work, and many researchers have found that we prioritize work over leisure.
This is especially true for those who found companies and startups. Highly motivated self-starters tend to work extremely hard to achieve results, often at the expense of living a balanced lifestyle.
While we’ve been conditioned the believe that this is the natural order of things, we actually need leisure and recreation to be well-rounded human beings. Engaging in leisure activities reduces stress and anxiety.
When you become fixated on profits and allow the profit motive to consume your life, you’re not only endangering your health, you’re endangering your work performance. Taking time to do non-work-related things improves our job performance.
Sitting in your office running spreadsheets and analyzing expenses is a necessary task for any businessperson, but sacrificing personal time for profits is not a healthy or well-adjusted behavior – and it’s not even good for your business!
Jogging on the Hedonic Treadmill
Third, fixating on profits is a common entry point for people who find themselves trapped on the hedonic treadmill.
Chasing ever-higher profits is, to a large extent, a fool's errand.
When will enough be enough?
Fixating on profit eventually turns into fixating on whatever our reptilian brains tell us will feel good, which inevitably drives corrupt behavior.
Jeff Bezos’ fixation on self-enrichment and endlessly getting more arguably led to his affair and subsequent divorce. He might be able to buy a super-yacht, but he’ll never be able to make his wife love him again.
There’s more to life than profit.
Grinding away to extract more profit from your business without experiencing any real joy not only distorts your sense of morality and values, but it’s also a great way to experience burnout.
Contrary to popular belief, burnout isn’t just a bad attitude or a manifestation of laziness.
Burnout is a psychological collapse caused by mental exhaustion.
People struggling with burnout feel angrier and more lethargic.
They live in a mental fog, going through the motions while feeling completely disengaged from their tasks. The mental fatigue of burnout will spread to other areas of their life.
They may struggle in relationships or become seriously depressed.
Burnout is no joke.
Remember Why You’re Here
So, what should we do if we’re not supposed to fixate on profits?
Profit is obviously a motive for starting any business. None of us work for free. But unless you’re a soulless husk driven exclusively by the profit motive, you probably had other reasons for going into whatever sector you’re in.
Maybe you started that tech company because you love problem-solving and coding. Perhaps you opened that cafe because you adore the cafe ambiance and appreciate a fine coffee. Or maybe you started your independent trucking company because you’re a logistics geek who loves driving big rigs.
Whatever the case may be, your business’ origin story likely revolves around more than just a simple desire for profit: you probably have a deeper reason for running your business, one that drives you forward.
This is all well and good, but passion doesn’t pay the bills. The power company won’t take your genuine love for your startup as barter for electricity.
Your employees won’t work for a purpose unless a paycheck backs it up.
The trick is to realize that purpose drives profit. When you’re following your purpose, engaging with a meaningful reason to work, and moving toward doing something that you find personally fulfilling, profit will follow you. Rather than working hard to make money, work hard because you love what you do. The money will come eventually.
Frame It Right
The way you frame a problem defines how you’ll solve it. If your business problem is defined as “not profitable enough,” your natural impulse is going to be to examine your financials to find opportunities to increase profits. That might translate to firing employees, using cheaper materials, reducing service quality, or otherwise engaging in destructive corner-cutting to eke out a few more cents.
To be sure, business analysis is a valuable tool, and any responsible business person is going to pay close attention to their expenses and revenues. But running a business is about more than just profits and revenues.
Frame the problem as one of purpose: are our business processes aligned with our core purpose? Is what we’re doing really aligned with our mission?
How is that misalignment affecting our profitability?
Remember Your Purpose
Success as an entrepreneur stems from finding a sense of purpose in your work and following it to the ends of the earth, not from relentlessly chasing profitability. Yes, your business needs to make money, but don’t let making money become the entire reason your business exists. Y
our business’ purpose should be described in your company’s mission statement. It is cliche advice right out of Business 101, but the fact is that a good mission statement can provide guidance when making operational decisions.
Unless your mission statement is “We will make as much money as humanly possible by any means necessary,” you will have things other than profit to guide your actions. Following your passion will bring you results.
Focusing on the why behind your what is an essential instrument in the entrepreneur’s toolkit.
Fixating on profit will suck the joy out of your business and your life, but bringing your love for what you do to your work will help you enjoy a sense of personal fulfillment and joy – and profit will eventually follow.