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The Paradox of Profit

The Purpose of Business is not Profit. It is to Create Value.

There is an interesting parallel between sports and business. The purpose of competition in sports is not to win, it is to reach your highest potential. And like in sports, the purpose of a business  is not "winning" in terms of profit or shareholder value. It is to reach its full potential and "Create Value".

Apple did not become the world's largest company in terms of market capitalization by setting that as their primary goal. Steve Jobs and Apple sought to ‘Think Different’ and ‘To make a contribution to the world by making tools for the mind that advance humankind.’  In fact Apple did not pay dividend from 1995 to 2012. They started paying dividend again a year after Steve Jobs died.

When profit becomes the most important reason for existence, a business will lose value and ultimately profitability. While executive compensations explode, employees and customers of such companies will become disinterested and turn away. Jack Welch, the former CEO of General Electric, spoke about this after the 2008 financial crisis: 

On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company. - Jack Welch

So just like in sports, a company needs to find its purpose, a way to create a valuable and authentic contribution to the world first. The rewards are a result of how markets value this contribution. The paradox is that when you focus on profit in a self-centered way, it dissipates. When you focus on  purpose in a selfless way, it creates more value and profit than paradoxically otherwise.

For a deeper understanding of value and purpose, please read my analysis of the success of Apple: 

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