You can often hear from leftists that profits are directly proportional to the exploitation of workers. The more profitable a business is, the more exploitation is present. They say it indicates how employers get richer by exploiting the "working class". Only those who have never started anything more than a Michael Moore movie can see the entrepreneurship that way. Starting a company and getting it through all the challenges of the market itself takes more sacrifice, dedication, effort, experience gaining and above all - making mistakes - than today's "workers" can imagine. When I say making mistakes, I primarily mean losing your own money, time and nerves, which for some reason they don't see when they look at a successful company.
Having a business is not what you see on TV
When you start a company, it's extremely easy to get lost in all the work you need to do. After all, that's one of the main reason why so many businesses fail. In fact, 8 out of 10 businesses fail within the first 18 months of existence. You don't really have an idea how hard it is until you get it started.
The part of why people think it's so damn easy is that they see various successful entrepreneurs on TV and media never cares about the other side of their story. Even when people do get super rich that guarantees nothing.
“A 2003 Treasury study of the top 400 income earners from 1992 to 2000 found similar individual mobility between income categories, including "the rich" migrating downward (thus dropping out of the top 400), rather than forming a permanent overclass. Over those years, thousands of different people made it into the top 400, with less than one in seven in that category more than twice, and less than one in four in it more than once.”
― The Rich Aren't Dispossessing the Rest, Mises.org
That is why it fascinating to watch how leftists are trying exclude entrepreneurs from this famous working class. In their colorful world full of unicorns, to run a company is equal to: I'm going to run a business, others will work for me, and I'll sit there and collect profits. I repeat, the only person who can say that is the one who is unable to even think about starting a business, the one who justifies his incompetence by yelling at anyone who is more successful. I wish they were smart enough to start their own business and prove that's enough to "exploit" workers. They would never even get to the point to employing someone. Preferably, I'd like them to be profitable, because otherwise, their business will not last long enough to make them rich while someone else is working. But wait, how does profit determine whether a business is successful enough to employ additional people?
The real goal of every business is not getting super rich
One could argue that the goal of a business is to make as much money as possible. Someone else could jump in and say it has a lot with beating competition. Someone who has just started a company sets his or her goal on simply surviving. Some big names like Peter Thiel would argue the goal of every business is to have monopoly in whatever it is that it does. Austrian school economists know precisely that what Thiel calls a monopoly is not a true monopoly.
“Monopoly is the condition of every successful business.”
― Peter Thiel, Zero to One: Notes on Startups, or How to Build the Future
They all might be right, but it's still looking at a business from a me-perspective. To make things more general, we have to think of something else. And a great example of that can be found in many business books, but it always get ignored because entrepreneurs think it's a far future. One of the more recent places I've read it in was:
“When starting a business it's important to think clearly and plan for how you will exit.”
― Allan Dib, The 1-Page Marketing Plan
The ultimate goal of every business is turning it into a system such that it could survive even if you fire yourself. Every other reason above makes the case for the ultimate goal. All those other reasons are not enough for business to ultimately become successful.
What is the real meaning of profits?
As you can imagine, it's not easy to reach the point where your business can survive without yourself. Profits play a great role. You can look at making a profit as business equivalent of being alive. One of the simplest ways to put it is:
“Profit, then, is simply the difference between the consumption and production of a living thing— be it human, business, or animal. All living things must be profitable.
We survive unprofitable periods by the surplus profit created during profitable periods.”
― Taylor Pearson, The End of Jobs: Money, Meaning and Freedom Without the 9-to-5
Profit is the most accurate indicator how achievable, useful, needed and successful anything is. People often forget about its property that basically describes the future usage, when company might not be as successful. The same can be said even when you look at the NGOs that are dependent on donations (except when the government donates, then you can't really tell). Even the profit itself is not really the best indicator, there are many additional factors that try to predict and analyze profitability. Things like client retention rate, receivables, cash flow, growth trends, etc. But in the end, if you're not profitable, you die.
One who starts a company takes the biggest risk. The risk is result of uncertainty, and the price you pay for it can be expressed in two ways:
- Money
- Time
People often think having a company is all about the money. It's definitely not the case. What an entrepreneur loses if he or she fails is much more valuable. I'm talking about the time spent on the business. Money is everywhere around you, even if you fail as an entrepreneur you can go back and try it again. The thing about time is, well, it passes. You lose it forever. A smart entrepreneur could take advantage and learn from the mistakes he or she made, but that's about it. When you lose time you don't get it back.
In the case of money, if an entrepreneur takes too much money from the company, he makes the risk much more dangerous. He is the one who needs to honor all the contracts he agreed to. He needs to be able to control directly or indirectly how the company grows to keep it alive.
Leftists care only about the money
This has always been bugging me. For some reason leftists think all the things an entrepreneur does can be done without him or her. They forget that a recipe for being an entrepreneur doesn't exist. Every situation requires new and different actions. Experience helps, but it can be extremely hard to create something from nothing. Human life is uncertain, business life is more.
To get to the ultimate goal, an entrepreneur has to employ and often mentor the people who he thinks have the abilities the company needs. The more valuable the person skill is, the more money the person gets. You don't need to be a saint to do that, it's the result of achieving the personal interest. But those personal interests are not entrepreneur's as many think. They come from the company needs and abilities.
Profit does tell him how successful the company is, the more profitable the company is, the more valuable it is to its customers.
What is weird about leftists is that they seem to forget the value of time they gain from exchanges. It's not only that you're giving money for a product because you find it useful. It's more than that. The value of exchange is that you pay a company not only for the goods they produced something from, but also the time they spent on creating the product. The reason why you do that is because you don't want to spend the time yourself. That's one of the places where profits come into the existence. But it's not the only factor, there are many more.
If you measure 'richness' just by money, you don't really do it accurately. One of the most important aspects is time. Leftists argue that money is something awful while they see world only in the terms of money. They look at how much money someone has and automatically determine how terrible at the scale from 5 to 10 that person is.
Money by itself doesn't mean a lot when you don't add time on the other axis. Those two dimensions constantly grow the economy rather than making it a zero-sum game. If I create a service or a product which saves someone's money or time, or if I provide anything valuable to them (like fun) and if he pays for it, I've just made him richer.
You can consider something like this. What is an actual difference between you and the richest person in the world? Is it really money, or can you express it in time-wise terms. You can basically do anything they can, given enough time. The problem is how much time we're talking about. That was not the case hundreds of years ago, because of political reasons. The freer the market is, the smaller the time gap is. The other problem is that politics nowadays tends to make the free trade harder. I would argue the most valuable asset that made us better off is the globalization in terms of division of labor. However, we can see some of the unintelligent politicians blame it for unemployment, and it's becoming a more popular opinion every day.
The roots of not seeing the economy as a zero-sum game can be found even in the most basic interactions we do during the trade. If you go to a bakery and buy a bread, we receive a "Thank you!" and respond in the same way! That's a very simplistic way to say it's not a zero-sum game, but there are some great free books like this one that go into much more details than a post ever could.
Conclusion & What's next
In this post I have tried to provide as much additional resources as I could for everyone who finds value in this text, so they are able to read more about it. My thoughts and opinions were inspired by each and every one of them, since I've read and thought about everything I linked to. That's why I think anyone reading this would also find it valuable!
As you might have noticed, this is only the first part of the "story". What I'll do in the next one is going through various scenarios of entrepreneurs' actions while trying to show how useful they can be.
You might ask yourself why am I doing this. Well, the thing is I've written a similar post on my old blog in my native language and since it was pretty well received, I wanted to expand it with many quotes and thoughts I've learned meanwhile. My goal is to show how the Austrian school of economics is the only one that puts entrepreneurs in the center of everything. I'm trying to connect the dots between the theory and work I've done as an entrepreneur.
Thank you for your time!
Also if you enjoyed this post, you might like the one where I described my productivity system that helped me with time organization when there's a lot at stake. Please check it out here.
Since I'm an anarchist feel free to read my first (and most successful) steemit post related to anarchy!