The Profit Requirement

“Profit is not an objective but it is a requirement” ~ Peter Drucker (Management, 1973)

Nine little words I read in my mid-20’s convey one of the most powerful insights I have ever encountered… Profit is not a goal, or a purpose, or an aim (in itself)… it is a simple necessity.

This short phrase undermined every teacher who had spoken to me of a universal “profit motive”. It undermined every claim I heard around me deriding “profit” as “evil” or “dirty”. Before I had read great works of philosophy or economics, this short conclusion in a book about management reframed my understanding of entrepreneurship and has been one of my foundational principles ever since.

Why? Because it meant that PROFIT is actually bedrock to SUSTAINABILITY and IMPACT.

Profit is amazing and (I found) amazingly difficult. It drives us to produce higher value at lower cost, it forces exploration and discovery, it disciplines us to frugality and rationality, it refines our hopes and dreams into deliverable outputs… A “profit requirement” (vs a “profit motive”) says do whatever you aim to do, but your outputs must exceed your inputs if you want to do it for more than a very short time.

This insight is why business models (whether for-profit or not-for-profit) have become my hobby and passion. Business models don’t describe the purpose or objectives of an organization. Business models describe how they pursue their given purpose or objectives in a financially sustainable fashion. The intricate dance of invention, production and marketing, pricing and product, commercial models, donor models, models in between. It is an exquisite combination of science and art, engineering and imagination, that achieves this incredibly difficult thing we call “profit”.

My studies of philosophy and economics have expanded and deepened my understanding and appreciation of “profit”… I now think more about “economic profits” and “opportunity cost” vs simple net positive revenue on the accounting reports… But the basic principle has remained the same:

Praise for profit… and for those serious, creative, adventurous people that understand that profit (across the great diversity of society’s enterprises) is the economic lifeblood of free and prosperous people.

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