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January 4th, 2020
By what metric do we understand a business?
The obvious answer to this is that money is the metric. But this is perhaps only the first step.
The first aim of a business is to be solvent in order to continue operating. Many would claim that the only other aim of a business is to generate profit, and for those that’s where the game essentially stops.
Fortunately, or unfortunately, the concept of a business is a far more expansive. It has far more to do with cooperation than it does monetary gains of some owner, whether or not this cooperation is in focus or not. The ramifications of people cooperating in a business will have far greater breadth and reach than will the gains accumulated by a few people who primarily profit from the business.
A rather negative example of this fact is oil companies. The use of oil as an energy source is a fact that touches every human life either directly or indirectly. In comparison the profits of this industry have benefited a tiny number of people. As we’ve seen recently in Australia where thousands of people have been displaced by horrific bushfires and an estimated half a billion animals have perished, it’s clear the real ramifications of this business are now having effects that far exceed anything that a few rich people might do with their pot of gold.
An odd ball company that turns this lack of foresight on it’s head is Tesla. All the controversy of Tesla has nothing to do with the Tweeting characteristics of it’s CEO and everything to do with that second metric of business: profits.
The primary focus with publicly traded companies is quarterly profits. Almost nothing else comes close in importance, and Tesla’s direct refusal to make quarterly profits a top priority is the source of all it’s controversy. Any gains the company has made in its early years has been for the sake of research, development and growth, leaving little left over for investors who have enormous difficulty seeing beyond a Quarterly statement that is always less than 3 months away.
Tesla has stated many times that the main objective of the company is to accelerate the transition to renewable resources. This is not a metric that can be achieved in any short term way, let alone something that can be tangibly measured on a quarterly basis. Such a metric might as well be in a different language when delivered to money hungry investors. Many people simply don’t consider things on such a long timeline, and this is certainly taken into very little account when trying to figure out how well a company is doing.
It’s as incomprehensible as if the oil companies at the beginning of the last century had said that their main objective was not profit but to increase the amount of CO2 in the atmosphere by a significant margin thereby raising the global temperature. This would have seemed ludicrous, even though it is the most salient fact of this industry in retrospect.
The question any prospective business owner would do well to ask themselves before starting is:
How will people’s lives be different after the entire life of this idea has run it’s course?