Choosing Not to Maximize Profits

The other day, a client asked me to review some questions from an MBA student studying business ownership. One of the questions was “Are you doing everything possible to maximize profits?”

profit maximizationI’ve seen the same question asked in a number of business assessments over the years, and it always struck me as silly. It’s one of those “gotcha” questions that any rational business owner can only answer in the negative. Who in their right mind could claim that he or she is doing everything possible to maximize profits?

Regardless of how many hours you work, you could conceivably work a few more. You could ride your employees a bit harder, or make do with one of two fewer.

You could pay lower wages, charge more for your services, or refuse to honor implied guarantees.

Reading the previous few sentences, I’m sure you are thinking “No I can’t. If I did that I wouldn’t have (customers, employees, a family) anymore!”

Right. We own businesses because we want to choose for ourselves. One of the choices we make every day is not to do everything possible to maximize profits.

Choosing Against Profit

We choose to replace a product that wasn’t satisfactory even though it performed exactly as promised.

We choose to go the extra mile for customers with service beyond what was originally agreed, because we want them to be happy.

We choose to offer decent wages, paid time off and benefits because we want productive employees who like their jobs.

We choose to take time with our families, even though there is always more work to be done, because we need to have balance in our lives.

In fact, the majority of decisions made by a business owner every day are about not maximizing profits. That’s our privilege.

Of course, profitability is the enabler that makes all those decisions possible. It’s the firm foundation that  gives you flexibility. It is not, however, the only reason you own a business.

So the next time someone asks if you are maximizing your profits, proudly answer “Absolutely not!”

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2 Responses to Choosing Not to Maximize Profits

  1. Ed Pratesi says:

    John,

    I agree with your premise, what the question should be is “Are you maximizing value?”

    The very choices made by business owners include many of the above that lead not to short term profits but “hopefully” sustainable value.

  2. Frank Arnold says:

    John,

    Well said and of course there is the issue of reinvesting in the business for sustaining and growing profits, but over the long haul.

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