Does every business have to be profitable?
Do all businessmen do a business to earn money? For themselves and their stake holder?
To the common man, yes!
Not true, not true, not true at all!
Many people do businesses to:
– keep themselves busy
– to show to the world that they are doing a big business
– hoping to make money 10 years, 20 years or 30 years later!
-for their own ego – and the price is paid for by the shareholders.
Let us take the case of ‘keeping themselves busy‘. In this category are a bunch of retail grocery stores. Most of them will earn much, much more by selling their shops and investing the monies well. However just because they have no hobbies, and have no clue about how to manage their time (but for the shop), they continue to go to the shop. What I mean is – If you are the owner of a shop with a market value of say Rs. 1 crore, and are aged say 55 – you should earn at least Rs. 15 lakhs a year – right? Well I know of shop keepers with a Rs. 2 crore shop and earning Rs. 5-6 lakhs…but WILL KILL ME, if I suggest a sale of the shop….’What will I do all day’ is a good rebuff. Not arguing against it, just enumerating as the first …
The second is worse. They are actually wasting good money after bad. They have a big set up, an office, daily visits to the office, AND ARE ACTUALLY LOSING money. One such category I know are some wholesale traders – they ‘invest’ say Rs. 5 crores in stocks…and at the end of the year they earn about Rs. 50-60 lakhs. Again not having a hobby (which means they need to go to an office till they CANNOT go) is a must. I know of a 70 year old who goes regularly…and frankly is destroying wealth. What do you tell him? Nothing.
There are some businesses which justify to their stakeholders business models based on hope. Or optimism. Hoping to make money after 7, 10 or 20 years. This is really funny simply because they way people buy things or services is changing fast. Very few people are capable of or willing to make long term commitment. So to think that businesses must build brands, build a ‘loyal’ customer base…sometimes need to be checked again and again.
The worst are those businesses that are run for the ego of the owner. There is no way on earth that a ‘gas’ or ‘petrol’ agency from a PSU (Fortune 500 Companies!) will ever make money. It is also very difficult to make money from an auto agency of a small car company. However it gives a lot of ‘social’ standing. So people with a lot of money (and own old real estate) need to be roped in.
Of course the absolute worst are subsidiaries of big large companies which may not earn money. The distance between the shareholder of the parent company and the company making losses is so huge that NOBODy really pays attention to what is happening. Shareholder activism, mutual funds becoming active in such companies, or threats of asset stripping are all necessary to help the shareholder. Not seen it in corporate India for a very long time.
Sad, is it not?
Corporate Egoism and Egotism are far more difficult to spot compared to Alcoholism.
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