Profit is the way a capitalistic society allocates its resources. In a capitalist society, profit is determined by markets. A market is the group of people who decide whether or not your business is worth existing. To be a successful entrepreneur you have to create value worth more than the sum of your inputs. Profit is a measure of the value you bring in the market place. In other words profit is equal to cost minus value. The more value you bring, the more profits you make.

What is needed to create value

To create value entrepreneurs need resources. There are two main forms of resources needed to start any venture namely:

Financial resources

Depending on what type of business you operate, you may need financial resources to get started. For instance if you want to start a lawn mowing business, you will need to buy the lawn mower. You could either borrow the money, use your savings or get an investor. Using debt and investors means that you are giving others claims to your business assets. There is nothing wrong in doing this but you need to be aware of what you are giving up, in exchange for what you are getting.

Labor resources

Regardless of your type of business, you will need someone to do the work to make profits. Starting out most entrepreneurs do all the work, but need to learn to delegate as the business grows.

Conclusion

The bottom line of any business is to survive you need to create value. To create value you need to convert financial and labor resources to things customers’ value. To accomplish this, you need to understand what your customers want. Anyone can create a profit in the short term but to create long term sustainability takes insight and planning. Sustainable businesses are NEVER accidental but are successful by design!