To put it simply, you can represent any company through three components:
Marginal Profit
Operating Expenses
Net Profit
How can you explain this to a hunter so he gets it?
Think of revenue as the game he catches—deer or grouse he brings back. Every arrow he shoots is a variable cost.
When you subtract those Variable Costs from Revenue, you get Marginal profit. This is the food that will feed his family, and provide a reserve for future lean times (i.e., investments).
But catching and bringing home game isn’t the whole story—you still have to cook it. And while the hunter’s out in the wild, someone has to keep the home clean, cozy, and safe for the children.
Preserving what you already have—that’s the essence of operating expenses.
They’re essential, though hard to pin down precisely. For they affect the hunter’s marksmanship only indirectly, by keeping his mind at ease.
Marginal profit minus Operating Expenses equals Net Profit.
Of course, there can be a Net Loss. Imagine the family is now packed with aunts, uncles, and neighbors, all promising to help out around the house. Everyone seems busy, but it’s hard to say if comfort and order have really improved.
If the appetite of these relatives exceeds the hunter’s capacity to bring home the game, the whole group will start to go hungry. But the hunter, too, might start missing his mark, knowing no one’s back home to kill a snake or scrub away mold.
What’s needed is someone who cares about the system as a whole, not just one part. Someone who’ll make and execute tough, uncomfortable decisions.
Someone who doesn’t just value profit, but sees the Flow of Life behind it.
Who is this? The Founder, the Creator, the Master.
Sincerely yours,
-Alexander
About me:
As a business therapist, I help tech founders quickly solve dilemmas at the intersection of business and personality, and boost company value as a result.
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