Can’t Be Unprofitable Forever

A few years back I chatted with someone at a corporation about a company it had acquired but later divested (i.e., sold) for a loss. I asked why they sold it and was told that “the business looked great on the surface, but we later realized there wasn’t a path to profitability.” I recently read something about the company they divested. It never reached profitability and has since been sold again. A few years into ownership, the most recent owners couldn’t get it to profitability either and opted to sell it for a loss.

I’m not sure what’s in store for this company, but I imagine the day of reckoning is coming. A company exists to solve a problem in a way that’s profitable and creates value for shareholders (as well as for customers). Sure, for a while, you may be investing ahead of growth, which will make the company unprofitable, but the goal should always be profitability. If a company can’t provide its product or service in a profitable manner, it’s essentially subsidizing the cost of the solution to customers, which isn’t a sustainable long-term business model.