The point is that the goal is to generate growth through reinvestable cash flow. Only when a business has money left over for owners (after they have eaten) is it profitable in this sense.
Opportunity cost has nothing to do with it. If I have created a business that pays me $50k a year (to live off of) and throws off an additional $25k in earnings that I can reinvest in the business, I have a profitable business. It can be grown through reinvestment of profits, and has value to investors.
None of that changes if I could be making $1M per year doing something else. You can't say that the business isn't profitable just because I have a high value alternative. It just means I'm not maximizing my income (which is a personal choice, not some indication of business health).
If you create a business that pays you $50k/yr and generates $25k/yr in reinvestable cash flow, I have no problem with you calling it "profitable".
But if you create a business that pays you $0k/yr, and offers $2000/mo worth of revenue to split somehow between reinvestment and wages, I have a real problem calling that "profitable". That business is "profitable" only so long as you are willing to donate your time to it.
In reality, that second class of business is virtually always pro-forma cash-flow negative; the founders simply aren't accounting for the rent/mortgage and food payments slowly draining away at their savings cushion. That cushion is a phantom capital investment on their books, but they don't want to account for it, because if they did it'd be obvious they weren't profitable.
I don't think we disagree much. I would argue that personal finances and business finances are totally separate, though. Whether or not you are making your mortgage payment is not all that relavent to the business in terms of its profitability.
For example, two founders each have identical businesses. One has a $10k/month mortgage. One lives in a $400/month apartment. Which one is more profitable? Neither. If either founder chose to sell their business, they'd get the same amount. That is, the present value of the profits of either business is the same to a would-be purchaser.
The question that needs to be adressed is not "How much do I need to live the way I want?", but "What is the market salary of someone I could hire to do my job while I sit at home and watch Shark Tank on DVR?" If you account for that, and the business comes out ahead, you have a profitable business. (Even if you're blowing the profits on your mortgage.)
Opportunity cost has nothing to do with it. If I have created a business that pays me $50k a year (to live off of) and throws off an additional $25k in earnings that I can reinvest in the business, I have a profitable business. It can be grown through reinvestment of profits, and has value to investors.
None of that changes if I could be making $1M per year doing something else. You can't say that the business isn't profitable just because I have a high value alternative. It just means I'm not maximizing my income (which is a personal choice, not some indication of business health).