"That's a wonderful thing, but from an accounting perspective, just because you're not properly calculating expenses, doesn't mean it's profit. To be fair and more accurate, founders should look at their fair market value to determine actual profitability."
No. From an accounting perspective you "calculate" things based on what you actually paid or were paid.
"If you weren't charging yourself any rent for that space, nor paying yourself anything, and the business made $100/day, would you really consider that profitable? You could have rented the space out at fair market value for much more money than that. I'd argue you're losing money -- and I'd be right."
No, you'd be wrong. They are making $100.00 a day. This is a very poor return on equity but it is still a profitable endeavour.
Accounting profits = Revenues - expenses. Economic profits (what he is unknowingly talking about) = Accounting profits - opportunity cost.