Here are some controversial thoughts on the purpose of a business. This is an essential topic for every entrepreneur and small business owner to be very clear about in their minds..
What is The Purpose Of A Business?
I read a lot of new age hippy claptrap about the purpose of a business including that the purpose of a business is to:
- Employ people - no it isn't although it is clearly a society good
- Pay taxes - I bet that is right up there on top of your priority list
- To do good in society - again a nice give-back and side benefit but in most cases, not the primary driver of what you do and when you do it.
- To give suppliers someone to sell to - no but it is how some suppliers seem to think
The purpose of a business is improve the long term well being of customers whilst providing the owners of a business with a good return for money, time, energy, ideas and imagination invested in a business.
A business with no customers isn't a business.
A business with unhappy customers is a bad business and doesn't deserve to survive.
A business that is losing money and consuming cash is a bad business and won't be around for long.
A business that makes a pitiful return to the business owner is a problem business and the owners need to take action to fix the problem.
For me the very essence of a business is about the customers and the owners.
The customers are the source of all the revenue and have to be the focus of the business but the business owner takes the risks - and often works for little financial or emotional reward.
You Need A Process For Balancing The Needs Of Customers And Business Owners
Do good for customers. It is a great philosophy.
Add value in whatever way your customers want and are willing to pay for.
But do it in a way that captures a good share of that value so you can reward your other stakeholders - employees, suppliers and society - at a good rate and still have a great return for your time, energy and money invested.
Employees, suppliers, society and official bodies can help you to achieve your purpose so there is no point making life difficult by not taking them with you, but they are facilitators to giving customers value while making lost of money for yourself.
You have to combine the heart of a marketer - and want to give value to your customers - with the mind of an accountant - as you assess the returns of everything you do.
You can't manage a business just for the money.
The credit crunch shows the damage caused by the Age of Greed and capturing shareholder value above everything else. When it becomes just a numbers game, the numbers are manipulated - either directly or by taking short term actions, regardless of the longer term consequences.
But you can't manage a business just thinking about the customer.
After all, from the customers perspective a 10% price discount is better than no discount.
And a 20% discount is better than a 10% discount and so on...and if they were going to buy anyway, you have taken money out of your pocket and put it into theirs.
Remember the "In Search Of Excellence" book which praised companies for the way they were managed - and has since become famous for the fact that many of the so called excellent companies have gone out of business.
The Total Quality movement jumped from factory floor into the boardroom under the Excellence banner but there have been companies that scored highly in the assessments but went bankrupt.
That doesn't sound excellent to me.
Are you managing your business for your customers and for yourself?
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