With a brand new year and a new decade, it’s a great time to step back and asses things in our life. No, you don’t need to add this to your New Year’s resolution. Rather, just take a few moments to ask yourself this question and answer it truthfully.
“What is the real purpose of your organization?”
The reason I ask is that I met hundreds of business leaders like you throughout my entire professional life. And the one thing I noticed they have in common is they seem to have a disconnected view of businesses and organizations. And this includes the people I met when I was taking up my MBA.
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What is the real purpose of a business?
The real purpose of a business is NOT to create profits. Because a business cannot exist outside of society and must satisfy a specific need in order to stay in business, it has to create or add additional value to the community or individuals. That’s why the real purpose of a business is to create customers.
What is the purpose of business?
Is it to create profits? Be your own boss? Supporting an advocacy? Provide a community a livelihood?
All these are great vision and mission statements.
However, when you look at organizations in the context of society, the real and only purpose of organizations should be to create customers.
Businesses Exist Because of Its Customers
Business enterprises … are organs of society. They do not exist for their own sake, but to fulfill a specific social purpose and to satisfy a specific need of a society, a community, or individuals.”Peter Drucker
Peter Drucker, perhaps one of the best management thinkers of all time, said that businesses exist to fulfill a specific social purpose and to satisfy a specific need of a society.
However, a lot of business owners think of organizations only from a capitalist mindset. Now, that isn’t bad nor wrong by itself. It’s just another way to look at it. But if that’s the only thing that enters your mind — to make money — you are looking at businesses in the wrong way.
Allow me to provide you with another perspective.
Any organization won’t exist without customers.
Now, you may hear about startups using fundings at the beginning, but they all die after some time because they can’t create customers who are willing to pay for their products/services. While they may have great ideas or cool offerings, if no one is willing to pay for them, they will eventually close.
And this is also true even for non-profits. They have their own customers that they serve. Without them, they will also cease to exist.
Understand Businesses as Part of Society
One of the most first things you learn in economics is the concept of supply and demand. The easiest way to grasp this concept is through the circular flow of income.
In the image above, two things happen:
- Individuals supply their talents and skills (labor) to businesses in exchange for compensation
- While businesses use this to create goods and services which are then bought/availed by individuals
Of course, this is a very simplistic view of the economy. It’s much more complicated than that. But it is a great way to see the relationship between businesses and their customers.
Market creation: two sides of the equation
Another concept in economics is that of markets. It’s defined as any structure that allows buyers and sellers to exchange any type of goods, services, and information —with or without money.
Let’s not go down the rabbit hole here and talk about economics. Rather, what I’d like to highlight here is the market consists of two players — buyers and sellers. Or in our case, businesses and customers.
Customers are created when they find value in the product and/or service of the organization. What this means is they find something of value to them that they are willing to spend money in exchange for it.
At this point, when a customer pays for a product or service, a sale or revenue is created. Two things happen here that is worth noting:
- The customer receives value he/she is looking when he/she gets the product or experience the service
- The organization receives value in the form of the payment of the customer
If you notice, there is simply an exchange of value from both parties. This is the primary message I want to impart here.
Without this cycle (exchange of value from the organization to the customer and the customer to the organization), you and your organization will cease to exist.
The market will cease to exist if value is not created for both parties. And when the value you provide is less than the cost, the business earns a profit.
This is also the reason why looking at organizations outside the context of society often results in failures.
Most of the time, that happens because the decision-makers believe so much in the novelty of their ideas that it is not grounded in the basic premise of creating value for customers. This is particularly true to those in the tech industry.
Food for Thought
So, now, let me ask you the question in a different way…
“Does your organization create value for your customers?”
The buyer utility map is one of my most popular articles as of this writing. It’s a great tool every business owner and leader should know. Feel free to check out the article.
The buyer utility map is from the Blue Ocean Strategy. Its main use is to discover opportunities that your industry (or more specifically, you and your competitors) are missing. It also shows you where every player is investing heavily upon, but might not be providing value to the customers.
One part of the buyer utility map is the buyer experience cycle.
Generally, customers go through this cycle sequentially:
- Purchase —> includes the time customers are looking for you until the moment they transact
- Delivery —> the moment after they pay to the point before they use it
- Use —> involves the usage of the product/service until its useful life
- Supplements —> coincides with the use of the product/service
- Maintenance —> deals with the useful life of the product/service
- Disposal —> starts when the useful life is over
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At each stage of the cycle, there are specific questions you can ask yourself to determine whether or not you are providing value. I’m not going to repeat it here again, so I highly encourage you to read the buyer utility map too.
Let me end with this.
The more value you add across the buyer experience cycle, the higher the likelihood of you creating a customer and keeping your business alive. If you don’t, then over the long-run, your customers will no longer find value in the products/services that you offer and eventually leave.
I hope that you learned something new today. Businesses aren’t meant to be viewed by itself; rather, it should always be viewed as part of a bigger whole — as part of the society we live in. Take this time to think about your business and the value you are creating for your customers.
1 thought on “The Real Purpose of Business: Why Does Your Business Exist?”
What do you think would happen if the businesses do not have purpose?