Irrespective of the size of businesses or organisations, from sole traders through to large businesses, not for profit or government institutions, and on to multi-national listed companies, they all have one thing in common: they exist for a purpose. (In this article, I will use the term “business” to cover all the above organisations, irrespective of their size or profit motive.)
In the formation of any of these businesses, someone decided that there was a need/want in the market or community that should be addressed. They then decided to form a business to fulfil that ‘hole’ in the market based on their capabilities, whether they were skilled in the product/service required or if they could organising/manage the necessary resources to provide it. They saw an opportunity for them and the other stakeholders to benefit from forming the business, so they set about forming, building, and operating the business.
All businesses exist to provide a return to the stakeholders, in particular the owners, who expect a return on their investment. This is the reason for the business. The purpose of the business is distinct from the reason that it exists.
Peter Drucker, the Austrian American management consultant who has been described as “the founder of modern management”[1] is widely quoted as saying “The Purpose of Business is to create and keep a customer”. The reasoning behind this purpose is that it is customer transactions that provide the profit that is the lifeblood of any business. No transaction, no revenue, no revenue, no profit.
I have successfully founded, operated, and exited small businesses, lead major divisions of multi-national companies, been CEO/MD of listed public companies, and contributed 12 years on the board of a major TAFE Institute in Victoria. The success of each of these businesses was due to their clear focus on understanding the ‘hole’ in their markets that they could successfully address, then creating and maintaining ongoing customers.
In consulting to businesses, I begin with posing the question to the CEOs “Please tell me about how your business creates and maintains the customers that underpin its Purpose?” This leads to a discussion about their Business Plan, (if they happen to have one, which most don’t) and all that it involves…
What is the Purpose of your business and how do you create and maintain your customers?
[1] Denning, Steve (Aug 29,2014) “The Best of Peter Drucker”. Forbes.
