In response to a discussion started by my friend Francois Gossieaux – Here’s a quick elaboration on my previous post about Peter Drucker’s assertion that “the purpose of a business is to create a customer”:

While one of the functions or objectives of a business is to create customers (as it is to be profitable), it isn’t its purpose.

Its purpose is its reason for being there – which could be to design the best computers on the market, or build the lightest race bike, or create the best search engine in the world, or help people find great deals on flights and book their tickets online.

Semantics. I know. I may be splitting hairs here, but I think that the distinction between business functions and the purpose (or raison d’etre) of a business is important.

Businesses earn and retain customers by being true to their purpose, which is generally to provide either a great product or a great service, or both. When businesses get in trouble is when they stray from their purpose and begin to think mostly (or only) in terms of function: Creating more customers and becoming more profitable. Hence the difference.

I once worked for a company that started out with a purpose (and quickly rose to the very pinnacle of its industry, where it stayed for a couple of decades), but over time, replaced purpose (creating great products, providing the best quality and customer service in the industry) with function (increasing sales and profits). The result:

1) To cut costs, production moved from the US to asia.
2) The company started buying ready-to-build products instead of designing them.
3) Quality took a nose dive.
4) Deliveries became a problem.
5) Customer service took a nose-dive as well.
6) The functionality and specific (branded) look and feel of the products evaporated into thin air.
7) The company, which had always been profitable and relevant by selling superquality products – but no longer did – found itself forced to defend its fading relevance in a market already saturated with low-price “same-as” products. Within a year of the change, its only resort was to start engaging in price wars with other cheap, similar looking asian imports.

Everything that had once made this company the best in its industry (quality, design, dependability, and superior service) shriveled up and died.

Purpose vs. function. Two sides of a coin that MUST be a) clearly defined, and b) balanced as well as possible.

But back to my example: On paper, the business looked good, at first. By lowering its prices, it created a few more customers than it lost. By buying its products for a fraction of the cost of making them, its profits increased.

For anyone looking to make their company’s books look good in the short term, this was a brilliant plan.

In the long run, however, this kind of strategy (or lack thereof) is the kiss of death for a brand.

Could this particular business have balanced its purpose with its objectives? Yes. Of course it could have. (Heck, it should have.) But it didn’t. Why? Because its leadership didn’t understand a) the difference between purpose and function, and b) the importance of having a purpose. A raison d’etre.

This is why creating customers (and being profitable) can’t be the purpose of a business. Function, yes. Objective, yes. Side-effect, definitely. Purpose, nope.

(If that makes any sense.)

Feel free to disagree. 😉