In his book The Practice of Management, Peter Drucker declares there is only one purpose of a business: to create a customer.
The kicker: it was published in 1993 1954. Nearly 20 60 years have passed, and it still seems many businesses are struggling to understand this fundamental concept.
A customer is defined as a person who pays a business for goods and services. If a person does not pay, they are not a customer. The nebulous term of “user” is assigned when a person is accessing goods and services without directly paying for them. Call them a visitor, a prospect, a constituent, whatever you want. Until they pay you, they’re no customer of yours — and you have not fulfilled upon your purpose as a business.
The function of marketing is to attract the prospect. The function of innovation is to transform the prospect. The prospect can’t be changed if they’re not paying attention; they won’t pay attention if they sense they can’t be changed. Both functions, in harmony, are required to seal the deal: to convert a prospect into a customer, to get paid.
The notion that a business is “an organ of society” may be news to many business owners; instead they think it’s an organ of themselves. They fail to recognize the role that their business must play in the greater ecosystem, and the adaptation necessary to survive and thrive.
“And it is to supply the customer that society entrusts wealth-producing resources to the business enterprise.” Drucker’s sentence is hard to read, but it’s worth trying. Let’s break it down:
Society entrusts wealth-producing resources to the business enterprise so that the business will supply the customer. The wealth-producing resources are a means to an end, not the end itself; it is the customer that is the end, the purpose of the business, its sole reason for existence.
A customer is a productive member of society. A customer — a person who pays for goods and services — keeps the economy in motion. It’s a game of hot potato, and you don’t want to be the one caught holding onto it. Society works when money is flowing, and the objective of a business is to keep it moving.
The customer is the ROI of customer experience.
The philosophy and strategy and effort and skill we put into creating an effective and pleasurable interaction for the customer results in a customer. Customer experience is the sustenance of a business, not an indulgence.
This is why empathy is so crucial to a business’s success and not just some touchy-feely mumbo jumbo. Expressed empathy forges a connection, a link in society, a relationship. The exchange of goods and services for money is our society’s representation of a relationship between people who aren’t family, friends or colleagues. It allows us to create associations and interdependence between otherwise closed networks, which in turn makes the greater ecosystem harder to destroy.
We have to remember that we as business owners ultimately promote the safety and happiness of our local and global community. Every action has a reaction, so choose your actions wisely.
The Purpose of a Business
A business enterprise has two basic functions: marketing and innovation.
If we want to know what a business is, we have to start with its purpose. And the purpose must lie outside the business itself. In fact, it must lie in society, since a business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer. The customer is a foundation of a business and keeps it in existence. The customer alone gives employment. And it is to supply the customer that society entrusts wealth-producing resources to the business enterprise.
Because it is the purpose to create a customer, any business enterprise has two – and only two – basic functions: marketing and innovation. These are the entrepreneurial functions. Marketing is the distinguishing, the unique function of the business.
ACTION POINT: Find out what needs your customers want fulfilled today. Determine how well your products are meeting the needs of your customers. That is the purpose of business.
~ Peter F. Drucker, social ecologist
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Everything you’ve said is spot on. One thing I’ll mention: that a business can’t *create* a customer, they can only find a customer – because you can’t create a market, the demand already has to be there.
Walt, thanks so much for your comment. I don’t actually agree about not being able to create a market, though. There are tons of stories of companies (some of the most famous and successful ones in fact) that started in an “absent market” — Starbucks, PUR water filters, Gillette razors. I’m actually working with a company in Singapore now that is disrupting an established business model that has existed untouched for generations — the problem was there, but not the demand. They’re creating the demand by offering a superior service.
You can read a few articles on this kind of stuff here, here, and here. Many more case studies, I’m sure.
Sometimes being the one to define the problem better than anyone else previous has means you can create a new consumer behavior. Understanding your customer is the first step.
Thank you so much. It is useful.
“If I had asked people what they wanted, they would have said faster horses.” -Henry Ford
Thank you so much! This has helped me for my test tomorrow (enterprise) so thank you again. It is very clear and understanding, plus your blog layout and text make it a bit more which some other blogs doesn’t, hehe.
By the way, I know this is random but your userpic is cute. It’s always best in pictures that you show your real smile, I look kind of daft in mine. Sometimes though! Haha!
“…it was published in 1993…”
Drucker’s book was published in 1954
Thanks for the correction, sb. I own a newer edition. Edited in post above.
Wow, nice piece Whitney. Was looking for the Drucker quote and found this post. Rare that people actually get what Drucker’s words mean. Your’s is one of the better translations I have found. As a marketing guy who has worked with numerous Fortune 500 companies to Silicon Valley start ups the direction outlined above has never failed me. Thanks for sharing it in such a clear and compelling way.
Creating customers is and should remain the sole objective of any strategic business just as a person cannot live without food, a business firm cannot live without customers.
Using relevant examples, discuss the above statement.