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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