web analytics

1992 – The Purpose of a business

In my mid teens I found the concept of a business having a single core purpose – to make money – to be an eye-opening moment of clarity. Today, despite the popular notions of what a business should or shouldn’t be, I still believe that a business must focus on sustainable profitability.

Starting Young

In 1992 I was just starting to learn that there was such a thing as business. My dad had a machine shop he had started in the garage and moved to a tiny building in the old industrial area. Our next-door neighbor built turbines for power dams and the folks two doors down built bridges. It was a tough blue-collar area with subsidized tenements across the road and residential pockets tucked in between hundred-year-old factories. We had a whopping twelve hundred square feet into which we had crammed two milling machines, two lathes, a surface grinder, welding equipment and a punch press.

I was fifteen and still in high school, but working nights and holidays in the shop. Most of our work was in building replacement parts for our neighbours, saving them a fortune in downtime. The pace was fast and mind-numbing for a kid, but it was a good education, and I held the jocks and gamers in derision at school. Looking back I would have done better putting the time into formal business education, but I was semi-aware of that too, and set myself to learn intentionally.

Understanding

Don’t get the idea I was a child prodigy, because I was every bit as uncertain as other teens and baffled by social interaction. I was smart enough to get by without too much effort in school but I could have made a lot more progress if I had focused a bit more. In particular I couldn’t figure out why we were doing what we were doing sometimes. I would get into teenaged rages about my parents and grandparents and teachers and principals and peers and cars and girls and homework… it was during one of these times that my dad got me a copy of Eliyahu Goldratt’s “The Goal” and many things fell into place.

“The Goal” is written in a genre that is more common today but was fairly rare back then. It’s a book that has a few very specific points to make, but it doesn’t approach them academically. Rather it’s written like a novel, tracing the journey of a Production Manager faced with the possible closure of his plant. His first and main epiphany is that “The purpose of a business is to make money” but more importantly, that all decisions have to be made in support of that. He goes through a well-written soul-searching aided by a former professor of his who is an expert on such things, and finds that he has to subordinate all decisions to the pursuit of “The Goal”.

In the real world

Kids like simple, black-and-white explanations and I was no exception. I can hear the howls of the Corporate Social Responsibility pundits now, and I even agree with them sometimes, but at fifteen, business suddenly became simple in my mind:

  • You bought things like bars of metal and changed them so you could sell them for more than you paid.
  • You did that as many times as you could in a given week.
  • You didn’t bother making a single machine more productive if it didn’t help you ship more things.
  • You didn’t bother worrying about factory workers being five minutes late unless it affected your ability to re-sell their labour.

Later, of course, I did realize that big companies could easily damage people and the environment in pursuit of the goal, and I went back to “The Goal” and the company that published it to see what they made of that one. Goldratt didn’t disappoint. The purpose of a company, it turned out, was worded more specifically than I had remembered: to make more money, now and in the future. So decisions have to be made that pit profit today against profit tomorrow. In other words, sustainability. In my opinion the basic core of Corporate Social Responsibility should not be allowed to be driven by the corporate image – it is easily manipulated. Rather, companies should be examined on their ability to produce jobs and profits sustainably: more now and more in the future.

Modern Popular Perceptions

Over the years I discovered the concept of entrepreneurship and the associated popular culture that has grown up around it. Their is a huge amount of pressure on young innovators to “follow their passion”. One major business school in America even has an infographic in their course material that mentions profit being desirable for the venture capitalist; but the entrepreneur just “wants to build something cool” and “be matterfull”. This pop psychobabble is very damaging and sets people up for failure. On the one hand we bemoan the nine out of ten startups that fail; on the other hand we tell entrepreneurs to put profitability aside.

We are mixing up profits and success. Personal success is a complex paradigm that does not necessarily come from money. Just what will make a person successful has to be defined subjectively, and nobody can do it for you. However, if business is to be a driver of your success it is in the area of money. Your company’s values can enhance the success of your employees by supporting causes they believe in, but the organization will not persist unless it makes more money now and in the future. So your values come into your plans, but the actual activities of the company must be strictly organized in pursuit of sustainable profits.

Only then can money generated and distributed by your company contribute to whatever success means for you. The company’s mission, vision and purpose are three very different things. Mix them up at your peril.