Every business school will tell you a company exist to make money. I think this paradigm will lead to very poor businesses. A business does need to make money but if you look at the most successful businesses their primary goals aren't to make money. In the book Build To Last the author talks about the secret to companies being successful. None of the top principles included focusing on share holder returns as a primary objective.
I would suggest a different paradigm. A company exists to fill a need, innovate, and be socially responsible. On top of that the people or person starting a company should be passionate about what they are doing. To me a company cannot last for a very long time if it doesn't have these qualities.
Caring only about money is partly what got us into the financial crises of 2008. I don't think there is anything wrong with making a profit but it should be more of a by product instead of the main objective. In a Lean company you care bout the customer and delivery superior value and the financial results will take care of themselves. In traditional companies too much emphasis is sometimes put on the bottom line so you end up with processes that aren't so good for the customer.
One of my favorite examples is collections. In most companies collections usually is a very painful process where you will never see that customer again. If you truly want to serve the customer either make collections customer friendly or do not have collections. The message is do the right thing and the profits will come. Look at HP, Toyota (post recall), 3M, Disney, etc.
5 comments:
Most MBA schools do teach this. It is the prevailing wisdom. But this isn't why you start a business. It's not why a business succeeds. It must occur, you must make money, but that's not your purpose, your why.
There are often easier ways to make money than the ways in which most entrepreneurs choose. There must be a why, and a why in which your customers can connect to. Check out Simon Sinek's book Start With Why which articulates some of this thinking very well.
Jamie Flinchbaugh
Jamie,
I'll be sure to read the book. I think that all entrepreneurs should start with the why fist but sadly I don't think we all do.
Ankit
I came across this interesting article on Google pulling out of China because they felt it was the right thing to do:
http://brainstormtech.blogs.fortune.cnn.com/2010/03/25/what-google-in-china-shows-its-never-about-shareholders/?section=magazines_fortune
Good thing I read the article, otherwise I would've been under the assumption of increasing shareholder's wealth notion. Now I have two new books that I can pick up and learn from. :)
I have been thinking about this, and perhaps self-interest would be a better broader term that wealth. In the end, what is better for a company in the long run inevitably turns a profit. A company would never seriously practice anything other than self-interest, such as giving money to charities, unless it improved the company's image, and therefore increased popularity and inevitably greater profits. Profits are a great motivator, not just for personal use, but for company growth. It can mean better equipment, new avenues, new products, cheaper production, etc. Profits/self-interest are deeply intertwined with a company's purpose. Imagine if a pharmaceutical company only wished for the creation of a great new drug that saved lives? It sounds good, but without a profit motivator, it does not happen. It takes lots of money for research, testing, production, etc. Without profit, one's life's work will not be rewarded. But with shareholders, they are a bit disconnected with the business operations. Walt Disney resented shareholders and simply did not take any input from them. He was the business and was not going to have outside "interests" of the business trying to meddle with his life's work. Providing capital does not seem like enough qualification for interference with a business' operations.
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