Why Are We in Business?

To know what a business is we have to start with its purpose. There is only one valid definition of business purpose: to create a customer. Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rests are costs.

—Peter Drucker, People and Performance, 2007

When participants in our seminars are asked why they are in business, more than 75 percent answer, “To make a profit.”

Yet is the answer really that simple?

Any business needs to earn a profit to survive; indeed, profit is the measurement of how much value an organization adds to the lives of others. It is also a premium earned for risk and uncertainty. That said, to think that a business exists solely to make a profit is to confuse cause and effect—we must distinguish between the purpose of a business with its goal. As Peter Drucker indefatigably pointed out, not only is the notion that businesses exist to make a profit false, it is irrelevant. Profit is a result of customer behavior. More accurately, profit is a lagging indicator of customer behavior. The real results of any organization take place in the hearts and minds of its customers.

The Economist’s Definition of Profit

Too many people think only of their own profit. But business opportunity seldom knocks on the door of self-centered people. No customer ever goes to a store merely to please the storekeeper. ...

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