Captain’s log, stardate 20210130

Thoughts on your replies to “What is the purpose of a business?”

Yesterday, I shared more than a hundred of your replies to my question:

What is the purpose of a business? (NOTE: Not YOUR business, but businesses in general.)

While all of your replies were unique, there were some recurring themes:

The purpose of a business is to...

OBSERVATIONS

A few observations that I found interesting:

THOUGHTS

Businesses need profit like people need air. Without it, you’re dead.

I agree that it is absolutely critical that a business makes a profit. In fact, I think profitability is only growth metric that matters.

However, I think saying “the purpose of a business is to make a profit” is like saying “the purpose of a human is to find oxygen” - i.e., a requirement of survival, but NOT a reason for being.

So what IS the purpose of a business?

Everyone is going to have a different answer to this question, but I think good answers must include a reference to delivering some kind of satisfaction (e.g., profit, ROI, value, etc) to some kind of buyer (e.g., customer, client, student, etc).

This is why I don’t find Milton Friedman’s famous quote particularly useful. If you’re not familiar with it, here’s a blurb I found online:

In a now-famous 1970 Times magazine article, the economist Milton Friedman argued that businesses’ sole purpose is to generate profit for shareholders.

I have two problems with this statement:

  1. There is no mention of a customer, as if they are presumed or incidental
  2. Generating profit is not a purpose, it is a requirement for survival

In fairness to Friedman, he was arguing against social responsibility for corporations and was probably not trying to articulate the canonical purpose of a business.

That said, lots of people share Friedman’s quote as if it were the canonical purpose of a business.

This is unfortunate because believing that the sole purpose of your business is to make a “profit for shareholders” (i.e., you, the owner) gives you no direction.

It’s like, “Okay, great... The purpose of my business is to make a profit. BUT HOW?!?!”

Tomorrow, I’ll share a quote about the purpose of a business that I think is much more useful.

Stay tuned!

Yours,

—J

share this page on twitterbrowse the archive