small business

what’s the purpose of a business?

A philosophical question for you this morning: what’s the purpose of a business? The business school answer is simply to make as much money as possible for the shareholders. I’m not convinced.

The concept of a “business” is fairly new in terms of human history. For most of our time on this planet we survived with the very simple job title of “hunter/gatherer”. I imagine the division of labor was pretty simple – “you stab stuff, I’ll try to find plants, we’ll get back together tonight and see if we get to eat.” Organizations existed at the tribe level and the mission statement was: “Trying to live for one more day.”

Then, 10,000 years ago (give or take a weekend) agriculture was invented. People could stay in one place and a more stable food supply allowed people specialize in a craft. Occupations arose and business was born. People moved past daily survival and were able to amass a cushion of resources that allowed them to prosper (long-term survival). Then we spent the next 10 millennia taking a very simple concept (survival) and turning it into something really, stupidly complicated (business).

We tend to think of organizations as something sterile and separate from their founders. We forget that the people who started the business, started that specific business for a very particular reason. When we look at the biggest businesses today, chances are very high that their founders started them NOT because they thought it would be the highest return on their money but because they were hoping to make money (survive and prosper) doing something they found interesting. Steve Jobs, Bill Gates, Bill Hewlett and Dave Packard, Michael Dell, Edison, etc., etc. started in garages and dorm rooms building cool stuff. Or at least stuff they thought was cool. There was sweat, emotion, passion, and wonder as they figured out how to make money doing the things they were fascinated by.

Think of your own career. Why do you do what you do? Chances are you didn’t choose a field based solely on annual salary. You may not even be in a field that you started in or even knew about when you were deciding what to do when you grew up. When you decided on (or stumbled into) a career it was probably based on many things in addition money. Face it, if we were ONLY about the bucks, we’d all be hedge fund managers, drug lords, or working on oil rigs in North Dakota.

If the ONLY purpose of a business was to make money for the owners, no one would be in low margin / low profit businesses. No one would stay in dying industries. The problem is, as the business ages, as the owners retire or sell, we forget that the purpose of the business was originally to make money in a way the owner found interesting. We forget purpose and reason and treat it like a commodity rather than a legacy with a heritage. We lose sight of being interesting and compelling and begin playing the utterly moronic Maximize-Profits-This-Quarter-By-Cutting-Our-Throats game that gets played daily in corporations around the world.

How would that change business – our businesses – if we kept in sight the idea that we’re in hotels or banking or telecommunications or auto manufacturing or farming or whatever because it was once a way to make money (hopefully, good money) that was more interesting and compelling than all the other ways the founder could have made money? If we kept in mind that there was something about this business, this field, this industry that jazzed people?

I’m all for profit. But profit for the sake of profit is a snooze. Profit in pursuit of doing something cool, interesting, challenging, and amazing? That’s where the fun is. That’s where the purpose of a business lies.

What thinks you?

descent // death spiral

Profit equals revenue minus expenses. To increase profits you can increase revenue, reduce expenses, or both. Any savvy business strives to be fiscally responsible and keep a close eye on expenses. However, it is possible to cut the wrong expenses and save money right into bankruptcy.

As a regular customer, I have a front row seat watching a formerly solid corner store / gas station implode under the management of new owners. It’s sad, but they are providing a nice case study on how to run a successful business right into the ground. Some things you might want to avoid doing in your own business:

Ask the long-time manager to take a 50% pay cut. Get a new manager willing to accept management responsibility for a shade over minimum wage.  Instead of paying staff well, “save” money by hiring and training new employees who lack the skills, experience, or options to command a living wage. Ignore the cost of excessively high turnover and horrendously poor customer service.

Assume employees are interchangeable and replaceable and treat them poorly. Refuse to realize that in a small community the your customers are friends and family of your employees. Don’t notice how a negative reputation is rapidly spreading throughout the area. Don’t keep shelves stocked, even when the items are clearly sitting in inventory in the back room.

Defer maintenance and repairs. Instead, just hang “out of order” signs on everything that doesn’t work.

Irritate your vendors by not paying them reliably and / or don’t restock key items to save a few dollars. For example: be the only gas station in the area going into the weekend without gas.

Create a noticeable drop in both the number of customers, the number of regular customers, and the sales per customer.

As sales and revenue drop at avalanche speed, accelerate your savings by cutting employee hours so you are perpetually understaffed, allowing more items to be out of stock, and perhaps becoming even slower to pay your vendors.

It’s a neat cycle: the more corners you cut to save money, the lower your customer service drops, the fewer the customers you have and the more corners you need to cut to save money. Repeat until annihilation.

you say you want a revolution: three steps to changing culture

Company culture . Can’t escape hearing about it, but why is it important? Stripped of all buzzword mystique, culture is just “the way things are done” in the organization (or the team). It’s the personality of the company. Just like people, some are stiff and precise, some are loose and casual, and some are all over the board. We usually refer to the company, but culture also applies at the department or team level. Every group has its own feel or culture.

If the culture isn’t what you want, no problem. Changing the culture of a company, department, or even a team isn’t easy, but it is possible. It takes time, patience and persistence. There are three broad steps to reshaping the culture.

1. Decide what you want the culture to be. One way of thinking about culture is to consider it the default decisions and actions. When X event happens, we always take Y action. For example, “We have a culture of the highest integrity. When any dishonesty is discovered, we terminate the person immediately.” Or, “We are a customer service culture. When a customer wants to return an item, we always accept it, no questions asked, no hassle involved.”

So what do you want the culture of your team or company to be? What are the characteristics you would want anyone and everyone to use to describe the atmosphere?

Here’s the challenge: whether you consciously and deliberately choose a culture or not, there will be a culture. It will be whatever decisions and actions you support, reward, and tolerate.

2. Design processes and rewards to support that culture. If you’re trying to create a culture of high quality but the pay scale is based on volume, you will have a culture of volume – always. If you want a culture of simple, fast customer service but the processes are onerous, cumbersome, and unfathomable, you will continue to have a culture of complex and cumbersome customer service. If culture is the default way of acting, then the default way of acting IS the culture. Words won’t change it, only action. Different action = different culture. Same action = same culture.

3. Make selection decisions that support the culture. If you want a culture of outstanding customer service, don’t hire misanthropes. New hires should have the skills to do the job (duh!) but also the behaviors and inclinations that will allow them to both support and thrive in the culture you are creating. People who won’t support the desired behaviors/actions will be a continual drain on the culture. If they already exist in the team/company, they need to move along to a company with a culture better suited to them. NOTHING destroys attempts at shaping culture quicker than continuing to reward and employ people whose actions are in clear opposition to the intended culture.

For example, if you want a culture of integrity do not continue to employ people who clearly lack it just because, “they get results.” Doing so, only reinforces a culture of getting short term results by any means necessary.

There you go: know what you want to create, reward and support the necessary behaviors, and make selection (and de-selection) decisions that support what you want. Have patience and perseverance. It won’t change overnight, but it will change.