As I read an interview with the owners of a medium-sized business, I was reminded of a question that was posed to me on my first day of business school. It was a question that was repeated in nearly every class during my first year of working on my MBA, and every professor who asked the question was looking for the same answer. The question was, “What is the purpose of every business?”
I never liked that question, because it presumes the answer is the same for every business, whether you’re an architect, hotel company, restaurant, film production company, ice cream vendor or bank. I have worked with people in each of those businesses, and the purpose of each one is much different than the purpose of all the others. Each of those businesses fulfills different needs for its customers, and each leader got into his or her business for different reasons.
In case you haven’t figured it out, the answer my professors sought was to make money.
Semantics matter, and I readily submit that the challenge of business is to make money. That is, a business has to be profitable to remain a going concern. But in my experience, the focus of the most successful entrepreneurs is not on making money. Typically, their focus is on delivering something they are proud of, and making money is one result of that focus.
So, in reading the business owners’ interview, I was reminded that people are in business to be a part of something that is larger than themselves, to create something they can be proud of, to pass on a legacy, to make a difference. …And yeah, they want to make a ton of money while they’re at it, but successful entrepreneurs know that the business is the source of profit and not vice-versa. So they spend the majority of their time working in the value-generating parts of the business as opposed to devising ways to short-change customers in order to maintain or raise margins.
Interestingly, the companies that recognize they are not in it for the money are the most financially successful companies in their industries. Jim Collins convincingly makes this point in his two business classics: Good to Great and Built to Last, which illustrate dramatic, positive results of “visionary” companies (those who articulated a clear and meaningful sense of purpose and whose actions followed suit) compared with other companies in their respective industries. I have seen the same phenomenon first hand with companies that are smaller and younger than the ones that Collins highlights.
For example, I know a homebuilder who promises his customers a “beautiful home built to last.” That is no empty promise. By thinking about what that would mean to a home owner, he specifies some key results of his company’s purpose: delivery of the house on the day it was promised; zero punch list items, and zero warranty issues. Those are lofty objectives but the leader felt they were achievable on a consistent basis. And while his company has not hit the mark 100% of the time, they are much more consistent than other builders, many of whom have actually gone out of business in the last several years due to the depression in the housing market.
Now, it would be wrong to think that all you have to do is think of a catchy phrase for people to rally behind in order to motivate people and earn the big bucks. Indeed, there is much more to turning a vision into reality.
The same homebuilder that made that audacious promise to his home owners understood that he could easily and quickly go broke trying to deliver that promise if he didn’t figure out how to do it profitably. This is where the purpose of a business causes tension with the challenge of business. But for successful entrepreneurs, that tension is the source of competitive advantage, because they view necessity as the mother of invention.
So, my friend the homebuilder further articulated how his company would measure success, including repeat buyers and referrals (customer loyalty), cash (for continued investment and risk mitigation), and return on invested assets (optimal asset utilization). Results for each metric paint a clear picture of whether the company resources are being optimally utilized and whether he is keeping his promise to his home owners.
With a clear vision of what his company should mean to the customer and what success looks like for the company, the company then went about the hard work of putting in place activities that support the vision. The point here is this: Everything matters. That is, creating a vision is more than articulating the aspiration. It requires every activity within the company to be engineered a) with an eye toward achieving the stated metrics and b) with an understanding of how it suppports other activities and how the entire web of activities supports the vision. The idea is that the whole web of strategy is greater than the sum of its parts.
This approach to vision (aspiration) and strategy (closing the gaps between vision and reality) shows how a company can get very specific about lofty intentions. A “visionary” company is not a company that has a pie-in-the-sky idea of what success looks like; it’s a company that actually knows how to make that pie-in-the-sky idea work.