Why do we have businesses anyway?

Businesses are created and run for many reasons beyond “to profit” or “to make money.”  My favorite write up on this was done by Richard Feld’s “What is the purpose of business?” who argues that businesses are created primarily to provide goods and services to a population. Profits are important as they are useful to keep the company continuing, but not the purpose of a business. The quest for profit outside of the purpose of an business risks the loss of direction for the company and the loss of the business itself.

Profit for profit sake contributed to the downfall of several large financial institutions throughout 2008.  Banks and investment organizations provide loans and high quality investment advice to sustain themselves. Many of these organizations took larger risks in lending what people now realize were lower quality investments for the sake of an increased rate of return.  These organizations bankrupted their purpose in offering poor quality investments, which ended up bankrupting themselves and their investors along the way.  Surprisingly, banks also increased service and usage fees, for which there was no tangible benefits, and further alienates customers.  The increasing quest for profit from banks from the same population they are supposed to be benefiting will most likely end up driving customers away to other alternatives.

A no less expensive but better customer experience and clearer purpose is that of a casino.  In contrast to banks and investment firms,  casinos are explicit in how they are making their money in exchange for entertainment.   Their service is entertainment via dining, drinking, gambling, and unique experiences, in exchange for a percentage of their customer’s cash. The casinos usually request the money either up-front in the case of gambling or provide a price list so that the customer can make the informed decision of what they can or cannot do.  In this model, the customer is aware of the direct costs and benefits to themselves. From a customer service and experience viewpoint, the casinos, although often lambasted for taking money from customers, is a more honest profit model and is in line with their purpose, entertainment.

Creating a product or service that fulfills a community need is why businesses should exist and working with a business that matches your goals benefits both you and your colleagues. A team with a shared purpose is why we continue working in groups despite the hassles of scheduling, personalities and annoyances that come along the way. If the company can be profitable in its purpose it should be able to sustain itself and provide continued value to the community. As an employee and investor,  you should select the companies you want to support explicitly.  Whether that company is a bank or a casino it is usually best if they stick to their purpose and continue to create value for their community.

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