We seem unable to break away from the profit-first motive that drives many businesses. It’s the accepted premise for the existence of a business, particularly public listed companies. But it’s a flawed model.
Active Knowledge Question:
What is the prime motive driving your business?
Profit Now And More Of It!
I read an article in the Australian Financial Review the other week. Titled ‘Facebook exec to leave amid breach fallout’, it was about Facebook and the ‘backlash over its role in spreading disinformation’.
In it, a quote from a former employee, Sandy Parakilas, who left the social media giant in 2012, caught my eye: ‘The people whose job is to protect the user always are fighting an uphill battle against the people whose job is to make money for the company.’
I have no doubt that many of you can relate to that statement and will have your own stories of the ‘trade-offs’ that have been made in various businesses between profit and customer needs. Profit is typically the winner of these arguments but ultimately if profit-first remains the motive in business, it just seems to ‘come back to bite you’ in the end.
We continually fail to recognise – or maybe are just unwilling to accept – that profit is only an outcome. And if a business does not focus on the customer (essentially, what it is that allows them to achieve that outcome) then over a period of time the business will drift off course, fail to meet customer and community expectations, and profit will disappear.
If Not, Then Why?
The question you may ask is, ‘If profit is not our motive, then why are we in business?’ And the answer is pretty simple. Businesses exist to meet the needs of a community. A community of customers whose needs they have chosen to serve. And if they do that well, then great profits will be a natural outcome.
Where we trip over our feet is that businesses are founded usually for a clear purpose, that is to meet a specific customer need, but then they achieve a level of success and the money makers come in.
For this group, while they see the success they often do not see the reasons for the success. Their language is one of ‘gearing up’ and ‘leveraging’ what has been achieved to make more money.
How can we make more money from the customers we have? What other revenue streams can we introduce? How can we reduce costs? What can we do to improve the market value of the business?
The intent can switch quickly from customer needs to profit maximisation. The rationale being the business is ‘owned’ by the shareholders and the role of the board and management is to maximise the return and value derived by the shareholders. Tenure in these roles is often short and, therefore, is often ‘Why worry about what will happen in five years? As we will not be here then’. Short-term gains become the focus.
Short-term gains are attractive to many and the argument that it is the shareholders’ business, and, therefore, their needs that come first, seems compelling. The reality, however, is that if you don’t look after the customer first, along with your employees, well, your business is running on borrowed time.
And that is not good strategy.
Profit is essential for the growth and development of a business, and, yes, without profits, the business will falter. But shareholders are a source of capital and are rewarded with a return for the risk they take. However, this seems to have morphed into a mantra of ‘more and more’ every quarter. In some businesses, it has become profiteering at the expense of the community.
You make exceptional profits by focusing on customer need, the purpose for which you were founded, and doing that better than anyone else.
If we revisit the Facebook scenario for a moment: ‘Founded in 2004, Facebook’s mission is to give people the power to build community and bring the world closer together. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.’
Facebook’s purpose is stated as being to allow people to stay connected, discover what is going on in the world and express their views. All with the intent of building communities and bringing the world closer together.
Its success should be measured against these outcomes with the pre-eminent goal of ‘building communities’.
Given the trouble that Facebook has found itself in over recent years, how many of you would say that they have achieved their founding goal of ‘building communities’, and, of course, ‘bringing the world closer together’?
Some business leaders may pause there and say, ‘Yes but that purpose statement, that’s all marketing hype. That’s not what they are really about. Their business is about targeting advertising and data.’
And I understand where that is coming from, but the trouble begins when the customer need, which I believe is captured in Facebook’s purpose statement, is not aligned with revenue generation.
Once your means of earning revenue and making profit moves against the purpose for which the business was founded, you have potentially commenced the journey of destroying your business.
In business today, we compete around customer value. And that value is constantly evolving and, therefore, every business must be seeking to improve the value that they deliver. In fact, you want to be redefining that value to lead your customers to new levels of satisfaction and have your competitors constantly playing catch up.
But to compete at these levels you require the right motive to permeate every aspect of your business. And that motive is simply to compete to your greatest capability. To continually improve the value delivered to your customers.
Now to do that, you really want to attract the best talent, who will deliver their best each and every day – the best, working with the best, at their best. And they will only do that if the motive is right.
Your motive is pervasive and impacts all the drivers of competitiveness. If your motive is to compete, then your motive is to lift everyone up, so they can deliver their best.
Whereas a motive of profit-first seeds self-interest, politics and short-termism. It is the least effective motive that a leadership team can set and literally saps the competitive strength out of any business.
Once you say, ‘We’re here to maximise profit’, then, in my experience, everyone steps back and says, ‘We’re all here to get out of this what we can for ourselves’. And that outcome does little to drive competitiveness. It only drives personal greed and self-interest.
You can guess where the customer ends up in that equation.
Profit Is Not Our Motive
The greatest fallacy of our time is that businesses exist to profit.
Make profit your motive and you will spend every day solving problems, fighting fires and listening to everyone else’s complaints.
But understand how to make your business competitively fit and profit will be a natural outcome, and all the problems that a ‘profit-first’ motive creates will disappear.
Businesses are made to Compete.
Understand what that means, make that the motive of your business, and your business will never be the same.
Learn more about how to Compete.
We’re here to Compete.
Does your business know how to Compete?
Join the Entrepreneurs+ Community to learn how.
All the best in the success of your business,