What’s the purpose of a business? To create value or profit?
The sole purpose of a business is to sustainably deliver value.
The sustainability part is important here because this is how the business stays afloat. It’s the enabler of the value delivery. It’s done by receiving something in return for the value delivered.
In practise, it’s being profitable. Making money.
I used to think that the purpose of a business was to make money, period. But of course, all great companies have a vision and that vision is never about making money — that’s just a result of being successful while working towards the vision.
The vision is about value. In the end we all want to make the world better in one way or the other. Many will succumb to greed, but I wholeheartedly believe that even the greediest person in the world still has a moral compass that tells them what the right thing to do is. They may not act on it, but if they could find a win-win to get rich while improving the lives of others, they would prefer this option.
In literature we read a lot about the value part of the business purpose. In theory it makes sense to start with Why, to be Driven by purpose, to join the Purpose Revolution, to be a Vision Driven Leader …
But too often when you’re waist deep into a project, the vision has seemingly vanished from people’s minds and the focus is on reaching the financial targets for the quarter, incentivised by a tantalising year-end bonus.
In theory it’s all about the vision. In practise, I find, it’s all about making money. So over the years, because I’m a no-BS person, I adopted the pragmatic money-making approach.
We’re a business, not a charity, I used to think. But I knew that couldn’t be the whole story. Too many books said otherwise. Books I agreed with in theory. Living like the Wolf of Wall street might be awesome for a while, but it’s not sustainable long-term (literally, but also for company growth).
When I joined Legal & General, I learned about their vision — Inclusive capitalism. This resonated with me, because for the first time I saw a vision that combined value and profit. As a financial institution mainly focused on capital investment you have to include profitability in your vision if you want to keep a straight face. But equally important in the vision of Inclusive Capitalism is HOW you invest. Investing in profitable projects that bring value to people and improve lives is the purest form of delivering value in a sustainable way. The company IS the enabler of value delivery.
So thank you, L&G, for helping me come to terms with my profit-driven self. It’s never about profit or value alone. They need to co-exist. It is a simple idea, but it needed to be articulated to sink in.
Originally published at https://martinsandstrom.com on July 10, 2021.