The Purpose of Business is to Create and Keep a Customer

Don't make the mistake of confusing the activities of business with its purpose.

One of my all-time favorite business quotes is from the sagacious Peter F. Drucker, who famously said:

The purpose of business is to create and keep a customer.

In Management: Tasks, Responsibilities, Practices Drucker spends a whole chapter discussing what exactly a business is.

Have you ever stopped to try to articulate that? What exactly makes a business a business? Is it profit? Capital? Creating a product? Drucker says that businesses exist for only one reason: “to create a customer”.

Furthermore, profit is not a valid explanation of business. “Profit”, Drucker says, “is not the explanation, cause, or rationale of business behavior and business decisions, but the test of their validity."

Later in Management Drucker speaks to the “nonprofit” sector, who he says, still must be concerned with profit. “If archangels instead of businessmen sat in directors’ chairs, they would still have to be concerned with profitability.”

It’s easy to conflate the tasks of business with its purpose: we must develop a product that people can buy from us; we must manage the production of that product; we must market that product; and we must deliver that product to the customer. Startups especially can become fixated on product development because it’s all they have at that stage. How can a startup market a product to customers when the product doesn’t exist yet? But flip that question around: how can a company create a product when the most essential component of the business — its customers — don’t exist yet. It sounds like a catch-22. Which comes first, the chicken or the egg? The product or the customer.

The answer is that the two develop together. You might think of it as a ratcheting approach: talk to potential customers to find out whether the product you have in mind can solve their pain, then take that information and create designs. Show those designs to a few customers and see if they’ll put down a deposit to fund development. Create a first working prototype and put it in the hands of a select few paying beta customers. And so on, until the product has grown up around a core group of paying customers who have worked with you to build a product.

Ultimately of course, whatever your product, and however proud you are of the systems that you’ve created in your company, your business’ purpose comes down to one thing: to create a customer.