There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.
—Sam Walton, founder of Wal-Mart (1918-1992)
I miss Peter Drucker. He was one of the few management consultants who had original insights, could write without making his readers feel like they were watching a fly ascend a drape, and has taught me so many lessons there is no way I can even separate his thinking from my own. He deserved a Nobel Prize, and it’s a shame he didn’t get one (they are not given posthumously).
One of his lessons was you are not in business to make a profit. Profit is merely oxygen for the body; it is not the reason for being. Profit is nothing more than a lagging indicator of what is in the hearts and minds of your customers.
He indefatigably pointed out that
“there is only one valid definition of business purpose: to create a customer.”
This is known as the marketing concept.
The purpose of any organization—from a governmental agency, non-profit foundation to a corporation—exists to create results outside of itself. The result of a school is an educated student, as is a cured patient for a hospital. For a professional services firm, a happy and loyal customer who returns is the ultimate result.
The only things that exist inside of a business are costs, activities, efforts, problems, mediocrity, friction, politics, and crises. There is no such thing as a profit center in a business; there are only cost and effort centers. In fact, Peter Drucker said in a 1997 interview,
“One of the biggest mistakes I have made during my career was coining the term profit center, around 1945.”
The only profit center is a customer’s check that doesn’t bounce. Customers are absolutely indifferent to the internal workings of your firm in terms of costs, desired profits levels and efforts. Value is only created when you have produced something the customer voluntarily, and willingly, pays for.
For example, cosmetic companies, as Revlon founder Charles Revson pointed out, sell hope. What makes the marketing concept so breathtakingly brilliant is the focus is always on the outside of the organization. It doesn’t look inside and ask,
“What do we want and need?” but rather it looks outside to the customer and asks, “What do you desire and value?”
Your firm exists to serve real flesh and blood people, not some mass of demographics known as “the market.” In the final analysis, a business doesn’t exist to be efficient, to do cost accounting, or to give people fancy titles and power over the lives of others.
It exists to create results and wealth outside of itself. This profound lesson must not be forgotten.
Thank you Mr. Drucker. R.I.P.