The Purpose of a Business

The Purpose of a Business

I’m sure that most people would think the purpose of a business is to make money and I suppose to a large degree this is true in most people’s minds.

At FINNA Project we try to look at things through the perspective of deeper analysis and so I don’t think the above answer is sufficient or complete. We try to shine a light into those dark corners of organisations in an effort to reach the truth and uncover the reasons why we can lead a more successful organisation.

From the Economist’s Point of View;

Economists are peculiar creatures of analysis (and actually contribute greatly to government thinking and therefore policy, but that’s another post not this one) and they see the world as binary in nature. Either organisations are engaged in a market this is in perfect competition or engaged in a market that is a monopoly.

A market in perfect competition is a market where supply = demand. In other words this is a market that actually serves nobody well. Demand rises, therefore prices rise to reflect the demand and profit is made. Companies enter the market that’s now attractive and prices fall as supply meets demand.  No profit is made and therefore companies exit the market either by choice or they go out of business.

A market in perfect competition therefore is not a market I suggest companies enter into or try to stay in. It’s a market that will drive your company, any company out of business.

Example of a market close to perfect competition;

There’s an area in Manchester, UK called the Curry Mile. It’s a stretch of road where almost all of the commercial outlets are restaurants or fast food outlets based on cuisine from the Indian Sub-Continent. For anybody that visit’s frequently you’ll notice two things; firstly the prices for what you are served are very similar in each establishment (and they are on the low side as well) and secondly from time-to-time businesses change name.

Essentially what’s happening is that the businesses are not making sufficient profit and are probably making losses because of the high level of competition. Staff are probably paid at or very close to minimum wage and either very young or quite old. Investment in the business is non-existent, investment in the staff is non-existent, and the customer is served a low-cost product aimed at making marginal profits.

Nobody is a winner where a perfect or close to perfect competitive market exists, everyone loses.

A monopoly on the other hand is where a market is so completely dominated by just one supplier that they can probably charge what they want for their product or service. But this is not always the case, take Google for example who dominate the search engine market providing the search for free but sell the advertising that goes with it for a fee. They give a little to get a lot in their case and so have excluded most competition.

However, it’s not impossible to conceive that a monopoly can be seen as intrinsically anti-competition and is so viewed as bad for the customer. This may or may not be the case in truth but the reality is nearly always some place in the middle between perfect competition and monopoly.

So how does all this affect you and your company?

The answer is actually one of great importance and you should by now be asking yourself how can I have a monopoly for my business? Or to restate the question;

Do you want a business that copy’s what the competition is doing, improving on what the competition is doing or doing something completely different?

Those who attempt to choose to copy the best in class may achieve this standard but by its very nature this is self-limiting. It’s also a strategy destined to make you a failure, you can only be best in class and then someone else will take your crown.

Those who believe they can improve on the best in class will have a slightly longer business life but again destined to fail. But again the lack of creative thinking is the limiting factor. All you are aiming to do is do what everyone else does only better, or quicker or to a higher quality or for less money. The dinosaurs continued to improve but when a significant event occurred … well we know how that one ended and so will your business.

The final option of creating a changed environment, a new product, this is the route to success. Those companies that can harness the creativity of small teams will be the successors. Ocean going liners were the way to cross the Atlantic and now we fly for a fraction of the cost and a fraction of the time.

As a rule of thumb, any new, radically improved way of doing something should be about 10x better than the incumbent method of delivery. If not it’s probably not radical enough.

As always I’d like to thank you for reading this post.

Philip

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