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LME022 – What is the purpose of a company?

What is the purpose of business? What is the purpose of a company? Most people don’t seem to have much trouble verbalizing the response to this question:

“That’s obvious: The purpose of a business is to make a profit!”

But that’s not true!

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The purpose of any business

When you ask a shareholder this response makes sense. To him, it’s important that the company, into which he invested, makes as much profit as possible. This increases the company value, or a dividend can be paid out.

In both cases, the capital invested by the shareholder increases, and this is what he cares about. This is easily understood, but that does not make generating a profit the purpose of a company.

Purpose of a company

Purpose of a company:
photo: Dean Photography/ resource: www.bigstock.com

Is the purpose of a company to create jobs?

But If you ask a union representative, or a socially oriented politician, he will probably tell you:

“The purpose of the company is to create jobs, and to retain these over the long-term.”

This also makes sense, but here as well: To create jobs is not the purpose of a company.

Customer value?

The sole purpose of any company is to satisfy the needs of customers. A company that does not provide a value to its customers will have no customers over the mid-term. Why should customers be expected to buy from this company?

Over the near-term, a company can survive without customers. Over the mid and long-term a company without customers has no reason for being, and no chance of survival.

Profits and employees?

This isn’t to say that profits and employees aren’t important. Both are needed to fulfill the purpose, i.e. to create value for the customer. They are a means to an end.

A company cannot survive without at least making a profit now and then, because it will not be able to invest into its future and the future value added for its customers. A company can therefore only be of benefit to its customers over the long-term if it is profitable.

This is similarly true for employees and their jobs. To provide value to the customer with services and products, practically every business needs employees. For this reason, it must create enough jobs to satisfy the needs of its customers. Not more, and no fewer.

Might I be splitting hairs?

You may think:

“That is splitting hairs. It makes no difference whether profits and employees are the means or the purpose of a company, right?“

By no means. This is critical to how you as the entrepreneur and manager think about it. Your attitude about this has a huge impact on the company success. The following example should highlight the point:

The self-employed programmer Thomas

Three years ago, Thomas became self-employed as a software developer. He wanted to be independent and make more money than he could in his previous employment.

As a recognized specialist for the programming language C++, he can now charge a comparatively high hourly rate for his work.His customers are happy to pay, because as a certifiable expert, he delivers outstanding programming work. He has therefore accomplished his goal to be independent, and to make good money.

Let’s assume that he defines “making lots of money” as the purpose of his one man enterprise. He therefore places the focus on money. This puts him in jeopardy of relying on his expertise and skill, and resting on his laurels.

But now, the requirements of his customers for his programming work are slowly beginning to change. He is reluctant and late to recognize and acknowledge this. After all, he’s focused on making as much money as possible, and not primarily on understanding the needs of his customers.

Over time, things are getting increasingly difficult for him, since C++ is no longer the predominant programming language called for. He has failed to adjust to the changing needs of his customers in a timely manner. His business is in decline, his revenues are dropping, and his customers no longer want to pay the high hourly rate. That’s too bad.

If he had regarded the purpose of his company as providing his customers with the highest possible value, he would have spent time early to study his customers and the solutions useful to them. He would continue to be a recognized partner for his customers, and his customers would continue to pay his high hourly rate.

Purpose and focus of your company

If your company is in a critical situation, it may be necessary over the short-term to focus on maximizing profits and quarterly results, instead on customer value. But over the long-term such an orientation is always disastrous.

The purpose of a company is always to provide value to its customers – and it is therefore clear that this must be the focus of your company. Your business vision statement as part of your business strategy should reflect the purpose of your company.

Purpose and Vision Statement

The inspiring quotes

“Every product and service is sold on the promise of a better future. The purpose of business is to deliver on the promise, and profit is the reward for doing so.”

Patrick Dixon

“Winners are people with definite purpose in life.”

Denis Waitly

LME006 – How to create a vision statement for your company.

5 points how to create a vision statement

5 points how to create a vision statement

What’s needed to create a business vision statement and what’s needed for the vision to work? I’ll give you 5 crucial points which make a great business vision.

In the previous episode we spoke about why you should have a true business vision. Today we’ll focus on what makes a great business vision and what’s needed for the vision to work successfully.

Let’s think about why some corporate visions are perceived as strong and useful and others aren’t.

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What makes a vision successful?

What does really matters? Most managers agree: In today’s world, we need employees who are motivated, self-reliant and independent. We need employees who we don’t have to force to work and who think along with us.

We are talking here about intrinsically motivated employees. That means employees who’re motivated by themselves, cooperate and think creatively. Here a true business vision is a huge asset in helping to get intrinsically motivated employees.

Let me explain why: There are three points that are important to an intrinsically motivated employee:

1st autonomy

An intrinsically motivated person has a desire for autonomy. He says

“Give me a destination, tell me where we want to go, but please let me set the path.”

That’s what’s fun for him, he wants to decide for himself how to get there.

2nd striving for championship

An intrinsically motivated person has the inner need to become better and better at what he does.

3rd Purpose

“What I do must make sense to me and has to have a meaning for me.”

The intrinsically motivated person sees meaning in what he or she does.

Support autonomy, striving for championship and purpose

As a manager, you should therefore make sure that you support these three points in order to have intrinsically motivated employees: Autonomy, striving for mastery and meaning or purpose.

Of course, you cannot instill purpose into your employees. But you can proffer meaning and purpose in a true vision. If the vision is attractive to them you have a good chance that they connect and see the purpose behind the vision as useful and important. It’s their decision if they connect to the vision or if they don’t. You can’t force them to. But you can enthusiastically talk about it and help them to understand.

Viktor Frankl, a well-known psychiatrist said,

“The question of meaning never depends on what we expect from the world, but on what the world expects of us.”

In other words, meaning should always be linked to benefits for others. It isn’t just a benefit to us. It’s usually considered useful when it brings benefits to others.

The purpose isn’t money.

Therefore, It’s important to state: Contrary to popular belief, the real purpose of a company is never simply to earn money. Rather, it is about benefiting others – namely the customer. A company receives its money for this, but its purpose is not money.

Please don’t get me wrong: The companies need money in order to be able to operate, to function, to pay suppliers and employees and to provide interest and returns for the investors – shareholders as well as banks – otherwise it won’t survive.

But money is not the purpose of a company. Just as it is not the purpose of a person to simply earn money. The purpose of every company is to help customers, whether with a product or with a service. Only then does the company have a right to exist. Otherwise, this company would simply be a parasite in our society.

The answer to the question “why?” and clearly knowing the purpose of the company is cruicial. The business strategy with the company vision or corporate mission is closely linked to this.

The vision statement usually describes the future. That’s where we’re going. The big guiding star, so to speak. And the mission defines what  our task is. Many say:

“The mission is important to the outside world. It tells why we exist and what our job is.”

Personally, I don’t think this distinction is particularly useful, because people keep confusing mission and vision. In my opinion, it’s also not helpful to say that the mission is rather for the outside, while the vision is for us inside the company.

In my opinion, the smartest way to combine mission and vision is to say there is a vision and it has to answer both. That way I don’t need to make this distinction,either.

5 points to create a vision statement

Whether vision or mission: one thing is imperative. When I speak of a vision, I mean a guiding star, something that is vague but emotional. It describes a great picture for the future. It’s something people can connect to that you can inspire people with.

How to create a vision statement? What characterizes a good vision? In my view, there are five characteristic points.

1) The vision must be emotionally charged.

It must inspire, at least it must address a certain type of people and exactly the one I want to pick up with it. And that’s how it gives energy.

2. The vision sets a direction.

…but no details.

3. The vision paints a picture of the future.

“I have a dream.”

Not

“I have a plan.”

Although it does not provide any details, it is nevertheless unmistakable. It positions and distinguishes from others.

Statements like:

“We will become the No. 1 in our market and offer the best quality at the lowest prices.”

are not only nonsense, because nobody can deliver the lowest prices at the best quality in the long
run. No, it’s also interchangeable. Such a statement does not position. It does not explain the “why”.

4. The vision is not fixed in time.

It has no deadline.

5. The vision is a desirable improvement of the current situation.

It includes and expresses a clear customer benefit. In the best case, it provides significant added value not just for a customer segment but for societyas a whole. This makes it desirable for a large number of people and they can connect with this vision.

These five points are the hallmarks of a good corporate vision. As a positive example for this I gladly take again and again the vision of Wikipedia.

“Imagine a world in which every single person is given free access to the sum of all human knowledge.”

This is a vision. It’s emotionally charged. It may not inspire all people, but some who then say:

“I think that’s great when everyone has access to all human knowledge. I want to support this or even be a part of this project.”

This vision sets a direction, but no details. It is not fixed in time. There’s no deadline. It clearly expresses the benefits and it’s a really high added value for society.

Why is it, that some business visions don’t work?

… even if they meet the 5 points I’ve set up?

If you as the company owner want your business vision to really function as a guiding star, then as a person who sets up the vision, you have to live this vision 100 %. You have to live the values that this vision implies.

For example: You want your company to be innovative. Your business vision implies innovation. Then you have to set an example. Your actions must reflect that you really want innovation – with all the consequences.

Let’s assume, that you are someone who attaches great importance to precise processes, goals and systems in your company. For you it’s very important that everyone behaves in accordance with the rules and everything is regulated and specified in detail.

For example, you want your employees to strictly abide by an 80 page guideline, which describes in detail how travel expenses are to be settled. – Well, then that doesn’t go with innovation.

This contradicts the value of creativity. If you want innovation, you cannot tell your employees exactly every step what they have to do. You need to have trust in your employees.

Don’t get me wrong. Of course, you can have rules. And these rules need to be followed. But an 80 page guideline just for the travel expenses? Come on!

“If the values lived don’t correspond to those in the vision, the vision is doomed to fail.”

You have to stand identify with and be behind your vision 100% – and that has some serious implications. If you have a big vision, then this has implications for your behavior. You need to be consistent.

The vision must have consequences…

Like Steve Jobs, for example, when he returned to Apple in 1996. Sales had fallen sharply, Apple was no longer profitable. Something simply had to happen. Steve Jobs had a vision with the development of iMac, iTunes and iPod.

However, implementing this vision meant that the company had to position itself and focus clearly. For this reason, he quickly closed 22 out of 24 product areas. This was a tough decision, but consistently aligned with his vision. He focused only on the two areas that were important for implementing the vision.

What we can learn here is this:

When you have a clear vision, then this must have consequences. All existing processes and rules in your company must be questioned. What aligns with the vision, and what doesn’t?

But keep in mind: If you want to consistently align your company with your vision, you need a lot of energy – and as business owner or CEO you probably only have this energy if your vision really is 100 % in line with your own values and your motivation.

The bigger the company, the more difficult this is. It’s usually easier if the entrepreneur is still in the company and is still in charge – at least if he really is a visionary. Because the company will at least initially be very strongly influenced by the entrepreneur.

Who is driving the vision?

However, as soon as a company grows, goes into the 2nd or 3rd generation, or goes public, it becomes difficult. Usually the formative visionary is then no longer there – or at least he no longer has a say in decisive matters and generally lacks influence.

The company’s focus and perspective, and with it the company’s culture, are gradually changing. Instead of an entrepreneur, employed managers rule now. It is less and less about customer benefit and the long-term goals and growth of the company.

Rather, managers – and even the CEO – are measured by achieving short-term goals. Sales, profit, quarterly results and the share price determine what the managers have to do.

Beware of Pseudo visions!

If high bonuses are paid for reaching short-term financial goals then it’s understandable that managers focus on just that. The words customer relations, long-term vision as well as longterm strategy degenerate to empty phrases in such enterprises. Usually such companies no longer have any real vision but only pseudo visions like:

“We want to be market leader!”

or

“We’ll be number one in our market segment and aim for a 15% profit!”

Benefits for the customer or for society? Not really our focus. Our shareholders want to make a good profit.

This is not to say that there can’t be any true visions in such large corporate companies or that real customer orientation isn’t possible. But my impression is that if only employed managers are in charge, a true business vision is hard to Sustain for the long-term.

 

 

The inspiring quote

“Your vision will become clear only when you look into your heart. Who looks outside, dreams. Who looks inside awakens.”

Carl Jung

 

LME005 – What is a vision statement and do you really need one?

Do you really need a business vision statement? What can a business vision do for you? We’ll have some good and some bad examples of vision statements.

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Do you need a business vision statement for your company?

business vision statement

Business vision Statements are important!
Image: nruboc/ Resource: www.bigstock.com

I think so. With a good vision you can unleash the power of your team.

With a vision you paint a vivid picture of the future. You describe where you’re heading – both as a team and as a company. A true vision inspires people and creates a common understanding.

Do you have a business vision statement for your company? Do you know about a vision in your company?

I mean this kind of statement or phrase or description, which tells where your business is heading, what you want to achieve and why your company exists?

Pseudo Visions

Don’t get confused with those pseudo vision statements of big companies in the corporate world. Business visions like:

“As a reliable partner for our customers, we count on innovation, creativity and consistent customer focus as well as on top performance in all areas.“

Blablabla. Sorry, but that is just a bunch of buzz words. It doesn’t mean anything. It doesn’t say anything. How does this statement helps to distinguish your company from others? It doesn’t. Everyone wants to be a reliable partner. Every company wants to be customer focused.

Want another example of bad vision statements in the corporate world?

“We work hard to be a Company that Our Shareholders, Customers and Society Want!”

Oh, come on: That’s boring: That’s so generic: That can be true for almost every company.

Here is another “great business vision”:

“We will be the No1 in our industry and strive for double digit sales and profit growth over the next 5 years.”

What? Maybe the investors like this statement. But what’s about the customers, the employees and partners of this company? Does this statement inspires, energizes or motivates anyone? No, it certainly doesn’t!

The business vision isn’t about money.

Hardly anyone is inspired by helping someone else make money. Why would employees put their heart and soul into such a thing?

Sorry to all the CEOs in the corporate world who developed this kind of pseudo visions: These business vision statements are totally useless.

Difference between mission and vision statement

So what’s a good business vision then? Often people get confused with what the difference is between vision and mission.

Let’s answer that briefly: As part of a business strategy the vision tells where you are going and a mission tells why your business exists. But don’t think too much about these definitions and which one’s which.

Two important questions

If you are an entrepreneur and running a small business or if you are a manager in charge of parts of a business you should focus on these two questions:
1.           Why does your business exist?
2.           Where do you want your business to go?

Just to make it crystal clear. The first question is by far the most important one!

Why does your business exist?

What’s the purpose of your company?

There is a great Ted Talk by Simon Sinek about the why and about the purpose of a company. It’s called: “How great leaders inspire action.” It’s my favorite TedTalk. Simon describes in a wonderful understandable way how great leaders think, act and communicate and how important the “Why” is.

What makes a well-conceived business vision statement?

Successful entrepreneurs, such as Richard Branson or Steve Jobs live for real visions. They are or were not primarily driven by making money.

These entrepreneurs are in pursuit of other objectives and visions that are bigger than themselves. These are frequently business visions that carry a social or ecological value for the rest of humanity.

Some inspiring vision statements

Take Microsoft’s first business vision statement as a case in point. Microsoft’s revolutionary founding vision in 1975 was:

“Our vision is a computer on every desk and in every home.”

Probably, it addressed only a limited number of people back then. But they enthusiastically supported it. They were intrinsically motivated to contribute to this vision, which was viewed by these people as socially relevant.

Here are some other examples of great business vision statements:

The company Scooter:

“Our vision is to provide freedom and independence to people with limited mobility.”

Or Wikipedia

“Imagine a world in which every single person is given free access to the sum of all human knowledge.”

Just by listening to these visions, can you hear the difference to those pseudo visions?

What is a true vision statement?

If an entrepreneur or a company have a true business vision then they ultimately pursue an objective that is larger than themselves. The business owner isn’t just working to satisfy his ego and the company doesn’t purely exist to earn money.

A true business vision shows that the entrepreneur or the company strive to solve a meaningful problem. It is not about money, it is about solving a problem which makes the world a better place, which helps people.

And that’ll inspire other people. They’ll feel that the vision is important and useful.

And that’s why they want to support this business vision and be part of it – as an employee, as a customer or as a supplier.

What’s about making good money?

As an aside, this doesn’t mean that the company or an entrepreneur cannot make good money. On the contrary. In order to attain the purpose, to achieve something of value for the world, the entrepreneur as well as the company should and must make money.

If it’s important to the entrepreneur to live in a beautiful home and drive a luxury Porsche, then that’s ok. It may be necessary for him to be satisfied and content. The luxury then becomes a means to an end if he’s focused on his true vision.

His true vision is striving to solve a meaningful problem. It is not about money, but money is a means to an end. It’s about solving a problem which makes the world a better place.

What‘s your business vision statement?

What problem is your company solving to make the world a better place? If you don’t have a true vision yet or if you only have a pseudo vision in your company so far, don’t worry. You can work on it. Just click here to learn what exactly is needed to create an inspiring business vision.

The inspiring quote

“If you want to build a ship, don’t herd people together to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.”

Antoine de Saint-Exupery