20. The Law of Purpose

The Laws of Business Success

Under the Laws of Business

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

Many people think that the purpose of a business is to make a profit. However, while that may be the purpose of the individual who starts or invests in the business, a business is really a separate entity that has a purpose of its own. In fact, a good way to assess the purpose for the existence of a business is to imagine that the owners of the business had to appear in front of a tribunal each year and justify getting permission for the business to carry on. You will see immediately that "making a profit" would not be enough of a reason for the enterprise to justify its continued existence.

The first corollary of the Law of Purpose is
Profits are a measure of how well the company is fulfilling its purpose.

You can tell that customer creation is the primary purpose of a business by simply observing that the majority of the time and attention of the most important people in any successful company is focused on the creation and keeping of customers. The level of sales and profitability that the company enjoys is the result or measure of how well the organization, and everyone in the organization, contributes toward the achievement of that purpose.

The second corollary of the Law of Purpose in business is
Profits are a cost of doing business, the cost of the future.

Many people are confused about the role of profit. Some of them feel that profit, or even the pursuit of profit, is somehow associated with "greed." The fact is that profits are good. It is profits that pay for everything. It is profits that pay for wages and salaries, taxes, investment in new products and processes, research and development, and all the many constructive things that a company can do when it is serving its customers well.

The opposite of profit is loss. Where there are losses, there are reductions in economic activity, fewer jobs, and often the collapse of the enterprise. Where there are continuous losses in a business, there is no future for the people who work there. Anyone who is opposed to profit making is therefore opposed to the future of the people who depend upon that business for their livelihood. These people cannot have a future where there are no profits.

Some people feel that profits are too high. Over an eighty-year period, however, from 1920 to 2000, the largest companies in America have averaged annual after-tax profits of approximately

5 percent per year. Of the total expenditures of most companies, less the costs of raw materials for manufacture or goods for resale, almost 85 percent of all costs are wages, salaries, and bonuses. Wherever a country, or even a part of a country, has lots of profitable companies, it usually has lots of well-paying jobs and great opportunities for the people working at those jobs.

How you can apply this law immediately:

1. Look for opportunities to make your company more successful. Your ability to impact the profitability of your company is the critical determinant of your long-term success. Do you know the price and profit structure of your enterprise? What are your most profitable products? Who are your most profitable customers? Where do you have an influence on the money coming into the company?

2. Identify the areas where you can help create and keep new customers. Look for opportunities to develop and promote new products and services. Find ways to build greater loyalty among your existing customers. Do something every day that increases your company’s ability to create and keep customers.

Source: Brian Tracy, The 100 Absolutely Unbreakable Laws of Business Success, Berrett-Koehler Publishers, Inc, (San Francisco, 2000).