Monday, July 6, 2009

Making money vs. helping people

Originally uploaded by dube1111

"The purpose of a business is to create a customer." Peter Drucker

Where is the real focus of your business - on making money or on helping people? Business guru Peter Drucker said that the goal is to create a customer - where is the best balance between being other-focused and being profit focused in achieving that end?

Too much profit focus

  • This can lead to overcharging, which means that the customer doesn't get the level of value they expect for the investment they make, and ultimately it means that they will be unlikely to buy again. Given that it costs 5 times as much to get a new customer as it does to retain an existing one, overcharging means you're trading tomorrow's (and next month's and next year's) profits for today's - from this one transaction.
  • Too much focus on profit means that investments in infrastructure and production capacity aren't being made before they reach crisis status. Not all investments are going to show immediate return, so business leaders need to know what their criteria are for the payoff timeframe.
  • It can become tempting to add more, more, more to employee workloads until - snap - someone gets sick or injured, or somebody gets tired of the ratrace and quits. This also can lead to practices of promoting people without investing in adequate training and development to prepare them to perform competently in their roles. Just like the circumstances above, this is the triumph of short-term reward thinking over long-term sustainability.
  • Too much profit-centered thinking can lead companies to chase the latest trends and money-making schemes, even when they aren't compatible with the company's capababilities and resources. Short managerial attention spans can kill a business.

Too much helping people

  • Drucker said the purpose of business is to get a customer - not a "patient" or a hanger-on. Attraction-based marketing says that it's good to give free samples. But if the sample is as nourishing as the meal, why buy the dinner when you can get it for free? Good will is great, but that alone doesn't pay the electric bill or the payroll.
  • Too much in the helping people department has led some leaders to be overly tolerant of behavior that isn't effective - to keep people on board when they are not performing. I've seen situations as extreme as ones where truck drivers with alcohol abuse problems weren't fired in an effort for the company owner to "help" them - even after several accidents. I'm not advocating an "off with their heads!" style of management - I wholeheartedly advocate training and providing opportunities for people to show what they can do. But too much tolerance of ongoing lackluster performance places the company at risk.
  • Ultimately you have to find a way for the work you love to be funded - by somebody. Otherwise you won't be around to help the people you want to help.

In case it's not already blazingly obvious, it comes down to two sets of criteria and how you balance them in your decision making:

  1. Is it primarily about what I can get, or about what I can give?
  2. Am I focused on the short term or on the long term?

I don't think it's a good idea to run completely toward either side of the ship. Balance is what keeps your ship afloat.


Chip Scholz said...

Julie, I just sent this to a client--we were having this discussion yesterday, and the timing is impeccable. Thanks for a thoughtful post...

Julie Poland, certified business coach said...

Chip -

I'm glad you found it helpful. Thanks for reading.


Pat said...

Julie, I found this post to be especially meaningful to me personally. I am in the process of changing my business model from one of focusing mostly on profit to one where I'm doing what I really want to do, regardless of the profit factor. I know, it sounds like a recipe for bankruptcy, but if I really beleive all this talk about helping people, I need to start living it. I think the money will follow, but if it doesn't, I'm willing to accept that, knowing I'm being true to "the guy in the glass". I'm blessed to be able to do this for awhile, and I am excited to be on this journey. Thanks for your article. It's right in line with my thinking.

Julie Poland, certified business coach said...

Pat -

Oftentimes helping people is one of the real reasons why we go into business in the first place. If you access (or rediscover) this motivation in yourself you might find a passion for your business that you haven't felt in a while. When you're in the zone of your genuine purpose, your authenticity comes through to the people with whom you work. And that, ironically, can lead to the profit you've been seeking. Thanks for your comment!