If you ask Chat GT to define “business,” you will get the following:
A business is an organization or entity engaged in commercial, industrial, or professional activities with the aim of generating income and making a profit. A business typically involves producing, buying, selling, or providing goods or services to customers, clients, or other businesses. It can be operated by an individual, a group of people, or a corporation, and may vary in size and scope, from small, local enterprises to multinational corporations. Businesses are essential components of the economy, creating jobs, generating wealth, and driving innovation and growth.
Pretty boring right, but it does not have to be.
First let me digress back to graduate school at Cornell and a Managerial Accounting class. I still remember the last question on a mid-term exam worth a measly two points. After all, you remember what you got wrong in school. What you got right is easily forgotten.
It was a gimme essay questions – two points of charity – “What is the purpose of business?”
I still remember approximately what I wrote: “The purpose of a business is to maximize benefits to ALL stakeholders which include customers, employees and stockholders, balancing the needs of each group in an attempt to optimize the best outcome for all!”
Incorrect! Professor Geller wrote in big RED letters on my test – “The purpose of a business is to maximize return for shareholders!” And only Shareholders, he insisted during subsequent discussions.
I disagreed with him then and I disagree now. Thirty years later, I still stand by my definition. We didn’t have Google back then and it was three decades before Chat GPT, but Professor Gellert must be rolling over in his grave with Chat GPT’s current answer which signals a change in the times and a philosophy more in line with mine!
According to Chat GPT: The purpose of a business can vary depending on the individual goals and values of the business owner or stakeholders. However, in general, the primary purpose of a business is to create value for its customers and stakeholders by providing goods or services that meet their needs or solve their problems.
In addition to creating value for customers, businesses also aim to generate profits and create a sustainable financial model that allows them to grow and continue to serve their customers. This often involves managing resources efficiently and making strategic decisions to maximize profits while minimizing costs.
Moreover, businesses can also have broader social and environmental goals, such as promoting sustainability, supporting local communities, or advancing social causes. In recent years, there has been a growing emphasis on corporate social responsibility, with many businesses striving to make a positive impact beyond just their bottom line.
While this definition doesn’t emphasize taking care of its employees as much as mine would, it’s a much more agreeable definition than the one emphasized in business school in the 90’s.
The key take away for someone starting a business is: Begin with your mission and values and align your business purpose with your mission. It’s fine if all you want to do is maximize profits, or create a beautiful product that delights customers, or create a vehicle for employees to learn and grow. Every business can have its own purpose. Cash flowing positive, though, is the one common denominator for long term success.
Social missions can be a great purpose, too, from Penzeys Spices to Ben and Jerry’s to Patagonia, we have seen social and political causes become part of the companies brand as they focus on a specific marketing niche. This is harder for larger Fortune 500 companies that serve broader markets and may have more fickle stockholders. Often larger companies will try not to alienate customers by taking political or social stands, trying to avoid being labeled ‘woke” or not “woke enough!” You can find articles by economists arguing that companies with social missions are less efficient than other companies, or absolutely the reverse and that they are more profitable, depending on who you read.
The truth is that operating a business will always take a delicate balance between what the customers want and need, what the employees want and “need” and what the finances dictate. You have to focus on all three to be successful. Without a great product, it is hard to separate yourself from the competition, without motivated employees, you will be a one-person shop forever and if you don’t get your finances right, even the best laid plans and most honorable mission will fail!
In conclusion, one definition doesn’t fit all and running a business is a giant balancing act with competing priorities and whether you are product-centric, employee-centric or profit-centric, it’s hard to get the mix exactly right.