Peter Drucker
The purpose is to create a customer
Defining the business from the outside in
The Practice of Management, 1954
Ask why a business exists and most people answer profit. Why he called that answer not merely wrong but harmful.
What actually happened?
The sharpest passage in The Practice of Management: there is only one valid definition of business purpose, to create a customer. Profit is not the purpose. It is the test of validity, the risk premium on the future, a result rather than a cause. Treating it as the purpose turns everyone inward, deciding from the statements. His questions run the other way, because what the customer buys is never a product but the satisfaction of a want. Hence the set every business has to answer again periodically. What is our business? Who is the customer? What does he buy?
Profit is the thermometer, not the heart
Profit measures how efficiently you create value for a customer, the way a temperature reports health. Pushing on the thermometer makes nobody healthy. Cut research, squeeze service, raise the price, and the reading improves for a while at the cost of the machine producing it.
A company that meets its profit target by trimming costs four quarters running finds in the fifth that there is nothing left to trim, and that half its customers left during the year.
What the customer buys is nearly always wrong first time
The Cadillac customer, he wrote, buys not transportation but status. He used it to show where the first instinct stops, which is at the product. Push one layer down to what does he solve with this, and the boundary, the rivals and the openings are all redrawn.
A cafe thinks it sells coffee until it notices the afternoon customer is buying a seat that is neither the office nor home. The rival becomes co-working and the opening becomes power sockets.
Create a customer, with the weight on create
Markets are made by businessmen, he said, not by God or nature. Until a want has been satisfied the customer often does not know he has it. Listening is therefore the floor. Identifying what he cannot yet say and turning it into effective demand is the whole ambition here.
No survey ever asked for overnight delivery. Once somebody built it, it became the pass mark for the trade. Questionnaires collect known wants.
How do I use it today?
Where you are: the whole company is organised around a profit number.
Ask first: who is our customer, what is he actually buying, and when were those two answers last updated?
Where it goes wrong: using profit is only a result to excuse years of not making any. A thermometer reading that stays wrong for years means the heart really is in trouble.
Lines to keep
Profit is not the explanation of business decisions but the test of them.
Same situation, other people are asking
It's live and nothing is happening. Do I market it or go talk to people?We hit the numbers and I can't say who we serve.There's no market for this yet. How long can I fund it?Everyone still using it says they like it. Who am I not asking?I'm building something nobody asked for · all 4 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.