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Incidentally, when a business is just getting started, there is always some new purpose being formed—for example, “We repair used Japanese cars,” or “We bake confectionary products according to local customers’ tastes.” These are not the most ideal purpose statements. The more specific a purpose is, the stronger it is. One could say that, ideally, the intent should have some unique element that provides a competitive advantage.
Preserving the purpose and making sure the company does not deviate from it is not an easy job. In Visotsky Consulting’s company, our customers, consultants, and business owners promote some new idea every month. Our purpose was precisely formulated for such a reason. Before this actively expanding company was started, I had the usual consulting projects. I found companies and then worked with the owners or managers under contract. I, along with some assistants, implemented the management tools and left when the job was done. However, I found this was not a good approach, for two reasons. First, during such projects, you ca
Between the years 1990 and 2000, there were many Ukrainian companies that are examples of companies without a clear purpose. Their sole purpose was to make money, and this, in fact, is simply a lack of clear purpose. Naturally, such companies jumped on every opportunity to make money and introduced a variety of services. In remote areas, there are still companies that do general wholesale, retail, catering, et cetera. And now when narrowly specialized companies come into these areas and start operating, they successfully push the locals out of business. How should the local companies deal with these specialized companies? They first need to realize that a multioperational company is, essentially, a set of groups—a complex of companies within itself, every one of which has its own main goal and purpose. Managing these subsidiaries means managing every single company separately, as they indeed are separate businesses. I will discuss this further in my next book about business structure and functions.
If you read the mission statements of different companies and analyze their operations, you will find that every strong business has a distinct purpose. Very often, that purpose involves some know-how. To John D. Rockefeller, the purpose was merging small oil-producing and refining companies through stock purchases in exchange for shares in the merged Standard Oil Company. This purpose very quickly led to his control of the entire industry. Moreover, he gained total control of the transportation of oil from the wellhead to the refinery and distribution beyond, thereby enabling himself to set prices that forced producers either to be absorbed by Standard Oil or to go out of business.
While highly successful in this goal, his monopoly of the process from production through transport and refining to retail sale led to the antitrust breakup of Standard Oil. Note that there are no absolute decisions, one being the best over all others. Any purpose is successful to some degree, and to some degree it creates a weakness. For example, Steve Jobs’s refusal to sell licenses for Apple’s operating system resulted in Microsoft’s complete domination of the operating systems market. Every personal computer manufacturer used the Windows operating system and more than a few software developers produced versions compatible only with the Microsoft system. On the other hand, this same purpose by Apple helped create the most convenient computer platform, which is just a pleasure to work with. Those who have used Apple computers do not usually switch to Windows unless they are forced to by some specific circumstance. The almost cultlike loyalty of Apple computer users provided a critical base of early adopters of the iPod, the iPod touch, and all the subsequent products—users who spread word-of-mouth testimony and enthusiasm that supercharged Apple’s launches and incredible growth in unit sales (at premium prices).
When formulating purposes, it is important to take three things into consideration. First, there are products (merchandise or services) that potential customers are ready to pay for, and there are those for which they are not. For example, what can be more important than preschool education for children? Whether a child will be creative, whether he will want to learn and apply his knowledge, and what his values will be all fully depend upon the way he is treated during his preschool years. Essentially, his future, the future of those around him, and that of all mankind will be determined during this time. You would think providing preschool education would be a priceless service, right? But the truth is, for some strange reason many people believe that anyone can take care of children, and therefore they do not like to pay for it. The idea of paying a thousand dollars a month for a child’s preschool seems crazy to some parents, even when that parent is driving an eighty thousand dollars car! There is nothing rational about it. In five years, that piece of metal will not be worth even half of what it cost, and eventually it will fall apart completely. But try to open a kindergarten where kids are taken care of by caring and highly qualified professionals and charge a reasonable price, and you will see that a purpose like this is difficult to bring to life. By the way, start-ups with uncommon purposes very often fail not because they don’t benefit the consumer, but because their purposes are too complicated for most of their potential customers to understand and recognize their benefits. Tremendous effort is required to convey the benefits to them, which is not an easy job for a small company.
Second, in formulating a purpose, you must consider whether it is possible to make the purpose generate large-scale activity. For example, you have a talented craftsman who can create amazing leather bindings for books. A good book with a leather binding could be a wonderful present for any serious reader. You could sell this product all over the world. But there is the question of whether it is possible to create a whole army of such craftsmen and whether it is possible to teach a number of people to create such bindings with the same degree of skill. Also, is there equipment that would allow you to produce the bindings in sufficient quantity? Hamburgers and fries are not difficult to make, yet Ray Kroc still had to open Hamburger University so that those operating his franchisees could do a quality job. IKEA is another great example. That company’s purpose becomes clear if you read a book about its founder, Ingvar Kamprad, entitled Leading by Design: The Ikea Story. I remember one story from the book in which Ingvar was in one of Ikea’s competitor’s stores and saw a drinking glass that was in high demand at the time. He went to his purchasing manager and asked whether it was possible to get the same glasses for a significantly lower price. The manager collected the necessary information and later replied that it was possible to get it much cheaper, but Ikea would have to sell over a million of such glasses. Ingvar gladly accepted the deal and, as a result, the glass was a best-seller, bringing the company good revenues.