By using this site, you agree to our Privacy Policy and our Terms of Use. Close
VAMatt on 05 June 2021
Edit Thread
The_Liquid_Laser said:
Hiku said:

Purpose and success are different things though.
Two companies can have the same purpose, and succeed at it differently.

Company A sells 50 million consoles, and 100 million games.
Company B sells 50 million consoles, and 0 games.

That sentence was written 60 years ago, and doesn't apply to something like selling a console at a loss.

If the purpose of the company ends at the console sale, they'd go bankrupt and be out of business. So that can't be it.

He defines a customer as someone that pays for goods and services and keeps the company in business. And just buying a console usually does not do that. Even if the system is not sold at a loss (of what the components cost), it still doesn't recoup the expenses that went into getting the systems unto store shelves. Research & Development costs, advertisement, logistics, shipping, packaging, factory, wages, licensing, etc.

That's why selling software is the goal. And PS4 sold the most software.
Additionally it made more customers (by Peter Drucker's definition) through selling subscription services, movies, microtransactions, etc.
Things that were not available on PS2.

I can't tell you're having trouble with this concept, so let me try to say it again more simply.  The purpose of a business is to serve customers, and the more customers it serves the better.  However, a business that is not making profits is not sustainable in the long term.

On top of that you can measure the Internal Rate of Return (IRR) for any business venture.  Lots of business ventures last more than 1 year, so you have to look at it as a whole.  For example you can look at the PS1 profits over it's total lifetime.  It might have lost money in it's first year, but you can look at the IRR over the console's whole life to see how it has done.  The PS1 was profitable overall.  The PS3 was not.  There are lots of ventures, over a variety of industries, that need to be examined over a time interval greater than 1 year.

VAMatt said:

That is a total nonsense statement about the purpose of a business.  Businesses exist to maximize the total return to shareholders (or whatever term you want to use for rhe owners)  That means maximizing profit, generally in the long term.  Getting customers is an important part of that, but a customer is of no value if you do not profit from them.  

That "nonsense statement" comes from the leading business expert of the 20th century.  However, I can understand your confusion.  Some people think a business is there to serve customers.  Others think the business is there to serve themselves.  I am like Mr. Drucker.  I think a healthy business has a purpose in serving customers.  I am not a fan of businesses that make profits such a priority that they do things that are clearly not in their customers' best interest.

I know who he is.

I don't think you understand what a business is.  To all businesses that are bigger than small family firms, and even to most of those, the only thing that matters is return to the owners. Everything a business does it does for the purpose of maximizing that return.  When it gives employees above market wages and a great work environment, it isn't out of the goodness of its heart. A company isn't a human with emotions, it doesn't have a heart. It is done because that is what (they believe) maximizes total return to owners.  The same is true of a company that treats employees poorly.  

In other words, there are no (sizeable) businesses that prioritize profits more than others.  A business, by its nature, does nothing else. 

With all of that said, of course a business needs to create customers.  And it does thay by providing them value.  But, it doesn't provide value for fun, or as an act of charity (even the companies that donate a portion of every sale, or a pair of socks or shoes or whatever aren't doing it as an act of charity in the way that we generally think about that).  A company does this because that's what (it believes) generates the maximum return for owners.

Investing more, cutting investment, hiring, firing, providing good customer service, bad customer service, making cheap crappy widgets, making the highest quality widgets possible, all of it is done for the same reason.