Basic purpose of business

Solution Preview

Hi there,

In response to your question regarding the purpose of business, I found an interesting article that provides an interesting spin on the question:

What is the purpose of business? [By Richard Field, November 1, 2002]

In my job as a university professor, the question sometimes arises in class discussions about the purpose of business. One usual answer is "to make money", but I don't think that is right. It is unsatisfying to be in business and have as your only reason that of making money. There is a saying that "you need health to live, but you don't live to be healthy". Profits are like that for business. A company needs profits to continue, but profits are not what the business is for.

As one example, let's think of the three kids at the lemonade stand that you drive by on a hot Saturday afternoon. Do you really think those kids are out there making a profit? No, they have parents financing their venture, supplying the sugar, lemons, the use of a table and chairs, the paper for the sign. When they report back at the end of the day that they have made $10, do they then have to pay for their raw materials? Do they pay for their mother's labor when she helped them squeeze the lemons? Do they pay for the electricity they used to make the ice cubes? No, of course not. The purpose of the lemonade stand is not to make a real profit but to provide experience in making and selling a product, dealing with the public on a proprietor/customer basis, and to have something to do. It's worth it to the parents to spend $20 on materials to get the kids out of the house for the afternoon. They can sell lemonade at a loss and it's ok. The same is true for all kinds of supported businesses like Junior Achievement. There an attempt is made to show the kids what the real costs are, but it's still subsidized learning.

Now, how much different is the owner of a hobby business or a hobby farm from our lemonade stand? It isn't necessary for that business to make a net profit of income less expenses because the owner of the business is looking for something else from the business. Something like having fun, or being among a community of businesspeople. If you always wanted to have a place out in the country and raise chickens, does it matter if you are making a profit or not? I don't think so. Even if you can get tax credits and the like to defray your costs, the reason you buy the land and build the coop is because you wanted to. It satisfied your needs to live on the land, to be productive, to meet the people who live around you, to be part of that network. My mother once started and owned a travel agency. As part of it she had a women's travel club. There was a newsletter and monthly meetings to get women together, to meet, to find a travel companion. That part of the business never made economic sense. It never made a profit. But she continued with it year after year because as a female owner of a travel business she wanted to give something back to women travellers.

On a larger scale, think of organizations like museums, schools, or hospitals. People start these to provide a service that is needed. In the past when land was settled these services had to be provided. People created schools to educate their children, built hospitals to care for their sick, and founded museums to learn about and understand their past and the wider world. Now that corporations are so powerful in the world, it's hard to imagine people coming together to build what was needed. But that's why it was done and is still done in some cases. Yes, we now have for-profit museums, schools, and hospitals. But those are latter-day variants of the initial forms. There is still the underlying purpose of providing a good or a service to the population.

One problem that can come about in the running of those for-profit forms is ...