The purpose of a business, according to guru Peter Drucker, is to “create and serve a customer.” Of course, there is one missing word; it really should be, “to profitably create and serve a customer.” If the business loses money on every customer, it will not last very long. One of my favourite jokes (unfortunately not always a joke), is the CEO who says, “sure, we are losing on every sale, but we’ll make it up in volume!”
Every business needs a vision; most highly successful businesses start and focus on that vision of the world from the perspective of the customer. A business whose vision is, “we make a lot of money selling hammers,” might make money, but will easily be undermined by competitors, who will focus on better quality, customer service and channels, solving real customer needs, rather than company needs.
Getting from “create and serve a customer” to “do so profitably” is a challenge faced by every visionary company. Most CEOs are really good at one side – the vision – or the other – running a profitable business. For startups and turnarounds, once a unique product/market fit is achieved, executing on vision while targeting scalable and profitable growth (or at least growth towards profit) is one of the overriding challenges facing the business.
I was reminded of this while reading an article on how Facebook has managed Instagram since the acquisition. This shouldn’t be surprising, since Facebook itself used this model – reportedly enforced by the Board over CEO Zuckerberg’s head – to turn Facebook from free service that loses money to valuable free service that makes billions of dollars.
The pattern is the same: visionary CEO who founds a company that focuses on a clear vision centered around improving real peoples’ lives. In the case of Facebook, it was sharing and connecting; in the case of Instagram, it was to “capture and share the world’s moments.” Either way, these are visions of a world that are highly appealing to end users, and so they have flocked to these services by their hundreds of millions. But how does such a customer-oriented visionary CEO translate that vision into profits, without losing sight of the vision?
In the case of both Zuckerberg (Facebook) and Systrom (Instagram), letting the CEO continue to focus on the vision and customer is critical to driving massive growth. Without it, both companies would have stumbled and failed (see Friendster). At the same time, hiring a powerful direct report of the CEO like COO Sandberg at Facebook and Director of Business Operations White at Instagram – and let’s be honest, they really report into the Board – who can manage the company in its execution of customer growth and revenue acquisition, allows the company to have a real future… fulfilling the vision of serving customers.
So which kind of leader are you: business or visionary?