Why Do Companies Exist?

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Elena

15/02/2023
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The way of business as we know it has been the way of life for a long, long time. Though companies, as we know them now, have really only existed for a relatively short period of time, organizations have been around for thousands of years.

But it all leads to one question: Why do companies exist? What is the purpose of a company? Understanding the answer to this basic question can provide a little bit of clarity as to what these companies are really trying to do.

What is the Purpose of a Business?

At its very core, the purpose of a business is to bring value to customers. These customers, in return, pay for goods or services using things that are of equivalent value, typically cash. At a minimum, that money received should be able to cover the costs of operation for the business as well as any basic life needs for the owner of the business.

Money that is in excess of that funding or salary—which is known as the profit or margin—can be used to reinvest in the business itself. That money can be reinvested in any number of ways. It can go towards the future needs of the business, but it can also be used for philanthropic purposes as well.

Businesses, at their core, know that this is the point. But it is probably safe to say that the vast majority of businesses have lost sight of these values. What is the real purpose of a business?

The Real Purpose

Let’s be clear: there are several good reasons to answer the question, “Why do companies exist?” In this day and age, in particular, there are different reasons why a proprietor runs their business and what their goals are.

These can include being one’s own boss. It can be about creating profits. Perhaps it is about providing the community with a service or livelihood. None of these is a bad reason to start up a business.

But at its heart, the real reason that any business exists is to create customers. This is sheerly because of the fact that no business, regardless of the area or industry, exists without its customer base. These business enterprises are something of organs of society. They do not exist on their own but to satisfy a societal need, whether for the community at large or the individuals within. They are also there to fulfill a specific purpose within that society.

Because of time and a shift in societal thinking, most business owners today think of their organizations from a more capitalist mindset. There’s not necessarily anything wrong with that. It is simply another way of looking at things.

When you stop to think about it, startups wind up dying after some time because they are unable to find a product or service that their customer base is willing to pay for. They might have some cool offerings or ideas, but if no one actually wants to pay for them, they will eventually fail. This is true even for those companies that are of the non-profit variety.

Businesses in Society

Whenever you take an economics course, one of the first things that will be taught is the concept of supply and demand. There are two basic things that happen in this concept.

The first is that individuals supply their skills and talents to the business in exchange for some form of compensation. The second is that the businesses will use those skills and talents to create services and goods that are then made available or sold to the customer, be it individuals or communities.

That is obviously the more simplistic view of an economy as a whole. It gets a lot more complicated than that, but at its core, you can see that this is how the relationship between the business and its customers works.

Really, there are two sides of the equation that result in the creation of the market. The market is a structure that allows sellers and buyers to exchange anything from services to goods to information, whether that includes money or not.

That’s a deeper rabbit hole than this space has time for. Instead, the focus becomes on the customers and the businesses. Customers are created whenever they find some value in a service or product that the organization has created. What does that mean? Well, they find something that is offered by the company that is of enough value to them that they are willing to pay money for it.

Business is a Cycle

To put things as simply as possible, that cycle is necessary. Without it, the business and the proprietor do not exist. It is one of the simplest, most core values within the world of business. Additionally, the market will stop existing if there is not enough value created for both the company and the consumer.

Providing that value—and hoping that the value is less than the cost, which is what a profit is—is the ultimate goal of any business. No matter what the other goals or interests of the business may be, no business can exist without the necessary value that provides the relationship between the business and its customer base. There is a lot more to it than that, but that is the core of the relationship.

Conclusion

There are more than a few reasons that a business operates. At its core, it is to make the people invested in the business money. But there are so many other reasons for the existence of the business that even those running the business tend to lose sight of.

At its core, the goal of any business at its heart is to create customers. Customers are the lifeblood of any business, and creating that customer base is how any business will survive.

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