Anyway, here are some other things we talked about. I was working out yesterday and ranting to myself on Facebook Live about how people complain when businesses don't make money - as if that's the only function of a business. I think this point of view is rather prevalent in startuppity circles because the startup industry is basically defined by venture capitalism. Anyway, I found a fun little way to describe the issue, so here's a version of it.
A business is a black box, which people put things into, and which they then hope to get other things back from. Different parties are looking for different inputs and outputs, and that's generally how we define stakeholder segments. Each type of stakeholder interacts with the same black box, but they each use a different interface, as they each expect the black box to function in a different way from what the other stakeholders expect.
"The purpose of a business is to make money."
Mostly I hang out with capitalists, so I hear this one the most (or maybe I am a capitalist, so I think about this more, IDK). I was just thinking on the drive home from work, about how democracy and capitalism are mutually exclusive - capitalism is a lie told by oligarchs to peasants in order to keep peasants believing that they have opportunities for emancipation, while the deck is already stacked in favour of oligarchs. But that's a longer discussion for another post.
1. Anyway, this function of businesses is relevant to investors: use a business to turn money into more money. Investors put money into the black box hoping to get more money back. Roughly.
2. However, it's less often spoken of, but basically understood that this function of a business is relevant to labour as well: in using meat to make money. Labour puts meat into the black box hoping to get money back. Again, roughly, perhaps even crudely for word-choice.
"The purpose of a business is to make goods and services"
3. This is spoken of far less. This function is relevant to customers: use a business to turn money into goods and services. Customers put money into the black box hoping to get back goods and services. So for example in a cafe, the barista isn't there to make the coffee - from the barista's point of view, the barista is there to make money. But from the customer's point of view, the customer is there to make coffee. So the customer makes coffee.
3. This is spoken of far less. This function is relevant to customers: use a business to turn money into goods and services. Customers put money into the black box hoping to get back goods and services. So for example in a cafe, the barista isn't there to make the coffee - from the barista's point of view, the barista is there to make money. But from the customer's point of view, the customer is there to make coffee. So the customer makes coffee.
All that being said, let's look at some value chains.
Under function 1, some businesses are led by investors - a pool of money is formed, and the first staff are hired (paid). The staff are mandated to serve customers, and so if staff are paid in a correct fashion, then customers will get goods and services in a correct fashion, resulting in more money for investors, and that closes the loop, for function 1.
Under function 2, some businesses are led by labour - a pool of meat is allocated, and then either the first customers are served or the first investors are found: but the second step always results in money of some kind, which closes the loop, for function 2.
Under function 3, some businesses are led by customers - a pool of money is formed, and then either the first investors are baited into volunteering capital (and they subsequently hire staff) or the first staff are baited into taking cash for labour, which results in goods and services, closing the loop, for function 3.
A popular billionaire is known for saying that if investors first pay staff well, they will in turn make customers happy, and that is how to make investors rich - and he's not wrong, but that's still only one side of a multi-faceted story.
Where do things go wrong?
SO MANY things could go wrong, but whether they are wrong or not, depends on the function under which an analysis is conducted.
I'm going to cut this piece short, here. My main point was to write a note of encouragement for entrepreneurs (labour) who regularly face criticisms of not making money for investors. Just stop worrying. You're here to build a business, and while investors are always useful, they are not always valuable - and if we are to take said popular billionaire at his word, then investors are always the last to get paid, if at all.
Focus on building better businesses. But try not to piss off your investors.
END
Addendum 1: we've left out various stakeholders such as governments, neighbours, and the fifty-thousand people who never use your product but leave bad reviews on your social media pages, and a more comprehensive text might touch upon those interactables also - but that would be more of a textbook chapter than a blog post.
Addendum 1: we've left out various stakeholders such as governments, neighbours, and the fifty-thousand people who never use your product but leave bad reviews on your social media pages, and a more comprehensive text might touch upon those interactables also - but that would be more of a textbook chapter than a blog post.
