Leadership: Are Customers More Important Than Profits?
This might be one of the most soul-crushing questions for capitalists and business leaders to answer! I don’t mean this as a trick question (e.g., Which came first, the chicken or the egg?). Obviously, if you don’t have customers, you can’t have profits. However, you can have many customers and no profits, and that doesn’t work unless you’re subsidized.
The real challenge of this question often comes when the wheels fall off. Perhaps you’re old enough to know the Tylenol story; it’s a case of a leader firmly saying customers come before profits. At the time of the recall, people commonly thought the company would go under. It suffered mightily in the short term but prospered in the long run.
Mark Zuckerberg tried to answer this question on Capitol Hill. As he fell on his sword in front of the stuffed shirts and blouses, he said, in effect, that the community (i.e., customers) comes first (though Facebook’s actions might say otherwise).
Some of my liberal friends would no doubt scoff at this question, saying that obviously customers come first. But you don’t have to be a businessperson to show your greed. Schoolteachers, psychologists and ministers could take less and serve more, but there’s a limit to this.
To make this a rational question for a rational business leader, it’s one of transparency and degree. Selling gasoline for $100 a gallon during a natural disaster is dastardly, right? But when the market will bear it, you’d charge a few cents more a gallon.
What obligation do we have as businesspeople to our customers? Economics would say that market forces will answer this question over time. I believe that. I also believe, however, that optimizing profit over the long term is preferable to maximizing profit over the short term.
Capitalism is highly correlated with reduction in poverty, happiness and health. Capitalism dictates that profits are critical. Businesses must create value in excess of the resources they consume. But as Peter Drucker famously said, the purpose of a business is to create a customer.
My experience is that businesses that put customers first prosper most. At the end of the day, the answer to the question requires leadership and moral character and takes place in the myriad decisions that managers and leaders make daily. There’s no perfection, just success.
Isn’t ambiguity fun?!