Boris is the wise ol’ CEO of TNW who writes a weekly column on everything about being an entrepreneur in tech — from managing stress to embracing awkwardness. You can get his musings straight to your inbox by signing up for his newsletter!
What is the purpose of a company?
The simple and most common answer is: create shareholder value. I mean, it’s all just about the money in the end, right?
But if money is the most important thing to a company, wouldn’t the Chief Financial Officer always be at the top of the pyramid? Instead, the CEO is at the top, and we generally see many people — including the CFO — report to a CEO. Why? Because generating money isn’t the first and only reason for a company to exist.
I think it makes more sense to look at a company like it’s a living, breathing organism. And what do all organisms have in common? They want to survive and thrive.
For a company to survive it needs to generate revenue and profit. If it does, it can hire people, invest in innovation, and grow. If it doesn’t grow and innovate, there’s a chance it will become obsolete and die. Also by becoming bigger, there’s less chance of being swallowed whole by a larger organism.
In that sense, finance is essential, and both short- and long-term shareholder value are crucial parts of surviving. But it’s not the goal itself. You could always generate a fantastic amount of shareholder value in the short term — simply by selling off everything of value — but that would destroy the company’s chance of living on. And you need this organism to live on so you can keep implementing your vision.
That’s why it’s essential and helpful to understand this principle for everyone — whether you’re starting, running, or even just working for a company. If you know you’re dealing with a new living being that’s formed around the initial idea, you’ll be quicker to understand its needs and find success.
For founders, this is especially important. You need to realize it’s natural for your company to take a life of its own. It’s also normal to feel like you’re losing control at that point, but knowing it’ll happen can help you to prepare for it.
It’s the same as with your kids. You know they’ll eventually leave the house one day and become independent adults.