Welcome back! Yesterday, on Day 1: What Is a Business?, we stripped away the corporate jargon and defined a business in its simplest terms: an organized system that exchanges value to solve problems and sustain itself.
Today, we are taking a logical next step. We need to answer a fundamental, almost philosophical question that lies at the heart of every single enterprise, from your local corner grocery store to global giants like Apple or Toyota: Why do businesses exist?
If you ask a passing stranger this question, they will likely give you a one-word answer: “Money.” or “Profit.”
While that is a common answer, it is incomplete. It mistakes the fuel of a business for its purpose. Today, we will explore the real reason businesses exist, how they serve society, and why understanding this distinction is the secret weapon of successful entrepreneurs and professionals.
Hi, I’m Kabir! Throughout this 100-day journey, I’m going to be your personal business coach. My goal isn’t to make you memorize textbooks, but to help you develop a sharp, intuitive “business mind.” Let’s dive in.
Prefer learning in Hinglish? You can follow the Hinglish version of this course here.
What You Will Learn Today
- The critical difference between a business’s purpose (why it exists) and its mechanism (how it survives).
- The Value-Problem-Solution mental model.
- Why profit is like oxygen—essential for survival, but not the reason we live.
- How businesses reduce friction and “transaction costs” in society.
The Core Concept: Purpose vs. Fuel
Let’s tackle the biggest misconception right away. Does a business exist to make a profit?
To understand this, look at the human body. Humans need to breathe oxygen to survive. If you stop breathing oxygen for a few minutes, you die. But does that mean the sole purpose of your life is to breathe oxygen? Of course not. You breathe to live; you do not live to breathe.
In business, profit is oxygen. It is absolutely necessary. Without profit (or cash), a business will run out of resources and shut down. But profit is the result of doing something else extraordinarily well. It is not the ultimate reason the business exists in the first place.
So, why do they exist? At the most fundamental level:
The Core Reason for Business Existence
Businesses exist to solve problems for people (customers) in exchange for a reward (revenue) that exceeds the cost of solving those problems (profit).
If there is no problem, there is no customer. If there is no customer, there is no value created. And if there is no value created, there is no business.
The Concept of Transaction Costs
To understand why we have organized businesses instead of just hiring independent individuals for every single task, economists use a term called transaction costs. Coined by Nobel laureate Ronald Coase, this concept explains that it is often too difficult, expensive, and time-consuming for individuals to negotiate, coordinate, and contract for every single service they need.
A business organizes these activities under one roof. It brings together people, machinery, and systems to deliver solutions efficiently, reducing the “friction” or transaction costs for the customer.
The Mental Model: The Problem-Solution Bridge
Think of a business as a bridge across a wide, rushing river.
| The Bridge Element | What It Represents | The Business Role |
|---|---|---|
| Left Bank | The Customer’s Problem (Pain, friction, or desire) | The starting point. Where the market demand lives. |
| The Bridge Structure | The Business (Operations, systems, product/service) | The mechanism that makes crossing the river easy and safe. |
| Right Bank | The Solution (A better state of being, convenience, saved time) | The destination. The value delivered to the customer. |
If crossing the river on their own is dangerous or impossible, people will gladly pay a small toll to cross your bridge. The toll is your revenue. The cost to maintain the bridge is your operating cost. The money left over is your profit.
If your bridge is built in a place where nobody needs to cross the river, it doesn’t matter how beautiful or advanced the bridge is—it will fail. The business only exists because the bridge serves a real purpose.
Real-World Examples: Purpose in Action
Let’s look at two contrasting businesses to see how this plays out in the real world.
Example 1: Apple Inc.
The Problem: People wanted powerful computing devices, but early computers were incredibly complex, ugly, and required programming knowledge to use.
The Solution (The Existential Purpose): Apple existed to make technology beautiful, intuitive, and accessible to creative individuals.
The Result: Because they solved this problem uniquely well, millions of people happily paid a premium. Apple became one of the most profitable companies in human history.
Example 2: A Local Laundry Service
The Problem: Busy working professionals do not have the time, energy, or commercial equipment to wash, dry, and iron their clothes properly every week.
The Solution (The Existential Purpose): To give people back their weekends and keep them looking professional and presentable.
The Result: Customers pay a predictable fee because the service saves them hours of labor. The laundry business exists to trade convenience for money.
Think Like a Business Owner: The “Why” Audit
As you go about your day today, pick one business you interact with—it could be your favorite coffee shop, a software application you use at work, or the grocery store down the street. Ask yourself these three simple questions:
- What is the specific friction or pain point this business removes for me? (Does it save me time? Does it reduce my effort? Does it make me feel safe?)
- Could I easily solve this problem on my own without them? (If yes, why do I still choose to pay them? If no, what makes their solution unique?)
- How do they charge me, and does that charge feel fair compared to the value I get?
This simple exercise shifts your perspective from a passive consumer to an active business observer.
Common Misconceptions
Misconception 1: “Businesses exist only to make shareholders rich.”
The Reality: While public companies have a legal duty to return value to shareholders, they cannot do so in a vacuum. A business that focuses only on squeezing money out of customers without delivering real value eventually loses those customers to competitors who care about solving the problem. Shareholders only get rich when the business solves problems effectively over the long term.
Misconception 2: “If I have a great product, my business has a purpose.”
The Reality: A product is not a purpose. A product is simply a tool. If you invent a highly advanced, solar-powered potato-peeler, but nobody cares about peeling potatoes faster, your product has no purpose. The purpose is rooted in the customer’s need, not your invention.
Coach’s Note: Kabir’s Golden Rule
When you start designing a business, or even when you’re working inside one, never start by asking: “How can we make money?”
Instead, start by asking: “Whose life are we making easier, and how?”
If you can answer that clearly, and if you can deliver that ease reliably, the money will follow. This is not soft, idealistic advice—it is the hard, cold reality of sustainable economics.
Quick Recall (Checkpoint)
Let’s test your understanding of today’s concept. Try to answer these questions before revealing the answers!
Question 1: Why is it incorrect to say a business exists solely to make a profit?
Profit is a vital condition for a business’s survival (like oxygen for humans), but it is not its ultimate purpose. A business must first solve a problem or create value for customers to earn that profit. Without a purpose (value creation), profit cannot exist sustainably.
Question 2: What do economists mean by “transaction costs” in relation to why businesses exist?
Transaction costs are the time, effort, and money required to coordinate separate individuals for a task. Businesses exist because they pool resources, people, and processes to lower these costs, making it easier and cheaper for customers to get a complete solution.
Question 3: What is the starting point of any viable business?
The starting point is a customer’s unsolved problem, pain point, or unmet desire. Without this, there is no foundation for a business to exist.
Frequently Asked Questions (FAQ)
Can a business exist without making any profit at all?
In the short term, yes. Many startups and new businesses operate at a loss initially while they build systems or acquire customers. However, in the long term, a business cannot survive without profit (or external funding) because it will run out of cash to pay its employees, suppliers, and operating costs.
What is the difference between a non-profit and a for-profit business?
Both exist to solve problems. However, a for-profit business distributes its excess profits to its owners or shareholders. A non-profit organization (NGO) must reinvest any excess funds back into its mission rather than distributing them to private individuals.
Day 2 Key Takeaways
- Purpose vs. Fuel: Profit is the fuel (oxygen) that keeps a business alive, but solving problems is the actual purpose (the reason for being).
- The Customer-Centric View: Businesses exist because they remove friction, lower transaction costs, and solve problems more efficiently than individuals can on their own.
- The Bridge Model: Every successful business serves as a secure, efficient bridge between a customer’s current problem and their desired outcome.
What Comes Next?
Now that we know why businesses exist (to solve problems), we must explore the currency of that exchange: Value.
Tomorrow, on Day 3, we will unpack How Businesses Create Value. We will look at how a business transforms raw materials, time, and effort into something so desirable that customers will happily pay for it.
Keep track of the full journey on the main Learn Business in 100 Days course page.
See you tomorrow!