Company executives don’t always know what business they’re in. And in this case, what they don’t know can hurt them. It is important for every company’s survival to know what business they’re in–from their client’s perspective—and to use that knowledge to shape how the business operates.
The business you’re in is not defined by the products you sell or the services you provide. It is defined by the beginning and ending points of where you add value to your customers, as they perceive it and in a way they are willing to pay a premium for. If your over-arching goal is to get and keep customers, as it should be, you can only achieve this goal if you continue to offer value superior to that of any alternatives.
How does knowing what business you’re in help?
First, knowing what business you’re in enables your company to remain relevant to your customers. You remain relevant as long as you continue to provide value to your customers: filling their needs and helping them accomplish their goals. Their needs, wants and desires won’t change; only how those needs, wants and desires are defined will change.
Be loyal to your customers’ needs, not your processes. This may require that your company reinvent itself to maintain relevance. As new technology is developed, as tastes change and as market dynamics shift, evaluate whether a new alternative better fills your customers’ needs than your current offerings. If so, you can adopt that alternative sooner and continue to offer your customers the best value. Remaining relevant allows you to indefinitely extend the viability of your enterprise and continue to thrive.
Here’s an example: Just after the turn of the 20th Century, horse-drawn carriage manufacturers became obsolete as automobiles, a disruptive technological innovation, altered market dynamics. The horse-drawn carriage manufacturers failed to understand how they added value to their customers and ended up closing their doors instead of transitioning to automobile manufacturing.
Every one of the carriage makers thought of themselves as being in the horse-drawn carriage business instead of the personal transportation business. They may have recognized the demand for personal transportation, but they too narrowly defined the way to fill that demand. They failed to recognize that the value they offered was their customers’ ability to conveniently and comfortably travel on-demand. The carriage makers may have also thought their existence was secure because automobiles were initially too expensive for the average person.
Henry Ford understood that for an automobile to be a better value than a horse-drawn carriage it had to be affordable, so he adopted the movable assembly line. Mass production was Ford’s innovative way of lowering his manufacturing cost and transforming the automobile from being a toy for the rich into a viable option for the average buyer.
To remain viable and relevant, continue to add value to your customers.
Each of the horse-drawn carriage makers should have constantly been on the lookout for ways to provide better value for on-demand personal transportation. Their customers weren’t buying horse-drawn carriages because they wanted a carriage. Customers were buying carriages because, at the time, horse-drawn carriages were the best alternative to fill their personal transportation needs. When automobiles became affordable, customers quickly recognized their superior value and abandoned horse-drawn carriages.
Let’s move this example ahead by 100 years: Today, automobile manufacturers supply their customers’ needs for permanent or on-going, on-demand personal transportation. Companies like Zip Car further define and refine the value they offer to those customers who want convenient access to on-demand personal transportation without an ownership commitment. The distinction between access and ownership is also an important element in on-demand visual entertainment, which we’ll discuss below, and will likely play an ever greater role across many industries in the future.
Movie theaters offer another good example: Movie theaters, in the U.S. anyway, are actually in the fast-food business. There’s little profit in ticket sales. Their profits come from selling popcorn, candy and soda. The movies they show are mostly marketing tools used to get food and drink buyers in the door. As people’s tastes shift away from junk food, movie theaters must offer healthier snack alternatives if they are to maintain their profit margins.
The second reason to know what business you’re in is to help you focus. When you know who you deliver the most value to, why and how, you can focus your efforts towards your ideal customers—ones who appreciate and are willing to pay a premium for the value you offer. It also helps you focus your efforts on those products or services you are good at producing and that your customers find to be the most valuable. Your opportunity for continued success lies at the intersection of what you do well and what your customers are willing to pay for.
Next, when you focus on the true nature of your business—what need it fills, how and for whom—and not just on the products or services it offers, you can crush the competition. For example, Netflix does a better job providing access to on-demand visual entertainment than anyone else. Netflix killed Blockbuster, which itself was a game-changer, because Blockbuster failed to continue to add value as technological improvements allowed for more convenient access options.
The fourth reason: greater profits. Knowing what need you fill—what value you provide—enables you to more clearly emphasize the unique benefits you offer, as the customer perceives them. This allows you to focus your marketing message, making your marketing more effective and less expensive. It also lets you charge accordingly for the value you deliver. Your opportunity for profit is in direct relation to how well your product and service offerings align with your customers’ needs—again, as they perceive those needs to be.
Let’s look at a few more examples… Gas station fuel sale margins are vapor thin. Their profits come from food, drink and lottery ticket sales. This is why what were once called gas stations, are now referred to as Convenience Stores. FedEx Office is also in the convenience business. They just happen to have copy and binding machines. Are your customers buying your widget, peace-of-mind from getting that widget from you on-time and error-free or the results the widget produces?
And lastly, knowing what business you’re not in can help you avoid pursuing good ideas, but that are outside of areas where you add the most value.
Defining the value you offer.
What urgent need or compelling desire do you fill? What anxiety do you ease? What critical knowledge do you impart? What complicated process do you make simpler? How do you help your clients improve their businesses, whether it is helping them become more efficient through reducing costs and improving productivity; or helping them grow their revenues by providing them with new capabilities? What tangible result do you offer that your customers consider being of a higher relative worth, utility, or importance than the next-best-alternative? Think in terms of critical business measures such as productivity, operational efficiency, profitability, costs and time-to-market. That is the value you add.
When you understand the value your company offers, how and to whom, your business is better able to survive, thrive and take advantage of the available opportunities.
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