Here’s a simple question. Well, two. What is it that you sell? What business are you in?
The correct answers to these questions lay the foundation for a successful business. And a surprising number of businesspeople fail to get the answers right. Let’s review a few examples you’ve probably seen before.
What is it McDonald’s sells? Food? Actually, no. They sell convenience and time. Sure, it comes in the form of hamburgers and French fries, but what they are selling is the ability to get a hot breakfast without slowing yourself down on the way to work, the sanity that comes from quickly feeding a few whiny and argumentative children in the back seat without braking your pace to the grocery store, and the opportunity to put food on the table for a house full of always-hungry teenagers without cooking dinner after a hard day of work.
What business is McDonald’s in? Real Estate. McDonald’s owns the best corner in nearly every community in the U.S., and some of the choicest real estate to be had in the world. If you were familiar with their P&L, you’d see how important real estate is to the financial performance of McDonald’s. If you were to look at their corporate resumes, you’d see how many real estate professionals hold senior positions in that organization.
Let’s do another. What is it Starbucks sells? Coffee? No again. They sell an experience. They sell what they (Starbucks) refers to as the third place, the place other than home and work where one can spend time, relax, socialize. Starbucks is the Country Club, the Men’s Club, the Women’s Circle, the university lounge, for people who never had, no longer have, or otherwise would never have those places.
What business is Starbucks in? Not everyone will agree with my answer, but I think they are in the business of entertainment, and coffee is just a draw. They own Hear Music (an excellent indie label and music catalog since 1989 or 1990 which Starbucks bought in 1999), they have a joint venture with Apple, they have their own label called Starbucks Entertainment and produced the 2006 film Akeela and the Bee, and they are currently rolling out the ability to download to your iPod the music tracks being played in Starbucks stores.
If McDonald’s had approached their what are we selling as a question of just selling food, today they would be nothing more than a restaurant or two in some town somewhere. Not that there’s anything wrong with being in the business of selling food. But the act of selling food is so common that merely selling food rarely evolves beyond a local phenomenon. The power of national or global franchises always lies in something else – positioning them as a lifestyle choice (Hooters, Melting Pot), a known commodity (IHOP, Denny’s, Applebees), or cheap and fast (Burger King, Wendy’s).
The answer to what business are you in is trickier. The enduring challenge of business is to figure out what will provide profits. One of the major failings of most small business owners is the fact that they are unwilling to shift gears and turn attention to what earns them profits. That may sound crazy, but it happens all the time.
Imagine for a moment that a woman opens a knitting store filled with scrumptious yarns, knitting needles, and other knitting notions. She has a terrific location and gets good traffic. Based on customer feedback she puts in a small section of beads and decorative metals. This section of the store is very popular. But she perceives herself as being in the business of selling knitting supplies, so she doesn’t expand the beading inventory or offer classes in jewelry making or embellishment techniques.
Maybe this woman has landed in the business of retailing, because she has either effectively selected or lucked into a great location. Or perhaps she has landed in the business of selling crafts, by virtue of her location, her street presence, or some other factor. If she’s smart, she’ll shift her attention to where the profits are and continue riding that wave, which is likely to shift and change over time.
Some people believe they must approach their business as a vocation. If you can think of one and only one thing that will make you happy in life, then it may be wise to pursue that vocation no matter what (which means, profit or no profit). However, if you are in business to make money, have personal independence, build a satisfying retirement, and do work you enjoy doing, there are a variety of things to sell and businesses to be in that will make you happy. In any case, not making a profit, wasting money for years on something that will never make a profit, and attaching your personal identity to a piece of real estate, a logo, or any inanimate object are sure ways to obliterate happiness.
Public companies are less likely to make this mistake but not immune to it. General Electric is a completely different company today than it was when founded in 1876. The majority of products it sells didn’t exist technologically when it was founded. GE has developed a talent for redefining what it sells and what business it is in, and this talent has rewarded it with profits and growth. Perhaps the strong personalities or egos of the original founders – Thomas Edison, Elihu Thomson and Edwin Houston – would have interfered with successful evolution of the business, had they remained involved (indeed, alive) throughout the 132 years of the company’s existence. Your job – whether you are an independent business owner, a director or manager of a division in a corporation, or in the idea phase of your own dream business – is to answer the questions what am I selling and what business am I in in such a way that profit and long-term sustainability can result.
Now try this exercise again, thinking carefully about what your business must do to set itself apart from the competition. What do you sell? What business are you in? If you are not satisfied with the answers, I suggest pondering them for the few weeks. You’ll be impressed with the creativity and energy that can result from developing the proper answers to and focus on these questions.
(c) 2008. Andrea M. Hill