Fundamental Business Answers - 2 Questions Pave the Way to Profits
Here's a simple question.
Well, two.
What do you sell? What business are you in? The correct answers to these questions lay the foundation for a successful business, yet business owners get them wrong every day.
Let's review a few examples.
What does McDonald's sell? Food? Actually, no.
McDonald's sells convenience.
It comes in the form of hamburgers and French fries, but what their customers want is the ability to get a hot breakfast without being late to work, the sanity that comes from quickly feeding the argumentative children in the back seat, and the fact that the last $5 in their billfold will feed a teenager until he's full.
What is McDonald's business? Real Estate.
McDonald's owns the best corner in nearly every community in the U.
S.
and some of the choicest real estate in the world.
If you are familiar with their P&L you know how important real estate is to their financial performance, and one look at McDonald's executive talent illustrates their commitment to real estate skill.
What does Starbucks sell? Coffee? No again.
They sell an experience.
They sell the third place, the place other than home and work where one can spend time, relax, and 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 is Starbuck's business? They are in the business of entertainment.
They own music and film production labels.
They have a joint venture with Apple, and they are currently rolling out the technology for customers to download the music tracks being played in Starbucks stores to their iPods.
If McDonald's was simply selling food they would be nothing more than a restaurant or two in some town somewhere.
There is nothing wrong with being in the business of selling food.
But merely selling food is so common that it 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 trusted and consistent provider (IHOP, Denny's, Applebees), or cheap and fast (Burger King, Wendy's).
The answer to the question what business are you in is trickier.
The enduring challenge of business is to understand what will provide competitive advantage and differentiation, and therefore, profits.
Too many small business owners fail to focus on what earns them profits.
That may sound crazy, but it happens all the time.
Imagine that a woman opens a knitting store filled with yarn, knitting needles, and notions.
She has a terrific location and gets good traffic.
She offers a small section of beads and decorative metals, and soon this is the most popular section of the store.
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.
On the other hand, she may be in the business of selling crafts (not limited to knitting) by virtue of her location, her street presence, or some other factor.
If she is smart she will refocus 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 type of business that will provide you with career fulfillment, 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, be independent, build a satisfying retirement, and do work you enjoy doing, there are a variety of things to sell and businesses to be in that could make you happy.
In any case, not making a profit, wasting money for years, or attaching your personal identity to a piece of real estate, a logo, or any inanimate object are sure ways to obliterate happiness.
General Electric is a different company today than it was when founded in 1876.
GE has developed a talent for redefining what it sells and what business it is in, and the reward is profit and growth.
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.
Well, two.
What do you sell? What business are you in? The correct answers to these questions lay the foundation for a successful business, yet business owners get them wrong every day.
Let's review a few examples.
What does McDonald's sell? Food? Actually, no.
McDonald's sells convenience.
It comes in the form of hamburgers and French fries, but what their customers want is the ability to get a hot breakfast without being late to work, the sanity that comes from quickly feeding the argumentative children in the back seat, and the fact that the last $5 in their billfold will feed a teenager until he's full.
What is McDonald's business? Real Estate.
McDonald's owns the best corner in nearly every community in the U.
S.
and some of the choicest real estate in the world.
If you are familiar with their P&L you know how important real estate is to their financial performance, and one look at McDonald's executive talent illustrates their commitment to real estate skill.
What does Starbucks sell? Coffee? No again.
They sell an experience.
They sell the third place, the place other than home and work where one can spend time, relax, and 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 is Starbuck's business? They are in the business of entertainment.
They own music and film production labels.
They have a joint venture with Apple, and they are currently rolling out the technology for customers to download the music tracks being played in Starbucks stores to their iPods.
If McDonald's was simply selling food they would be nothing more than a restaurant or two in some town somewhere.
There is nothing wrong with being in the business of selling food.
But merely selling food is so common that it 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 trusted and consistent provider (IHOP, Denny's, Applebees), or cheap and fast (Burger King, Wendy's).
The answer to the question what business are you in is trickier.
The enduring challenge of business is to understand what will provide competitive advantage and differentiation, and therefore, profits.
Too many small business owners fail to focus on what earns them profits.
That may sound crazy, but it happens all the time.
Imagine that a woman opens a knitting store filled with yarn, knitting needles, and notions.
She has a terrific location and gets good traffic.
She offers a small section of beads and decorative metals, and soon this is the most popular section of the store.
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.
On the other hand, she may be in the business of selling crafts (not limited to knitting) by virtue of her location, her street presence, or some other factor.
If she is smart she will refocus 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 type of business that will provide you with career fulfillment, 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, be independent, build a satisfying retirement, and do work you enjoy doing, there are a variety of things to sell and businesses to be in that could make you happy.
In any case, not making a profit, wasting money for years, or attaching your personal identity to a piece of real estate, a logo, or any inanimate object are sure ways to obliterate happiness.
General Electric is a different company today than it was when founded in 1876.
GE has developed a talent for redefining what it sells and what business it is in, and the reward is profit and growth.
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.
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