Do you know the answer?
Most people know what a doctor is, they what a lawyer is, they know what an engineer is however they tend to never be able to answer this question.
What is an entrepreneur? What is a business?
Guess what; most entrepreneurs and business owners have trouble answering this with clarity.
Too often I receive answers with very superficial substance; answers such as making money or hiring a team of employees.
Then on the other hand I get abstract answers like the one I used to give myself:
“It is your ability to create the world in your image; it is about creating something that wasn’t there before; it is about taking an idea and giving it structure; creating something that is truly alive and can grow; it’s about developing systems that continue to grow, expand and develop without you.”
The trouble with these explanations are that they allow the perceptions of individuals to distort the true reality of business. I am not suggesting business should be devoid of individuality or creativity; what I am suggesting is that there needs to be a solid foundation where your ideas and creativity can fall back on. When your ideas are based on abstract notions or words with low substance it is a recipe that breeds confusion.
When it comes to understanding reality on a business level Peter Drucker should be the first point of call.
The real purpose of a business
Here is peter Drucker’s definition of a business.
“The purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
This definition is profound in its elegance and simplicity. It may seem too simple and crass to point out that the purpose of a business is to create a customer, however, this point is often lost on most businesses. This definition forces companies to be viewed as a customer centric machine.
It is the customer who determines what a business is. It is the customer alone who will determine a business’s health. A customers’ willingness to pay for a good or service will have direct impact on profitability. If a business does not adopt the highest priority for their customer, they will be left behind.
The view that an industry is a customer satisfying process, not a goods-producing process, is vital for all businessmen to understand. An industry begins with the customer and his needs not with a patent, a raw material, or a selling skill. Given the customer’s needs, the industry develops backwards, first concerning itself with the physical delivery of customer satisfactions. Then it moves back further to creating the things by which these satisfactions are in part achieved. – Theodore Levitt
The world does not care about you; only what you can do for it
Companies must adopt consumerism and forget its egotistical values.
Consumerism is the protection or promotion of the interests of consumers; it is a way of thinking; it forces you to think about the market on a far deeper level.
It forces a business to start out with the needs, the realities, the values, of the customers. It forces the business to define its goal as the satisfaction of customer needs. It forces the business base its reward on its contribution to the customer.
Looking through the consumerism frame will help managers and CEO’S have the right framework to ask the right questions.
Instead of questions about how to increase revenue; questions must be about customer satisfaction and serving the customer. When a company can answer the questions about how to serve a customer better it will lead to far more tangible and long term results for a company.
When you strive to improve the ecosystem of your client your market expands, more possibilities start to appear, you start giving far more value and your profitability skyrockets. Adopting this way of thinking will give you an abundance of ideas of how to drastically expand your business and create unprecedented profitability opportunities.
Marketing is the mother of innovation
While the purpose is to create a customer, the function is to market and innovate. Marketing and innovation is often misunderstood by most businesses and is a far cry away from what Peter Drucker advocates. The two basic functions can be restated in slightly different way.
Marketing forces you to become customer centric, advocating understanding customers deeply from their wants, desires and pains. Then it is also the job of marketing to take this deep understanding and articulate to your market on how you can satisfy those needs. Innovation simply occurs in an attempt to satisfy the changing needs of the customer.
When consulting with a myriad of businesses from S&P 500s to solo professional service providers it is apparent the confusion about marketing is wide spread. When they think and talk about marketing they usually mean activities that are directly tied to the functions of selling. The problem with confusing marketing with selling is that companies become egotistical. Selling often starts with the company and not with the consumer. This way myopic thinking still starts out with “our products, our brand, our needs, our company and our market”.
This is my definition of Marketing – It is an umbrella of processes that captures a markets desires then articulating and fulfilling that desire in the form of your product or service.
In this one sentence the implications should not be understated or overlooked.
This sentence implies a deep understanding and connection with your market. The idea of “our” company and the common selling approach is completely removed. iI implies that your product or service is dynamic, moulded by your market and is an answer to their current questions as well as their future questions.
The word “selling” is not even used. From now on when thinking about the selling process, think of it just as the financial confirmation of marketing; use it is as the scorecard that your marketing is on point, and it cannot be mistaken for marketing as a whole.
Lastly it states that marketing is not just one thing, but a whole myriad of activities. These activities help in the pursuit of understanding and serving a consumer as well as understanding how your company plays a role in the customer’s life.
Here are just some of the functions that pertain to marketing.
Customer insights such as – polls, surveys, customer psychographics, customer behaviour, feedback
HR – yes even HR is under marketing. When you understand the links of marketing and HR your hiring process drastically improves.
These are just some of the functions and depending on the specific company there will be more functions or maybe even less.
However, all these functions can be put into three main categories of marketing.
1. Understand the customer deeply
2. Understand where your business relates to the customer
3. Articulating how your business relates to the customer
This is so important I am going to re-state this into a simple actionable sentence.
Understand the person, know what they want, understand what you can offer them, then finally articulate how your offer will help them with what they want.
There is a clear demarcation between Dell and Apple and it is their marketing. Dell starts out with a product while Apple starts with the consumer.
True marketing and consumeristic thinking starts out the way Apple starts out—with the customer, their demographics, their psychographics, their realities, their needs, their values. Apple does not ask what do we want to sell? It asks, what does the customer want to buy? Apple does not say, this is what our product or service does. Apple says, these are the satisfactions the customer looks for, values, and needs and we will happily serve them.
Despite Drucker’s emphasis on marketing and consumerism, most businesses still herald it as esoteric rather than with clear reality. A simple google search of marketing perpetrates the wrong idea of what it is. With page after page of advertising and website design companies falsely calling themselves marketing agencies it is no wonder why everyone is confused.
The key take away is this; do not make the fatal mistake of believing marketing is advertising or believing marketing is just selling.
The second function of business is innovation. The word itself causes so much headaches to businesses and it really doesn’t have to be because it is actually extremely simple. When the consumeristic and marketing mindset is adopted, innovation just becomes a natural extension of the company. The biggest confusion in this day and age is that companies confuse innovation with technology. Innovation does not have to mean new technology as most managers would assume.
Innovation is in the ability to bring greater value, benefit and advantage to a market that it can appreciate.
It is simply not good enough for a business to provide just any economic goods and services; the goods and services must be both relevant and appreciated by the consumer.
Try selling an IPod to a caveman.
It is not about what you think is bigger, better or more practical; it is about what the market and consumer can appreciate at the time.
Innovation should not be confused with disruptive technology either. Case in point Apple. Did apple produce the first computer? Did Apple Produce the first Mp3? Did they produce the first Tablet? Did they produce the first smart watch? No on all accounts. They asked the market what they wanted through incredible marketing, and then delivered on that. They were able to create greater value that the market would appreciate.
The most saturated time in business history is all yours for the taking
We are in the connected and information age which means there is more competition in today’s business ecosystem than ever before. This means that mass marginalization occurs in which markets are forcing business commoditization and bankruptcy. This is causing chaos in most industries with most companies scrambling for profits. The average company in the 21st century is working harder than ever to receive dwindling profits and stagnate growth.
Thankfully your company isn’t looking to be average.
Here is the interesting part; it is actually not harder to build a profitable long lasting business than it was 20 or even 50 years ago. It just requires a different approach, the Peter Drucker approach, the marketing and innovation approach, the consumerism approach.
Yes, there is an incredible rise in competition that is trying to marginalise your company; but guess what; it doesn’t matter. Most of these companies have generic, superficial and have tremendously low quality intellectual property when it comes to business.
If your company understands what a business truly is then you will be able to stand back and appreciate just how irrelevant these companies are to your overall growth.
While most of your competition is confused about what business is, you will be different, you will not let perception get in the way of your reality of a successful business.
You will have the realisation that most of your competition are actually a single generic company split into many. When you start playing in this new business ecosystem with the right mindset and away from wrong perceptions, your competition becomes irrelevant, you will see how easy it is to leapfrog them.
You will have the epiphany that I once had; that most companies don’t know what to focus on, it’s like a group of pre-school children playing tee ball for the first time. 95% of the children don’t know the rules. Most of the children don’t understand the concept of holding the bat, they don’t understand that they should be hitting the ball then running.
The few children that do know the rules of tee ball reap all the rewards. The children that know the rules seem like giants in the eyes of the majority. While the majority run around in circles, the few that know the rules run around the bases and act with a meaningful purpose.
After the game all the children are tired. The successful children that scored home runs are just as tired as the ones that didn’t. The majority of children can run around all they want but if they do not focus on the right activities they will never improve.
Like this, your company will know the rules and produce superior results with the same amount of effort as everyone else in the market.
Remember the world does not care about your perceptions; it does not care that you work 16 hour days; it does not care that you have the right intentions; it only cares about actual impact.
“Practice makes perfect” is an old saying that most people understand, but it is terribly incomplete. There is a sister saying that should not be forgotten.
“Practice makes permanent.”
It is time to stop perfecting the wrong principles and practice the right principles in business.