What Business Are You In? Mixed Messages
What business are you in? Are you hiding more than one business in your business? Often, businesses evolve and we start serving different customers but we never re-define ourselves. This causes confusion when we are talking to potential customers, investors or buyers of our companies.
The example from this video talks about a construction person who, in the course of tiling showers invents a tool that allows them to tile faster and get the angle precise for having the water drain properly. After a while, his friends start buying the tool from him, and he thinks: let me sell this to hardware shops. That business is good, but it means he has to be a manufacturer, so he decides to sell the entire blueprint and patent to a tool manufacturer. The whole time, when people ask him what he does for a living, he says he’s a construction person, but actually that’s not his business.
Your business is vis-a-vis your customer. You don’t get to say what business you are in: the customer does. So in this example:
- The construction person provides renovations to people who want a home improvement (or they provide projects of multiple bathrooms to larger construction companies)
- The tool maker sells tiling tools to individual tilers. The tiling professional is the customer here, so they might be willing to pay more for a precision tool, and mass production isn’t yet an issue.
- The tool manufacturer sells tiling tools to hardware shops. Now the issue is being able to produce enough for the hardware shop at a price that allows a margin for the shop. Now the business is really manufacturing and selling at scale.
- The inventor sells the tiling tool blueprint, patent, and manufacturing plans to a large tool manufacturer. Now the business is about selling a patent or a license to use the intellectual property.
As you can see, the whole time, the inventor says he works in construction, but at each stage the job is different, the customer is different, and the challenges are different. This happens often in the software space, where a consulting company develops a product based on a common problem of many of their customer, or an app company develops an aspect of the program (such as navigation, chat, or security), that is a need of other app developers. The question then becomes: should I sell the app or an SDK? Tomorrow I’ll talk a little bit about how you decide what business you want to be in.