Farmer and Plow

Purpose and Function of Business

It is the customer who determines what a business is. [He] alone whose willingness to pay for a good or for a service converts economic resources into wealth, things into goods. What the customer buys and considers value is never just a product. It is always a utility, that is, what a product or service does for him. Peter Drucker, Management, Tasks, Responsibilities, Practices (1974)

All the work that I do in my business has no effect if there is no customer willing to ascribe value to it. Without that transfer of “resources into wealth”, a business doesn’t truly exist or have any hope of growth. That latter statement alone definitely puts humility back on the table even if there is phenomenal growth. Said another way, without being psychic with what a customer will need or want, my business could disappear in an instant. So let’s flip Drucker’s assertion on its head. My guess is that he implied this in his statement but for the sake of clarity: businesses exist to create products and services for customers. Customers alone decide this value. Businesses thrive when they can create products and services for customers before customers know they need them. Customers then trust the value. In thinking through the real economic darlings over the past few decades, the availability heuristic points to Apple and Steve Jobs. Enough has been written ad nauseum to cover how his particular brand of business grew so successfully. What I’d prefer to point out are the two functions that Apple undertook (and all other successful businesses) to consistently achieve growth and trust in the mind of the customer. How do I (you) know what a consumer wants before they do? How did Jobs consistently hit the mark for over a decade? Two ways: Marketing and Innovation.

What is Marketing?

From my fledgling perspective, what we currently call Marketing is in fact a form of Selling. That is, positioning of an already existent product and convincing a potential customer on why they should purchase the good or service. Marketing then, is the study of the consumer. Creating a persona and description of a customer that is so real and understood that creating the correct product or service is a natural progression of knowing the man or woman. If we indeed know the customer’s demographics, needs, values and realities, then we can ascribe the particular itch that  a consumer wants to scratch.

What isn’t Marketing

Selling isn’t the antithesis of Marketing, but if I (we) were able to fully understand a customer and provide him with exactly the good or service he needs, then in what way do we need to Sell? In reality, if we have the perfect product, it’s about bring awareness to the consumer that we exist and this product exists. This is called Advertising and, in my simple head, is a sub-category of Selling. Now, I work at a Digital Marketing agency. We call it that because that’s what our customer expects it to be called. But I would prefer to have our service known as Digital Selling and Advertising. We do assist with persona creation and identification of how that particular type of person may shop and search, but it’s not product development. And it’s definitely not helping push products that are so perfect we’re not needed. In fact, the imperfections of business are how my company even exists! Another dose of humility. Back to Apple, it’s obvious the lineage that a designer could see an opportunity in how consumers use Telephones*, Music Players and Computers and make changes that improve upon these. In knowing the customer so well, Apple was able to improve an entire line of technology and bump the entire segment up to the next level. This process is known as Innovation.

What is Innovation?

Innovation (sans leverage) is one of my least favorite words because it is thrown around so often. True innovation is very rare and, though innovation does mean improvement, I think some type of reservation for big steps is deserved, especially since it’s such an important piece to business growth. The generic form of innovation is simply seen in the lowering of price for the same good or service OR the improvement of a good or service for the same price. These micro-innovations are the backbone of our economic model and fairly simple (not easy) to come by. Where deep innovation develops is in the lateral step over, i.e. the creation of an entirely different product or service to help a customer meet a need. For example, math machines slowly developed over 10s of years from the room-sized “computers” in the 50s to the smaller “calculators” in the 70s but even so, these micro innovations produced the exact same output: answers to equations. The machines got smaller and more powerful but they were roughly the same at each generation; from a macro point of view. It wasn’t until IBM and Apple set about in the Personal PC wars, that we saw much larger Innovation, i.e. movement from Universities and Governments into the home. This shift brought about billions of new customers and paved the way for the modern Internet. That’s Innovation of mass scale rather than incremental improvement.

In Summ

For my own exercise, determining the data needed to understand the customer is step one. Learning all existing answers to this customer’s problems is step two. Defining my own business is step three. How are you determining products and services for your customers? What are you currently selling and how can it be ameliorated? Is there always room for innovation?

* Autocorrect wanted this to be Cell Phones. Man, things have changed fast.
Image Credit: STEVE MURPHY of Toledo Blade

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