As you
have probably noticed I think, and talk, a lot about Peter Drucker.
And for good reason! He was the man. People really do need to know
more about Peter's teachings. Especially business people. This week I
thought I would take it back to the fundamentals of business.
I have
read a great many business books and a lot of them can be rather
complex. Seeing as we live in a complex world, it makes sense that
these books are complicated. But it's also wise to try to keep things
simple. Leonardo da Vinci is quoted as saying, “Simplicity is the
ultimate sophistication.” It's a yin and a yang. Indeed, it's a
paradox. As paradoxical as it sounds, it's actually quite hard to
keep things simple.
In all
the books I have ever looked through, there was only one that asked
the question, “What is a business?” Now, that may seem like a
ridiculously obvious question. But I don't think it is. I think
answering that question is the simplicity which is the ultimate in
complexity. Below I have included a scan from Drucker's magnum opus.
And I'll never forget the day I first read this chapter. It was
profound.
Drucker
says that THE most important question you need to ask is, “What is
our business?” And, as simple as I know that question may sound, it's
wonderfully difficult to answer. Indeed, most people get it wrong.
Let's say you work for Microsoft. If you say your business is
software, sorry, but you're wrong.
Another example is the medical field. Most people, who work in the medical profession, would say their business is, "Health care." And they'd be wrong. Healthy people, as a rule, are not admitted into the hospital. By definition, a more accurate statement is, "Sick care." And, even the phrase “sick care” would be far from sufficient. This is something I wrote about here: Assurance to the Afflicted
Another example is the medical field. Most people, who work in the medical profession, would say their business is, "Health care." And they'd be wrong. Healthy people, as a rule, are not admitted into the hospital. By definition, a more accurate statement is, "Sick care." And, even the phrase “sick care” would be far from sufficient. This is something I wrote about here: Assurance to the Afflicted
Back to the more fundamental question, “What is a business?” Tell me, what do you think? Take a minute and think it through. Better yet, take out a piece of paper and write out your answer. I promise you, it's an excellent investment of your time. So go ahead, I'll wait...
Now,
hopefully you did spend a minute on Drucker's question. Few people
clarify what A business is and, more particularly, what THEIR
business is. And this is probably the single largest cause of
business failure. Drucker calls the answer to the question your,
“Theory of business.” The cool thing is that you can get your
theory of business “wrong” and not be a failure. How? By
adjusting and tweaking, of course. If the theory is wrong, scrap it
and get a new one. Make adjusts. The key to business, indeed, the key
to life is adaptability.
Before I
leave you to your thoughts, allow me to answer Drucker's question for
you. The question I am referring to, of course, is, “What is a
business?” I couldn't possibly tell you what YOUR business is, because all sorts of people are reading this post. But, the general
question I can answer. If you look closely at that image, taken from
Chapter 6 of Drucker's book, you will see the following phrase,
“The Purpose of a Business: To Create a Customer.” As obvious as
that may seem, it's amazing how many people get it wrong.
A fair
number of people believe that a business exists to make a profit.
Which is getting the sled in front of the dogs. Even the supposed
business elite think in these sorts of terms. On Wall Street it's
fairly popular to talk about, “Maximizing shareholder value.”
Indeed, quite a number of companies have that very phrase in their
mission statements. For these people, the sled pulls the dogs.
Peter Drucker, and later Stephen Covey, would remind us to keep, “First things first.”
The proper order is to keep your focus on the realities of your
customer. You need to create real value for people. When all is said
and done, business is nothing more than the exchange of valuable
things. You produce something customers value. And, in return, your
customers give you something you value. Namely, cash money. And,
voila, you have fulfilled the purpose of a business by creating a
customer.
This is
non-trivial because understanding the true nature of business allows
you to understand the actions you must take. Going back to that image, from Drucker's book, you will see the phrase, “The Two
Entrepreneurial Functions: Marketing and Innovation.” By
pin-pointing the purpose of a business, we have identified our two
main tasks.
There
are several ways to conceive of marketing, and we will discuss them
over time. There exists many models to draw upon when constructing
your marketing strategy. These include the 4 P's, STP, and even Phillip
Kotler's ME. Again, these are discussions for another day.
As far as
innovation goes, again, I won't get into it here. All you need to
know is that innovation is about creating customer value. It is
something I have written about, at length, on the following website: The Future That is Already Happening
So, hop to it. Please. Take the time and answer the question, “What is our/my business?” And, don't say you sell photocopiers, or pharmaceuticals, or houses. Trust me, that's NOT your business. If you need some help, again, I would encourage you to read this post: Assurance to the Afflicted
What you're basically trying to answer is the following question, "What need/desire do I satisfy for my customers?" Looking at your business through the eyes of your customers is wonderfully useful. But, I must tell you, it ain't easy. It's hard, hard work. So please, get started today!
