In my years of working with businesses to improve their performance, the most important question I start out with is , ‘What business are you in?’ It’s a simple question with profound implications. All too often, organisations become so engrossed in their products or services that they lose sight of the underlying value they provide. Can you name the biggest company that made horse carriages before Ford came out with their cars? We can’t because that company was in the business of selling horse carriages. Whereas Ford was about getting people from point A to B, and hence was able to innovate.
A clear and compelling definition of your business serves as the foundation for everything you do. It guides decision-making, resource allocation, and marketing efforts. When a company truly understands its core value proposition, it gains a competitive edge and the ability to adapt to changing market conditions.
Take the example of a Cinema. I worked with a company that owned several franchises of cinemas in London. The company’s profitability was going down despite it having high sales. Upon further investigation, I found that the company was not in the movie business at all. Many cinemas are in the business of providing an experience to their customers, since that experience is something which can’t be replicated.
However, defining your business is often easier said than done. Many companies struggle with factors such as market evolution, diversification, and internal alignment. Overcoming these challenges requires a strategic approach and a deep understanding of customer needs.
The Benefits of a Clear Business Statement
- Focus Amidst Disruption: Firstly, it serves as a unifying force within the organization, ensuring everyone is aligned towards a common goal. In times of rapid change, it’s easy for businesses to become distracted by new opportunities or trends. While it’s important to stay flexible and innovative, a clear understanding of your core business ensures that you maintain focus. It helps prevent the dilution of your brand and ensures that your resources are invested in areas that align with your strengths and long-term vision.
- Customer Trust and Loyalty: Customers are drawn to companies that consistently deliver on their promises. When a business strays too far from its core, it risks alienating its customer base. By staying true to your core business, you reinforce your brand identity and build trust and loyalty among your customers. They know what to expect from you, and they value the consistency and reliability that come with it.
- Innovation. A clear business definition also fosters innovation and adaptability. When an organization understands its core purpose, it becomes easier to identify new opportunities and explore adjacent markets. This clarity empowers teams to experiment and take calculated risks, driving growth and long-term success.
- Efficient Resource Allocation: Resources—whether time, money, or talent—are finite. Understanding your core business allows you to allocate these resources more efficiently. Rather than spreading yourself too thin across multiple ventures, you can concentrate on areas that provide the most value, driving growth and profitability.
- Talent Magnet. Furthermore, a well-defined business serves as a powerful tool for attracting and retaining talent. Employees are more engaged and motivated when they understand the company’s mission and how their work contributes to it. A strong sense of purpose can create a high-performance culture and reduce employee turnover.
- Strategic Decision-Making: In the face of change, businesses are often required to make quick decisions. A deep understanding of your core business serves as a guiding principle in these moments. It helps you evaluate whether a new opportunity aligns with your core strengths and whether it will enhance or detract from your business’s core value proposition. Moreover, a strong business definition is crucial for effective marketing and branding. It helps to create a clear and compelling message that resonates with your target audience. By understanding your core value proposition, you can develop marketing strategies that effectively communicate your unique selling points.
How to Define Your Business
Determining what business you’re in is a critical step in strategic planning. It requires a deep understanding of your customers, your market, and your core competencies.
Key steps to help you define your business:
- Customer Focus: Begin by understanding your customers’ needs and desires. What problems are they trying to solve? What value do they seek?
- Core Competencies: Identify your organization’s unique strengths and capabilities. What do you do better than anyone else?
- Value Proposition: Clearly articulate the value you deliver to your customers. How does your offering differ from competitors?
- Market Analysis: Assess your industry, target market, and competitive landscape. How does your business fit into this ecosystem?
By following these steps, you can develop a clear and compelling definition of your business that will guide your strategic direction.
Customer Focus and Core Competencies
Let’s explore the first two steps in defining your business in more detail: customer focus and core competencies.
1. Customer Focus
Understanding your customers is paramount. This involves more than just gathering demographic data; it requires a deep dive into their needs, wants, and pain points. By truly understanding your customers, you can identify unmet needs and develop innovative solutions.
- Customer Segmentation: Divide your customers into distinct groups based on shared characteristics.
- Customer Journey Mapping: Visualize the customer experience to identify touchpoints and areas for improvement.
- Customer Feedback: Actively seek customer input through surveys, interviews, and social listening.
2. Core Competencies
Identifying your core competencies is equally important. These are the unique abilities that set your business apart.
- Internal Assessment: Evaluate your organization’s strengths and weaknesses.
- Competitive Analysis: Identify your competitors’ strengths and weaknesses.
- Value Creation: Determine how your core competencies contribute to customer value.
By combining a deep understanding of your customers with your core competencies, you can develop a compelling value proposition.
Value Proposition and Market Analysis
Once you’ve clarified your customer needs and core competencies, the next step is to define your value proposition and analyze your market.
3. Value Proposition
Your value proposition is the unique value you offer to your customers. It should clearly articulate how your product or service solves a customer problem or fulfills a need better than competitors.
- Clear and concise: Your value proposition should be easy to understand.
- Customer-centric: Focus on the benefits to the customer, not your features.
- Differentiating: Highlight what sets you apart from competitors.
4. Market Analysis
Understanding your market is essential for positioning your business effectively.
- Identify your target market: Clearly define your ideal customer.
- Analyze competitors: Understand your competition’s strengths and weaknesses.
- Market trends: Keep abreast of industry trends and changes in customer behavior.
By combining your value proposition with a thorough market analysis, you can develop a compelling business strategy.
Bringing It All Together
Once you’ve delved into your customers, core competencies, value proposition, and market, it’s time to synthesise this information into a clear statement of what business you are in.
Crafting Your Statement
A strong statement should be:
- Clear and concise: Easily understandable to both internal and external stakeholders.
- Customer-centric: Focused on the value delivered to customers.
- Differentiating: Clearly outlining your unique selling proposition.
- Inspiring: Motivating employees to strive for excellence.
For example: Instead of saying, “We sell software to businesses,” you could say, “We in the business of empowering businesses to make data-driven decisions and improve operational efficiency through cloud based services.”
Continual Refinement
Remember, the business you are in is not set in stone. Although, it should be something that is defined for the long term. Businesses don’t change these frequently. However, markets evolve, customer needs change, and your company grows. For example, IBM did a major rethink and moved away from consumer PCs. Regularly review and refine your definition to ensure it remains relevant.
Conclusion
In a world of constant change, understanding and staying true to your core business is more important than ever. It provides clarity, focus, and direction, enabling you to navigate the complexities of the business landscape while maintaining your competitive edge. By knowing the business you are in, you can adapt to change with confidence, ensuring that your business continues to thrive in the face of new challenges and opportunities.