When companies forget where their income comes from

By Mike Cook
For The Bellingham Business Journal

Nothing earth shattering or mind bending in this week’s post, just a simple musing on some observations on the evolving business environment.

The history of business is full of stories, too many stories, of products and ideas that someone, usually their creator, were certain would become the basis for profitable enterprises. This would be from the “if you build a better mousetrap the world will beat a path to your door” school of thought. As we all know, the junkyards of business are filled with “better mousetraps” and “better ideas.”

Certainly, when disruptive technologies come on the scene, cell phones being a case in point, an industry emerges within a short period of time to address the market demand that the new product, or service, makes visible.

However, even in these instances there is a leveling effect that takes place and the market boundaries become distinct forcing market participants to bow to the demands of the real generators of commerce, the consumer.

Over time, as demand becomes saturated the consumer cuts the poor performers from the herd by simply neglecting to consume their offering, no demand, no business — think Blackberry.

As business owners, even successful ones, we need to stay on our toes and remind ourselves from time to time of what Peter Drucker, the thinker whose ideas helped form the basis for the modern business, said to us on many occasions over his extended career: “The purpose of a business is to create a customer.”

Of the many simple yet profound truths that Drucker uncovered this one is likely the most easily forgotten by business operators. The other is that he also declared that, “Because 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.”

A recent piece that appeared in Business Insider, “Death of the coffee house experience” points dramatically to a hidden complexity in the background of Drucker’s premise, the toll the market will levy when businesses forget that employees are consumers too and if they are not buying what your business is offering in terms of the employment experience, the bottom line will suffer.

Starbucks is ahead of most businesses in terms of a commitment to working in partnership with its workforce, and yet this article points to the challenge of “getting it” as far as the workforce is concerned.

In our current economy, most businesses are to a large extent service offerings, Starbucks being a case in point. As such the future of the business is largely dependent on being able to consistently provide the experience the consumer has come to either expect or has indicated they desire.

Innovation, such as mobile ordering, may in fact scratch a consumer itch but if the workforce experience does not match the “yes” from the end user there are going to be issues. As the obviously dedicated employee in the Starbucks article points out:

“The decline of same store sales, as outlined in the last quarterly earnings report, is a symptom of several issues, customer engagement, partner satisfaction and the ever-changing retail landscape. As a company, Starbucks has to grow the business, and it has to keep up with the demand of shoppers so as to ensure growing profits”.

As the employee (partner) here so astutely points out, the challenges to market and innovate are ever changing but also must include factors both internal (employees) and external (consumers and competitive offerings) to the business.

In the mid-1990s, as digital disruption was really taking hold in the economy, some old-line businesses, Xerox and Kodak among them, fell victim to forgetting where their income came from.

In Kodak’s case, this forgetting took the form of betting on the brand to supersede consumer preferences. As we all know now, this was a fatal mistake.

Though not nearly as well publicized, Xerox too made a similar mistake by arrogantly ceding the market for distributed printing capability to Hewlett-Packard, assuming that brand loyalty would have customers continue to buy their traditional print-shops-in-a-box offerings long after local printing and copying capabilities were made available through digital rather than mechanical solutions. Fortunately for Xerox, they adjusted and reinvented themselves as a “solutions” (combination service and product) company rather than simply a manufacturing company.

And so it goes. One of the latest challenges to business owners along these same lines is the question of the demand for increase to the minimum wage. It is not my place to offer an opinion on whether this new market pressure is good, bad or otherwise.

What I think matters not at all. What is important is to realize that the “horse has left the barn” on the topic and it is not a matter of whether minimum wages will increase, but rather how will business owners incorporate the new reality into their marketing and innovation practices.


Related Stories