What’s your major goal as an entrepreneur?
A friend of mine, a business consultant, once told me he had had a long conversation with a TV manufacturer’s CEO. The CEO complained that consumers were reluctant to use their smartphones instead of remote controls and didn’t install a respective mobile app.
“We want to own your living room,” he added.
By this, he meant that the company craved to create an ecosystem around their TV sets — to collect more customer data and profoundly influence how consumers spend their leisure time.
It doesn’t sound much ethical, but this article is not about ethics. I see another business problem here. And many entrepreneurs I’ve met make it as well — they confuse business goals with business outcomes.
In 2022 Apple reportedly received 99,8 billion U.S. dollars as net income. Would you like your business to earn that much someday? Could it be your long-term goal?
Many entrepreneurs would answer “yes.” And this is a problem.
In his book “Steve Jobs,” Walter Isaacson wrote: “John Sculley, who ran Apple from 1983 to 1993, was a marketing and sales executive from Pepsi. He focused more on profit maximization than on product design after Jobs left, and Apple gradually declined. “I have my own theory about why decline happens at companies,” Jobs told me: They make some great products, but then the sales and marketing people take over the company, because they are the ones who can juice up profits. “When the sales guys run the company, the product guys don’t matter so much, and a lot of them just turn off. It happened at Apple when Sculley came in, which was my fault…””
In his book, Management: Tasks, Responsibilities, Practices, Peter Drucker once said: “The single most important thing to remember about any enterprise is that results exist only on the outside. The result of a business is a satisfied customer. The result of a hospital is a satisfied patient. The result of a school is a student who has learned something and puts it to work ten years later. Inside an enterprise there are only costs”.
In 2009, in an interview with Financial Times, Jack Welch, a former General Electic CEO, declared that shareholder value is “the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal… Short-term profits should be allied with an increase in the long-term value of a company.”
Net profit or shareholder value can’t be a business goal, and any entrepreneur should keep it in mind from the moment they start their business.
Any company has customers who have their needs.
A major goal of any business is to satisfy these needs by creating value for them.
If an enterprise manages to create more value for customers than others, it gets an advantage. Michael Porter and some other business thinkers called it “competitive advantage.”
Creating value for customers brings revenue.
And then, if a company is efficient, it can convert this revenue in net profit.
So, as you can see, net profit is an outcome. An entrepreneur must focus on customers instead of income to build a successful business. It may seem to you that the difference isn’t essential because, at the end of the day, a company should earn money — the more, the better. But thinking of profit too much creates a wrong mindset.
Last week I had trouble with my plane tickets. The only way to reach out to an air company’s customer service was a chatbot in the mobile application. However, the chatbot was certainly not as smart as the famous ChatGPT. It asked me stupid questions time after time and gave me answers based on the keywords from my messages that seemed arbitrary. It took me an hour to solve my problem. Though I believed that it would take a couple of minutes if a human assistant took care of the issue.
Did the company’s leadership think about customers? I doubt that. They rather thought of net income when they decided to replace humans with a dumb algorithm. I bet somebody in the company got a decent bonus for cost-cutting.
That TV manufacturer’s CEO also wants to “owe my living room,” not because he cares too much about my spare time. All he thinks about is how much money from my wallet will end up in his firm’s account.
When an entrepreneur faces net income problems, they have, by and large, three options:
- To cut cost
- To sell more (using such techniques as upselling or cross-selling)
- To create more value for customers
And of the three options above, the last one is the hardest to implement. So no wonder many business leaders instinctively opt for the first or the second points. But whereas they may bring fast short-term outputs, they can be destructive long-term.
If a company cares about customers, it gets a chance to earn income.
If a company concentrates on income only, it gets a chance to lose sight of customers and, eventually, fail.
Blockbuster, MySpace, Kodak, Toys R Us, Yahoo, Xerox, Research In Motion, Sony, Motorola, AOL, General Electric, and many others were profitable once. But then their competitors offer their customers more value. So some of them disappeared, and others lost their leadership in their industries.
To avoid their fate, entrepreneurs must be customer obsessed, as Jeff Bezos has always said in his numerous interviews. And if they are, they will make their businesses profitable one day.