The first question I ask entrepreneurs is, “What is your core product, and who are your core customers?”
Sometimes I get a quick, confident answer.
Sometimes, by contrast, it feels as if the poor business-builder is making it up. I hear a long pause, followed by an explanation of all the ideas the company is pivoting through. This is known in technical circles as winging it
Wing no more, my friend. Your core business is not supposed to make you a more interesting person. It’s a basic business prescription: focus on your core products or services. Then, sell your core product to your core customer.
The prescription sounds easy, but it’s not. Here’s the problem: most business folks can’t properly identify their core. They think that determining your core is like determining how you take your coffee.
But this is not a matter of personal taste or opinion. Nor is it announced by technology trendsetters or by industry gurus.
Four Walls Strategy
The identity of your core business is, first of all, a statement of your strategy. You should know this!
Second of all, it is also an objective fact that you must discover. That is, for businesses already in operation and with revenues, the data is held inside the four walls of your company. How do you find the facts? All you have to do is accurately measure the profitability of your products and of your customers.
I know, I used that terrible, downer word. Measure. Modified by the taboo adverb: “accurately.”
It’s so much easier to just throw out a few ideas and pursue them for fun. But in fact, taking your core lightly is a danger sign. It means you’ve bought into a narrative that may not be true.
There are some psychological patterns in leaders who have misidentified their core. Here are three fast ways you can tell you have it wrong.
1. It hasn’t sold yet, but you still call it “core.”
Say you run a technology company. Your service is selling, but not as briskly as it once did. The trade press is all abuzz with discussions of new platforms, business models, languages and techniques. And…you want that! You announce a new offering in some new vein. It’s so new and important, it is easy to call it your new core product.
Nope. if it hasn’t contributed to your bottom line, it’s a future project, not a core product.
2. Your customer is important and fancy.
Years ago I worked with a troubled machine tool operation that sold to prestigious companies that were headquartered in New York and San Francisco. It took three years on average, and a lot of expensive dinners, for my client to sell a low-margin machine to its high-rent corporate customers. But guess where the machine tool profits came from? From selling high-margin repair parts to the actual factories in fly-over country. Put differently, the core business was in repair parts! We set up a sales office in Oklahoma and built a profitable, repeatable core product that was so different from the client’s previous received wisdom.
3. You are being pressured to call it core.
Let’s imagine you own a franchise of, say, motorcycles. The mother ship–the franchisor–sends out a stream of promotions on new models, then demands that you sell the new models. To top it off, they give short-lived and confusing rebate offers on the new models. But what department is paying the rent? The service department! That sure is not what the franchisor wants you to concentrate on. So, without a clear financial analysis that shows what the clear core product is, it is tempting to succumb to the outside pressure.
So, here’s advice you can use: while you wait for the accounting department to provide the actual figures on what products or services are your real economic core, be sensitive to the psychological pressures that can send you off track.
Published at Fri, 13 Jan 2017 10:00:00 +0000