You Might Not Understand the Business You’re In. Knowing what you sell isn’t the same as understanding why your business works.

I’ve spent more than 30 years in business, most of them as an owner and operator. And one thing I’ve come to appreciate is that you can get pretty good at running a business without necessarily understanding the business you’re actually in.

That probably sounds strange. How could someone spend years building and operating a business and not understand it?

Well, think about what most of us spend our time doing. We’re managing employees, dealing with customers, paying bills, solving problems, improving products, watching expenses, and trying to generate more sales.

We know our products. We know our services. We know our operations. And we can probably tell you more about our industry than you ever wanted to know.

But there’s a difference between knowing how to operate a business and understanding why that business works. And I think a lot of entrepreneurs, myself included, have spent more time on the first than the second.

Most entrepreneurs spend too much time thinking about what their business sells and not enough time understanding why customers buy it.   

That’s what I want to explore, understanding what the customer values, and how the business creates, delivers, and captures it.

What Business Are You In?

Ask an entrepreneur what business they’re in, and you’ll usually get an answer describing what they sell and how they do it differently than everyone else.

•       I own a restaurant. We make everything from scratch.

•       I run a construction company. We finish on time and on budget.

•       We sell insurance. You get a real person who knows your name.

•       We’re a marketing agency. We only work with veteran owned businesses.

•       We manufacture parts. Our tolerances are tighter than anyone’s.

Those answers aren’t wrong. They’re just incomplete. They tell me what the business produces and what the owner believes makes it special, but not necessarily what the customer is buying. And those are two different things.

Take restaurants, for example. I’ve spent most of my career in hospitality. I can tell you a lot about food, service, labor, inventory, pricing, and restaurant operations.

But why does someone choose one restaurant over another?

•       Sometimes they’re hungry and don’t feel like cooking.

•       Sometimes they want to celebrate a birthday or an anniversary.

•       Sometimes they want to watch a football game with friends.

•       Sometimes they want to impress a client.

•       Sometimes they want a quiet evening with their spouse.

•       And sometimes they just need something fast and convenient before picking up the kids.

Same industry. Sometimes even the same customer. Completely different reasons for buying.

Now think about what changes depending on the occasion. What the customer values changes. Who they consider buying from changes. What they’re willing to pay changes. And how frequently that occasion happens changes.

If I’m operating a restaurant and I don’t understand those distinctions, how confident should I be that I understand my business? I might know exactly how to prepare and serve everything on the menu. But do I understand why people are choosing to come through the door?

Customers Don’t Buy Products. They Buy Value.

One of the things I’ve been telling entrepreneurs lately is this: customers aren’t loyal to your product they are loyal to the value they get from it.

Now, I’m not suggesting that the product doesn’t matter. Of course it does. But the product is how we deliver value. It isn’t necessarily the value the customer is trying to obtain.

Think about coffee. Coffee is coffee, right? Not exactly.

Some people buy it for the caffeine. Some for the taste. Some for the ritual. Some want a place to sit and work. Others want a customized drink handed through their car window in a couple of minutes.

Those customers aren’t necessarily looking for the same thing. And if they aren’t looking for the same thing, why would we assume the businesses serving them should look the same?

Consider 7 Brew. They didn’t invent coffee, flavored beverages, or drive-thru service. But they built a business around a particular combination of things their customers value: convenience, speed, customization, variety, and an energetic customer experience.

Once you understand that, a lot of the decisions about the business start making sense:

•       The small footprint.

•       The double drive-thru.

•       The beverage-focused menu.

•       The emphasis on moving customers through quickly.

•       The people and processes required to deliver that experience.

Those aren’t just operational choices. They’re connected to the value the business is trying to deliver. And the economics have to support those choices.

That’s what makes this interesting to me. Understanding what the customer values doesn’t just help us market the business. It should influence how we design the business.

You Might Be Competing Against the Wrong Businesses

Here’s another place where I think entrepreneurs can misunderstand what’s happening.

We tend to define our competitors by what they sell. Restaurants compete with restaurants. Gyms compete with gyms. Marketing agencies compete with marketing agencies. And sometimes that’s exactly right.

But customers don’t always think about competition the way we do.

Let’s go back to the restaurant example. Imagine someone deciding what to do on a Friday night. They could go out to dinner. They could go to a movie. They could invite friends over. They could order delivery and stay home. They could go to a concert. Depending on what they want from the evening, those might all be alternatives.

Now imagine I’m running a restaurant and spending all my time comparing my menu and prices with restaurants that serve similar food. What if my potential customer isn’t deciding between my restaurant and another restaurant? What if they’re deciding whether going out is worth the trouble at all?

That’s a different problem. And it changes how I might think about creating value.

Your competition isn’t always another business selling the same product. It’s whatever alternatives your customer considers when trying to accomplish the same thing.

If we misunderstand those alternatives, we can spend a lot of time trying to be better at things that don’t actually influence the customer’s decision.

What Customers Value Should Shape What You’re Good At

Once we understand why customers buy, the next question becomes: what matters most to them when they’re making that decision?

Is it speed? Convenience? Reliability? Expertise? Personalization? Price? Trust? Experience?

The answer depends on the customer and the occasion. And that’s important because we can’t be exceptional at everything. At least not without making the business extraordinarily complicated and expensive. So we have to make choices.

•       If customers value speed, we need to develop the people, processes, and technology to deliver speed consistently.

•       If they value expertise, we need to develop the knowledge and talent to provide it.

•       If they value customization, we need to figure out how to accommodate variety without allowing that complexity to destroy our margins.

•       If they value reliability, we need systems that deliver consistent results.

These are the capabilities, the core competencies, that make the business competitive. And they should be developed around what our customers value.

But I wonder how often we do it the other way around. We build a business around what we’re good at, what we enjoy doing, or what we’ve always done. Then we spend our time trying to convince customers that those things should matter to them.

Sometimes they do. Sometimes they don’t.

Have you built a business around what customers actually value, or around what you believe they should value? I think that’s a question worth spending some time on.

You Can’t Deliver Value You Haven’t Defined

I used to tell my servers a story about service standards. I’d ask them to think about all the different things customers might value during a restaurant visit.

Some customers appreciate it when you introduce yourself, tell them your name, and make them feel welcome. Others couldn’t care less. Some appreciate having a napkin placed under their drink. Others never notice. Some want you to explain the menu. Some want to hear the specials. Some are interested in the specialty drinks or appetizers. And some already know exactly what they want and would prefer that you get out of their way.

Now, here’s the problem. When you walk up to a table, you don’t necessarily know which of those things matter to the people sitting there. So what do you do?

You could try to figure it out with every table and deliver only the things you think those customers care about. Or you could develop a set of service standards based on what you’ve learned your customers value and consistently deliver those things.

That’s why we had steps of service. Not because every customer valued every step equally. But because we’d learned that those steps, taken together, gave us a better chance of delivering a great experience to the customers we were trying to serve.

Of course, there’s a balance. If we required servers to do too many things, we’d drive customers crazy and slow down service. If we required too few, we’d miss things that mattered. And a good server still needed to recognize when a customer wanted more attention and when they wanted less.

But we weren’t going to leave the entire experience to chance. We designed a process to deliver the value we believed our customers wanted, trained our people to execute it, and adjusted it as we learned.

And here’s something I think entrepreneurs sometimes miss. Knowing what customers value isn’t the same as having a business capable of delivering it. You have to translate that understanding into something your organization can actually do.

People have to know what great service looks like. Processes have to support it. Standards have to make it repeatable. And the economics have to work.

I used to tell my servers that if they focused on how much money they could make from a table, they’d often miss the opportunity to give that table a great experience. But if they focused on taking care of the customer, the money had a much better chance of following.

That was their responsibility. Mine was to build a business where delivering that experience consistently also made economic sense.

And that is worth remembering, the customer determines what is valuable. The business has to figure out how to deliver that value consistently and profitably.

A Great Product Doesn’t Necessarily Make a Great Business

Here’s where I think the conversation needs to go beyond the customer. Because understanding what customers value is important, but it isn’t enough. We still have to build a business capable of creating and delivering that value. And we have to make money doing it.

That means the pieces have to fit together.

•       The customer we’re trying to serve influences the value we’re trying to create.

•       That value helps determine which competitive attributes matter.

•       Those attributes determine which core competencies we need to develop.

•       Those competencies influence how we organize our people, processes, technology, and resources.

•       And the entire system has to produce economics that work.

If those things aren’t aligned, the business is going to struggle.

You can have an excellent product and a terrible business model. You can have talented employees working incredibly hard inside a business that isn’t economically viable. You can have marketing that brings in plenty of customers who aren’t profitable to serve. And you can have an entrepreneur who is excellent at operations but is operating a model that simply doesn’t work very well.

I’ve seen versions of all of those situations.

And here’s the frustrating part. When the business struggles, our instinct is usually to work harder. Sell more. Market more. Hire more. Cut expenses. Improve the product. And sometimes those are exactly the right things to do.

But sometimes we’re trying to improve the performance of a business model we haven’t adequately understood. That’s a very different problem.

What If You’re Solving the Wrong Problem?

Entrepreneurs are problem solvers. It’s one of the things that makes us entrepreneurs. We see something that isn’t working, and we want to fix it.

Sales are down? We need better marketing. Customers aren’t coming back? We need to improve the product. Margins are shrinking? We need to cut expenses. Growth has stalled? We need more salespeople.

Maybe. But what if those aren’t the real problems?

•       What if sales are down because we’re attracting the wrong customers?

•       What if customers aren’t returning because the occasion we’re serving doesn’t happen very frequently?

•       What if margins are weak because we’ve built an expensive delivery model around attributes customers don’t particularly value?

•       What if growth has stalled because we’ve misunderstood the size of the market or the alternatives customers are choosing?

I don’t know. And neither do you, until you investigate.

I’ve learned that one of the dangers of being an experienced entrepreneur is that you can become pretty good at recognizing familiar problems. Sometimes so good that you start solving them before you’ve taken the time to understand what’s actually happening.

But a solution to the wrong problem is still the wrong solution. And it can be a very expensive one.

Understanding the Business Before Trying to Grow It

I think entrepreneurs are often too quick to move into strategy. We want to grow revenue. Improve profitability. Expand into new markets. Open another location. Hire a management team. Build something bigger. And we start making plans to accomplish those things.

But before we decide how to grow the business, shouldn’t we understand why the business works in the first place?

•       Why do customers choose us?

•       What are they actually buying?

•       What matters most in their decision?

•       What alternatives are they considering?

•       What do we have to be exceptionally good at to deliver that value?

•       And can we do it profitably, consistently, and repeatedly?

Those questions should come before the growth plan. Because scaling a business we don’t adequately understand doesn’t necessarily make it better. Sometimes it just makes the problems bigger.

And I think that’s something a lot of entrepreneurs discover the hard way.

Three Questions Worth Asking

If you’re an entrepreneur, I’d encourage you to spend some time with three questions.

1.     Why do my customers actually buy from me? Not what I sell them. What are they trying to accomplish, solve, experience, or obtain?

2.    What do they value most, and why do they choose me over their alternatives? Not what I think they should value. What actually influences their decision? And what evidence do I have?

3.     Is my business designed to create, deliver, and capture that value profitably and repeatedly?Do my people, processes, technology, capabilities, and economics support what the customer is buying?

Those questions might seem simple. But I suspect most of us would discover some things we hadn’t considered if we took the time to answer them seriously.

And that’s really the point. We might not understand our businesses as well as we think we do.

There’s a difference between knowing what your business sells, knowing how to operate it, and understanding why it works. And the more clearly we understand that difference, the better our decisions can become.

Sometimes the most valuable thing we can do for our businesses isn’t to sell more, hire more, market more, or grow faster. It’s to understand what we’ve actually built, and why anyone chooses to buy from it in the first place.