Understanding what earns your company money

Posted by bob on May 26, 2014

There are two primary motivators in any purchase: we want to increase our pleasure or decrease our pain.  Many purchases satisfy both of these.  For example, if your old smartphone has become unreliable, a new phone might give you increased pleasure from new, additional features--and decreased pain (less frustration from crashes or instability).  Marketers always must keep their eyes on both of these factors when trying to understand why people are purchasing or avoiding a given product.

I like to think that almost all companies are in the business of solving problems for their customers. A company might solve the problem by delivering a product, like the smartphone example listed above.  But a company can also solve problems by delivering a service.

A lot of companies today seem to forget these simple ideas.  These companies forget that it is customers who pay for everything.  Our salaries, the office space, office utilities (electric, water, heat, sewage,) the cost of materials: everything has to be paid from the money we receive from those customers.  It makes that customer pretty important in your life.  Your ability to solve problems for that customer is what keeps him coming back to purchase again in the future.

More than anything, you have to keep the customer on top of the list of any decision.  You must ask yourself if you are making decisions that help your customer.  Or does that decision only help your own organization?  If the answer is the second, you are in big trouble.

Many companies instead become totally focused on investors.  “Quarterly thinking” begins to rule every decision.  Long range planning is discarded and all efforts collapse to “making the numbers” for this business cycle. 

Likewise, outsourcing has become all the rage in modern business.  “Look,” they say.  “We can purchase this service from an outsider for far less than it costs us to do the same thing.”  What is wrong with that?  It sure looks good on a profit-and-loss sheet.

So let me answer that by asking a question: where is the customer in this equation?  Yes, you solved your own short-term profit problem, but look what you did to your customer.  You put his problem into the hands of strangers.  These newcomers might eventually learn (or re-learn) the lessons of your past.  If you are really good at outsourcing, you might transfer as much of your corporate wisdom as possible to this new organization. 

But in the short term, you have inflicted your pain onto your customer.  You will need to scramble to avoid losing unhappy customers.  Eventually, your outsourced supplier becomes your competitor, because they now understand the customer’s pain and pleasure far better than you ever could.  You have become too disconnected from the problems.  Remember, these were the problems the customer wanted you to solve.

Here is a question to test the wisdom of outsourcing: If this is such a great idea, why don’t you hire 10 or 20 low-cost (out-sourced) CEO’s to replace your one rock-star salaried CEO?  You might say, “Oh, but our CEO delivers so much more to the organization.”  Really?  More work, more output than 20 mere mortals could deliver?  “No, no,” they splutter.  “Our CEO is smarter than all of those people put together.”