Do You Know What Business You're In?

Last Updated Apr 8, 2010 11:02 AM EDT

You'd think it would be obvious what business you're in. If you make drills, you're in the drills business. If you bake cookies, you're in the cookie business. Right? Wrong.

When Trish Karter started her firm, Dancing Deer, it sprang to fame for unbelievably delicious and beautifully presented cookies. Molasses clove was the best selling cookie (it won the food industry equivalent of an Oscar in 1997), but her peppermint fudge brownies became pretty popular, too. Largely through word of mouth, the bakery had become famous for fantastic indulgences, gorgeous packaging and for the major contribution it made helping the homeless of Boston, where the company was based. Swiftly, Dancing Deer became a very easy business to love. But, like many entrepreneurs, Karter struggled with the company's growth, especially with the markedly seasonal nature of her product: sales peaked between Thanksgiving and Valentine's Day.

But that pattern revealed a different truth: Dancing Deer wasn't a bakery; it was a gift shop. Most people bought the products as presents -- the brownie towers and cookie samplers were mostly seasonal gifts. But of course, if you give cookies one year, you probably don't want to give the same gift the following year -- so unless Dancing Deer offered a great variety, you would move on. This revelation was important: it meant that variety was key to the business and that the talent and effort Karter had always poured into packaging was crucial, not peripheral. It also identified partners and marketing channels previously invisible. In short, it changed the way the company thought about building customer loyalty.

Not knowing what business you're in is an easy mistake to make. Most film lovers think cinemas are in the movie business, but they're not. The movie is just the marketing material for the popcorn and the candy, which is where the real profit lies. That popcorn aroma isn't accidental but deliberate. Cinemas are fast-food businesses, not media businesses. This has profound implications for how they recruit and manage their staff and for how their define and attract their customers.

Do you know what kind of business you're in? One way to find out is to ask a couple of key questions:

  1. Why do your customers come to you?
  2. When do they buy -- and for whom?
  3. Where are the biggest margins in your business?
  4. If your company vanished tomorrow, where would your customers go?
Marketing guru Ted Levitt used to tell his Harvard Business School students, "People don't want a quarter-inch drill -- they want a quarter-inch hole." His argument was that most people focus on the product, not the benefit, that they sell. That means they don't understand their customers and are all too easily blindsided when a competitor comes along, tackling the same problem but offering a different solution.

I wonder: how many CEOs really know what business they're in?

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.