It Takes Two

Business, like most things, is difficult to learn in a classroom or from a textbook. Have you ever heard someone successful say, “Everything I learned about business, I learned from a book?” If so, what book was it? Our textbooks become little more than door stops once we finish a course. Most are never opened again. We need to roll up our sleeves and get our hands dirty. Experiential learning is much more impactful. Sure, we can learn about gravity and we can be taught about the speed of acceleration due to gravity, but the concept becomes clearer when we push the watermelon off the ledge of our apartment building and use the timer to calculate how long it took to drop before crashing to the curb. We can then use our knowledge of the height of the building to determine the speed with which the watermelon was travelling when it explodes against the pavement down below. This is a meaningful way to connect with information. Learning that lasts is felt not just heard.

Unfortunately, a separate side effect of education is the need to break down a discipline into independent subjects. The whole is broken into parts which become incapable of cleanly recombining. Compartmentalizing a domain by separating into silos can needlessly complicate things. Business becomes marketing, finance, accounting, strategy, human resources, organizational behavior, information systems, law, and much more. As Peter Drucker, one of the most renown management minds, once offered, “There are no marketing problems, there are no finance problems, there are no accounting problems, there are only business problems.” Drucker’s quote suggests that in our efforts to try to boil down elements of enterprise into buckets of business, meaning is lost. Things evaporate or are different once separated. The whole is different than the sum of its parts. Courses and textbooks breakdown, separate, and segregate, while they seek to delineate. Professors pontificate, parsing principles, confusing by clarifying. The individual Lego-block approach leads to a disconnect between how things fit together. In an attempt to isolate we obfuscate. Suggesting that something is just a marketing issue and ignoring its impact on HR or Finance isn’t teaching useful approaches. Compartmentalizing may offer concepts but it doesn’t reflect reality.

Josh Kaufman in The Personal MBA distills business into five factors writing, “Every successful business (1) creates or provides something of value that (2) other people want or need (3) at a price they’re willing to pay, in a way that (4) satisfies the purchaser’s needs and expectations and (5) provides the business sufficient revenue to make it worthwhile for the owners to continue operation.” This is a pretty good summary of what business is about. However, we think commerce can be carved into a pair of principles which programs like Junior Achievement do a solid job of introducing.

Junior Achievement (JA) is a charitable organization that runs programs in over 100 countries. It boasts millions of program graduates from its extensive history. They specialize in offering programs that introduce the value of business to youth. They teach just enough about business to whet one’s whistle. They then spend the majority of program time prompting participants to put principles into action. The core of J.A. is allowing students to come up with a business idea. They then put the idea into practice, produce a product or service, and try to sell it. All of this they do within a few short months. Time planning and building a business is far greater than lessons about business constructs. It’s about doing not being taught. It’s about experiencing, not being educated. It’s active versus passive. It’s being an apprentice over being inculcated with academics.

Because there’s no test to worry about and action is the goal, touching on every business department isn’t feasible. The essential elements are found through focus. At the core of these programs the basics of business are distilled into two tenets. These rules are like Newton’s three laws of motion or the laws of thermodynamics. They are about as true as something can be. These are tried and true principles that have been proven time and again. The two core rules of business are:

  1. Sell something that’s of value.
  2. Sell it for more than you pay for it.

That’s it. That’s the only education you really need to get started. Everything you’ll ever do in business is a result of one or both of these principles. Whether its product development, new business development, sales & marketing, accounting, finance, human resources, or strategy, the issue will involve one or both of these core rules. These two principles are where the rubber meets the road. Where dreams intersect with reality. These basics of business are straightforward and simple. They are actionable.

People won’t pay for what’s not of value to them. The customer defines value through their act of purchasing. It doesn’t matter what the creator, manufacturer, or retailer thinks is valuable. We can lean on Peter Drucker again to affirm this approach, “Quality in a service or product is not what you put into it. It is what the client or customer gets out of it.” The first principle is satisfied when we’re able to answer the question: “Does this add value to our customer’s life?” The answer is only clear when it’s not us answering on behalf of prospective customers but when real people take real action with the contents of their wallets. Are people willingly paying for the service? Peter Drucker reinforces, “Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are ‘costs’.” The result of marketing and innovation is the value that’s created for customers. Value can be created in any number of ways. Jonathan Fields in his book Sparked notes of “two ways to get paid. Deliver a delight or solve a problem.” We’re either adding value by making someone feel better and enjoy an experience or we’re solving a problem they have.

Creating value is the centerpiece of commerce. Economist George Gilder has observed that “Capitalism is a system that begins not with taking but with giving to others.” It captures our first rule of business. The beginning of business involves creating value for others. In 1943, Ingermar Kamprad was just 17 years old. He founded his business on a single purpose, “to create a better everyday life for the many people.” Kamprad based his business on improving the lives of others. It seems to have served him well as almost 80 years later Ikea continues to be a worldwide leader in affordable furniture. Patrick Lencioni writes in The Advantage, “In order to successfully identify their organization’s purpose, leaders must accept the notion that all organizations exist to make people’s lives better.” A business’ objective is to make something which improves the world of their customers. An outcome of this rule is that businesses should have an external focus. It’s not about what you want or how smart you are. It’s about what others need and how you can provide it. What does the world need now? We would do well to adopt the perspective offered by Thomas Edison, “I never perfected an invention that I did not think about in terms of the service it might give others… I find out what the world needs, then I proceed to invent.” This captures our first rule of business. The beginning of business involves creating value for others. Josh Kaufman writes in The Personal MBA, “Business is not financial science… it’s about creating a product or service so good that people will pay for it.” To do this we require an external focus as to what is important to customers. We need to consider questions that Bernadette Jiwa poses in her book Difference. Jiwa writes, “How can we change how people feel? How can you become more relevant and significant to the people you want to serve? How can your business be about making them live as a better version of themselves? What difference does your product make to them?” These questions guide an external focus tuned into the frequency of hopes and fears of those you’re seeking to serve. By pondering and preparing answers to these types of questions you’re able to determine ways to add value that’s meaningful for them. After all, as Brandon Webb and John David Mann write in Total Focus, “Is business all about the money? Of course not. It’s about innovation and ingenuity, about coming up with new and better ways of doing things. It’s about making people’s lives better.”

In The Success Principles, Jack Canfield writes, “Many of the most successful people throughout history have identified a need in the marketplace and provided a solution for it, yet most of us have never asked what’s needed—or even what’s possible.” Canfield invites us to consider several questions, “Is there something that needs to be provided, solved, addressed, or eliminated? Is there something you find annoying that could be alleviated if there were some gadget or service to solve that particular problem? Do you share a common goal or ambition with others in your industry or social circle that you could achieve if only someone gave you a system or process for achieving it? Do you enjoy certain activities that could be made even more enjoyable with a new invention or service? Look at your own life and ask what is missing that would make it easier or more fulfilling.” Many businesses have been built on the back of entrepreneurs that set out to solve a problem with which they were struggling. They were able to satisfy their own needs and then worked to find others that had problems similar to theirs.

Another way to add value beyond the product is with service. In The Personal MBA, Kaufman points out that, “The best businesses in the world deliver the value they’ve promised to their customers in a way that surpasses the customers’ expectations.” Shawn Achor in Before Happiness supports Kaufman’s perspective noting that in US healthcare, patient satisfaction is an excellent predictor of hospital profitability. Where a business satisfies its clients, it’s adding value. Tom Peters in The Excellence Dividend offers, “The more helpful you are to the customer (depth and breadth of the relationship and services rendered), the more revenue you can generate, and the likelier you are to hold on to the business.” Peters goes on to exhort, “It helps to be as helpful as you can be.” That’s it. Add value. Regular readers may notice a connection between the idea of adding value and the Care component in the 4 C’s of Customer Service framework.

If people are purchasing what we’re producing, that’s only part of the equation of successful businesses. It doesn’t matter how valuable something is, if it costs a company more to produce than they can generate from sales, their time is limited. A business can operate for a period in violation of this principle, but they can’t do so perpetually. Eventually the gravity of reality sinks the ship. This is the world of bean counting, balance sheets, income statements, and cash flow. This realm is occupied by bookkeepers, accountants, and finance departments and revolves around ensuring a business manages its affairs such that what it sells generates more revenue than the expenses it incurs to produce and deliver its products and services. The second principle is met when we can answer the question: “Does this increase our revenue or decrease our expenses such that we are able to sell for more than it costs?”

Virtually every component of commerce can be placed under one of these two tenets. Sahil Lavingia in The Minimalist Entrepreneur captures both rules of business asking, “Is it making my customers lives a little better? Is a customer willing to pay me for it? It’s important for the business to be profitable from day one, so creating something valuable enough for people to pay for is key.” With these two business bullets in our back pocket we can look at any part of any business and work to get an understanding of why things are being done a certain way. Charles Koch sums up our two rules noting, “Successful companies create value by providing products or services their customers value more highly than available alternatives. They do this while consuming fewer resources, leaving more resources available to satisfy other needs in society. Value creation involves making people’s lives better. It is contributing to prosperity in society.” These principles provide a basis upon which to both build a business as well as understand existing ones. Regardless of in what department we work, these two principles should guide our decisions. Are our actions evaluated against how we deliver against either or both of these principles? Do our contributions either create value for customers or help our business sell its services for less than it costs to produce? In what way does my role add value to our customers? How do my actions increase revenues or decrease costs for the business? If we can’t answer this question objectively for our contributions, what does that communicate? Does your boss know how your actions contribute to value for customers or how you contribute to the bottom line? Job security follows satisfying one or both of these principles. This is true in any economic environment across industries and roles. Whether we’re a receptionist, a producer, or management, if we’re in bookkeeping or IT, and even if we’re a marketer or a CSR, we’re in our role in order to support one of these two principles. Our value to the business is directly connected to our ability to objectively answer either of these satisfactorily.