Every business should exist for a purpose – whether for profit or not. Understanding and clarifying that purpose separates the businesses that grow and flourish from those that continually under-perform or teeter on the brink of failure.
Hundreds of businesses are started every week by people who have a desire to succeed. Success may be measured by financial reward, making a difference in the community or developing a new widget. Almost all of these businesses are driven by the passion or direction of the individual(s) behind the idea.
Having a passionate and committed person guiding the start-up or development of the innovative widget is extremely valuable. However, this passion and commitment are not enough to establish a strong and vibrant business in the medium to long term. Every business exists to transfer some form of value from the business to the consumer – this is it’s ‘Purpose’.
To establish a strong and vibrant business, the key decision-makers need to have clarity of purpose. To gain the clarity required, each business needs to have a well-developed insight into the three pillars of the business – Product, Sale and Finance.
Product
Product means the product or service being purchased by the consumer. In this context, ‘Product’ means everything required to create and deliver the product to the consumer.
If it’s a physical product, this would include raw materials, human resources, manufacturing, packaging, transporting, etc.
If it’s a digital product, the same parameters apply. Everything that is required to create the product to the point of delivery to the consumer.
If it’s a service, similar parameters apply except the raw material may be in the form of knowledge and expertise. The packaging and delivery to the consumer may differ as well, but the ‘Product’ being purchased by the consumer is still the value the consumer expects to obtain as a result of the transaction.
Sale
The ‘Sale’ is more than closing the deal and receiving payment. In this context, ‘Sale’ refers to the process of transferring the product ‘value’ from the business to the consumer. This transfer of value needs to be in a form or circumstance that allows the consumer to realise the expected value.
Every part of the value transfer process is part of ‘Sale’. This includes marketing (setting expectations of the value in the consumer’s mind), packaging, purchase process, consumption, user experience and customer support.
More importantly, each business should seek to understand the ‘value’ the product represents in the mind of the consumer. If the perceived value is seen as greater than the amount given (paid) for the product, in most cases the consumer will feel positive about the transaction.
Once a business understands the value-transfer equation, for a particular consumer, a niche market can be developed and build a stronger position in that market created.
Finance
Every business should have a strong understanding of finance. However, in the context of this model, ‘Finance’ means a detailed understanding of the resource requirements of each of the business pillars – Product, Sale and Finance.
Resources include all types of resources – human, financial, technological and physical. It also includes systems and processes to monitor and manage the required activity. This requires a detailed understanding of the unit costs of the resources required for the Product, Sale and Finance functions – for each product, in each market segment.
Takeaway…
Having a detailed understanding of the value the consumer expectations linked to purchasing a product allows a business to make more informed decisions. This understanding should provide an insight into how the consumer expects to realise that value post-purchase.
Having such insight enables the business to establish a stronger market position without excessive marketing or customer support costs. This, in turn, can create more loyal consumers and lead to increased margins and an increase in market share.
However, if the business fails to develop a detailed understanding of the Product, Sale and Finance components of their product(s), they are unlikely to identify additional opportunities. Also, they are unlikely to respond quickly to changes in technology, legislation or consumer preferences that may threaten their market position or business model.