What Business Are You Really In?

Seems like a simple question, right?

But so many businesses – large and small – confuse their product with the real business that they are in. 

The problem with this is that most products have a life cycle (the PLC). The cycle goes like this: products are introduced, they experience growth, the opportunities become attractive to competitors, there is competitive turbulence and shakeout (players leave or go bankrupt). Finally the product reaches maturity. After a time, it goes into decline. At decline, products either become renewed or they die.

As Charles Darwin famously wrote in Origin of the Species, “survival is for the most adaptable to change.”

Few products escape the decline stage unless they are totally rebirthed. All systems die. It’s an immutable laws of nature. It is Entropy.

This is why defining a business as being to create a particular product is dangerous. There is a real risk of limiting the life-cycle of your entire company by doing so.

Telstra

Telstra is not in the business of telephony. This is a product. If it was, Telstra would not be worth much and would not be around for much longer as substitute technologies like voice over internet protocol (VOIP) come to replace it. It is in the business of communication.

Consider a very controversial example right now: Coal.

Coal

With global warming, government incentives and penalties, and almost unanimous consensus among climatologists that it’s had its day, coal is a dying industry. Few would disagree.

So what business is a big coal company in? It’s in the business of coal, right? It extracts and manages natural resources.

If the present management custodians of a coal company with a long heritage are intelligently planning a strategy for an equally long future, they will understand that their business is not coal. It is energy-creation. When understanding that the company is in the business of power, the floodgates of opportunity open. Rather than leasing new mines and arguing with governments about the taxes and royalties, one wouldconsider investing in renewables like wave energy, wind and new forms of solar.

That means there are opportunities for this company to generate power in new and profitable ways while divesting the product that will soon experience decline, or substantially renewing its core product before it reaches decline.

Newspapers

Another example is newspapers, an industry currently experiencing grand and dramatic decline. Are Fairfax and News Limited in the business of newspaper? No. Their real business is in communication. The Guardian has recognised this and expanded into multiple channels multiple online channels with different subscription models. They see themselves as in the business of ‘conversations’.

So what business are you in?