The title of this article could be referring to you, but that’s okay! Well, it’s okay for now. The reason it’s okay is that many businesses don’t truly understand the business that they are in. This is not limited to new, small, or even hobby-based businesses. There are very large, well known, household name businesses that make the mistake of not understanding what business they are actually in as well. So don’t feel bad if you aren’t sure what business you’re in, it’s okay for now. But hopefully, I can change that and help your business better understand its true goals, and compete in your ‘real’ business marketplace.
So we need to start with a construct to help us conceptualize the idea of a company thinking it is in one business, and actually being in another. To do this let’s use a sports analogy. The companies that get it wrong are the companies who think their business IS the sport.
“I own a gym. That’s my business.”
“I play basketball. That’s what I do.”
The basketball player doesn’t just play basketball. They are a point guard or a center. They are a 3-point shooter or shutdown defensive player. Basketball is just where they showcase their talent. Same with the gym owner. Owning a gym isn’t your business, it’s the sport or the arena that you are conducting business in. This is the fundamental flaw that many business owners make. They believe that (please forgive the horrible jargon) the ‘space’ that they are in IS the business that they are in. But as we talked about earlier, this is not limited to new business owners or those of us that didn’t attend Harvard Business School.
Let’s talk about a large name brand that we all know which made the mistake of not knowing the business that they are in. Dunkin’ Donuts is a nationwide, longstanding, well known company/brand. Being a national brand, they have regional competitors all over the country. Here in Buffalo, NY where I am, Tim Horton’s is their regional competition. Tim Horton’s is the overwhelming preference of Western New Yorkers. Yes, there are Starbucks and other regional coffee shops to compete with, but Dunkin’ Donuts and Tim Horton’s have extremely similar business models and compete for the same customer base. Several years ago it was announced that Dunkin’ Donuts was going to immediately close roughly half of their locations in the Buffalo area. This was evidence that Dunkin’ Donuts recognized that Tim Horton’s was dominating the market. It was also evidence of Dunkin’ Donuts not understanding what business that they are in.
Some executive, in some boardroom, somewhere in the Dunkin’ Donuts’ world suggested closing locations as a solution to the company’s lack of ability to compete in the market. In the process of determining that closing locations was the best course of action, they must have determined that it wasn’t necessary to close all of the locations in Buffalo. Whether it was through a rewards program or other market research, Dunkin’ Donuts determined that they have ‘x’ number of customers in the Buffalo market that prefer their coffee over Tim Horton’s coffee. The ‘x’ value of customers was not enough to support, say 25 locations in Buffalo. But these ‘x’ customers, who love Dunkin’ Donuts’ coffee so much, can support 12 locations. This is where the large, nationwide, name-brand company, with all possible resources at their disposal, got it wrong. They got it wrong because Dunkin’ Donuts didn’t understand what business they are in. They thought they were in the coffee business, and that people who love their coffee would continue to seek it out, and in turn, support the 12 or so locations they kept open. Turns out Dunkin’ Donuts is actually in the convenience business, and by closing locations, they just made it less convenient for their customer base to get their product.
Come on, really? Convenience business over coffee? Yes, and we have all proven this to ourselves at one point. We have all gone through the experiment of making our coffee at home, as opposed to stopping at our favorite coffee spot before work. Usually, the catalyst to this experiment is monetary. We realize that we could save $15 a week if we just made coffee at home instead of buying it at the coffee shop every morning. After all, we can buy 2 weeks’ worth of our favorite coffee brands at the grocery store for the cost of a few days of buying from the coffee shop, whether it’s Starbucks, Dunkin’ Donuts, or Tim Horton’s. This experiment usually lasts a few days, maybe a week, and then one day we wake up a bit late or groggy. Before we know it we are in the drive-thru at the coffee shop because we didn’t have the time to put together the coffee at home. Then we are reminded of how much easier this is, and how we even enjoy drinking coffee out of the disposable cup it comes in rather than that dirty travel mug. It just tastes different, better. And if we forget to pick up the coffee at the grocery store one week, forget it! Experiment over!
We sit in coffee shop drive-thru’s every morning out of convenience, not because of the coffee. Yes the quality of the coffee matters, but the coffee is the sport. The convenience is what makes the coffee shop an All-Star in the sport. And that’s the business. It’s no coincidence that over the years following the initial Dunkin’ Donuts location closures that more and more locations began to close. Those ‘x’ number of customers were looking for convenience and it was taken away from them. As a result, what became more convenient for those customers were Dunkin’ Donuts competitors, and they gained even more market share.
Every business needs to step back and really assess what it is they are providing their customers. What is your business? Often times it is not as evident as one might think. The problem is, and this should be very scary for any business owner, if you don’t know what business you are really in then your competitors are invisible. You don’t know who they really are. You are fighting a battle that cannot be won. And whether it is immediate or over time, your business will lose.