Chasing profit may be self-defeating
Successful businesses reach for a higher causeproviding a memorable experience that enriches customers' lives
How do you take business decisions? What do you do with your spare production capacity? What do you do with the expertise that resides within your company?
These are questions that every business faces at some point or the other. The obvious answer would seem to be that you leverage production capacity and expertise to ensure that your revenues and profits register robust growth, and that your business captures additional market share.
Sadly, pursuing this strategy may be self-defeating. It does not guarantee the kind of success earned by the likes of Apple, Google, Amazon, Facebook or Twitter—firms that have notched up profitable revenue growth over an extended period of time and have also won a place in the hearts of the people they serve.
How do such companies respond to the questions I posed earlier?
Let me pluck Apple from the list. What do you think is Apple’s stated purpose? Maximizing profit? Maximizing return on investment (RoI) for its shareholders?
It may surprise you to know that although Apple’s financial numbers exhibit robust health, the pursuit of reckless profit is not its raison d’être.
In Apple chief executive Tim Cook’s words, as quoted in the ‘Financial Times’: “In creating these great products we focus on enriching people’s lives—a higher cause for the product...not just making money. Making money might be a by-product, but it’s not our North Star... I don’t think about the bloody RoI.” Cook went on to issue a stern warning to people who disagreed with this style of thinking, “…if that’s a hard line for you...then you should get out of the stock.”
Apple resolutely believes that it exists not for profit motive nor for maximizing RoI. These financial metrics are merely a by-product of pursuing a bigger purpose: to enrich people’s lives by providing them with a memorable experience through its ever expanding range of products—iPod, iPad, iPhone, MacBook and other devices.
For starters, it did not begin by saying that
• Customers love our products.
• Our third-party manufacturers have spare production capacities, which we can hire to manufacture them.
• There is an unmet demand for our products because many parts of the world, including India, are still not directly covered by us.
• Let us leverage these favourable tailwinds and fill up our coffers.
Instead, it stands up to bullying by activist investors and Wall Street, and is prodigiously focused on ensuring that the customers’ interest—that is, enriching their lives by giving them a memorable experience—is at the heart of all its decisions. Apple products are merely vehicles it has in its armoury to achieve this objective.
This unique thinking can be captured in a simple business model. I have decided to label it the inside-outside way of thinking.
If you look at the accompanying diagram, the inner circle represents why the company exists—to enrich customer’s lives. The outermost circle represents what the company does. The middle circle is the bridge through which the company’s inside and outside goals are linked.
Because customers feel their interests are protected, above the company’s interest, every time and at all cost, they reciprocate in equal measure by offering their business to Apple, without it having to seek it.
Now take Apple’s competitors. They too are admired global companies.
Do they follow a different style of thinking while launching new products?
Take, for instance, the smartwatch. Many companies have entered this nascent market in the past few years, with little success. How would their thinking have differed from Apple’s? Maybe they thought
• We have a sterling reputation in the market, courtesy our smartphones.
•There is a pent-up demand for smartwatches, thanks to the buzz generated by Apple’s rumoured entry into this segment.
• Chips required to manufacture it are easily available.
• We have in-house manufacturing capabilities.
• We have a global distribution system.
• All this will add up to customers queuing up to buy our smartwatch.
This style of thinking, as per the model shared above, represents an
outside-inside way of thinking.
What happened to the products that were launched based on this thinking?
Most brands, including Samsung Gear, have been launched, relaunched,
re-relaunched multiple times. Yet, they have not gained satisfactory traction.
Whereas Apple Watch, scheduled for an April launch, already has customers salivating for it. It is estimated that Apple will ship 15 million watches in the first phase of the launch itself. Why?
Because customers are convinced that Apple, true to its tradition, will protect their interest ahead of its profit. That’s how successful businesses think. They exhibit an inside-outside thinking approach.
Do you want customers to salivate for your products? Then start thinking from the customers’ point of view.
• How will it provide solutions to their problems?
• How will my brand improve their lives?
Once you have answered these two questions, go ahead and introduce the product. And watch customers queuing up for it. This is a one-way street. If you transgress this law, you will have to beg your customers to try your product.
The author’s talks on The New Rules of Business can be viewed on www.foundingfuel.com-
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First Published:6 Apr 2015, 07:14 PM IST
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