Whether you are running a lemonade stand or a corporation you will fail if you don’t understand the basics of business.
The fundamental formula every business is trying to solve is:
(PRICE x UNITS SOLD) – COSTS = PROFIT.
With varying degrees of complexity, every business is trying to sell a product or service that enough people need or want, at a price point that they’re willing to pay, and at a cost low enough to generate a profit.
There are two sets of activities every business needs to master in order to survive and thrive:
DESIGNING + DELIVERING VALUE
The first set of activities deal with coming up with a product or service that solves a problem or fulfills a need. It deals with your ability to come up with a repeatable business model for how you will produce, package, communicate and deliver your product or service in a way that appeals to a large enough segment of a market.
CREATING + CAPTURING DEMAND
Once you have figured out how to bring to market something people need, want and are willing to pay for, you have to be able to create and capture enough demand for your product by making it easy for people to find you, understand what you can do for them, and trust you enough to take action.
And since you’re not the only option in that market, you also have to figure out a way for people to choose you over your competition and gain a competitive advantage.
There are fundamentally three ways to win:
You could have a pricing advantage whereby, because you’ve earned the highest degree of trust with customers in that segment, you can command higher prices or can afford to raise your prices over time without losing too many customers. A pricing advantage is also one where you are able to be the cheapest option in the market and therefore appeal to those who are price sensitive.
You could figure out a way to produce and deliver the same product or service at a lower cost. It would enable you to charge less than your competitors to win market share or charge the same as the competition in order to have bigger profit margins.
Finally, you could win by selling significantly more units than your competitors because your product or service is perceived as the best value, the cheapest, the easiest to find or simply the one most people remember at the moment of the purchase.
Ultimately, the real way to win in business is to lead with empathy– for your employees and your customers. Empathy-led business means learning to see things from the vantage point of those you seek to serve– their needs, aspirations, challenges and fear– and making decisions that are driven by what's in their best interest.