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TODAY’S STORY
5 May
,
2022

You're not in the product business, you're in an outcomes business.

In an article published in 1960, Theodore Levitt, a German-born American economist and a professor at the Harvard Business School, talked about a characteristic of successful businesses which leads to their eventual stagnation and demise.

The characteristic:

A failure to consider what business they are in.

After achieving some early success with their product, businesses tend to get too attached to the product itself and fail to consider that it is not the product itself that is valuable, but the outcomes it produces for its customers.

In the article, he gives the example of the railroad industry that failed to grow due to its limited market view.

"Those behind the railroads are in trouble not because the need for passenger transportation has declined or even because that need has been filled by cars, airplanes, and other modes of transport. Rather, the industry is failing because those behind it assumed they were in the railroad business rather than the transportation business. They were railroad oriented instead of transportation oriented, product-oriented instead of customer-oriented."

Kodak thought it was in the film camera business, while it actually was in the photography and “creating memories” business.

Blockbuster thought it was in the movie-renting business while it actually was in the entertainment business.

Universities today think that they're in the credentialling business, while they fail to consider that those credentials aren't worth anything if the underlying education isn't any good for real-world application.

Likewise, any business must "ascertain and act on their customers’ needs and desires, not bank on the presumed longevity of their products."

And a lot of this myopia has to do with the incentives of the business itself. If the market is rapidly expanding for a certain category, product businesses doing well in that category have little to no incentive to improve their product or think imaginatively.

"The absence of a problem leads to the absence of thinking. If your product has an automatically expanding market, then you will not give much thought to how to expand it."

Take the example of the gasoline industry that is being currently disrupted by electric cars.

"Let us start at the beginning: the customer. It can be shown that motorists strongly dislike the bother, delay, and experience of buying gasoline. People actually do not buy gasoline. They cannot see it, taste it, feel it, appreciate it, or really test it. What they buy is the right to continue driving their cars. The gas station is like a tax collector to whom people are compelled to pay a periodic toll as the price of using their cars. This makes the gas station a basically unpopular institution. It can never be made popular or pleasant, only less unpopular, less unpleasant.

Reducing its unpopularity completely means eliminating it. Nobody likes a tax collector, not even a pleasantly cheerful one. Nobody likes to interrupt a trip to buy a phantom product, not even from a handsome Adonis or a seductive Venus. Hence, companies that are working on exotic fuel substitutes that will eliminate the need for frequent refuelling are heading directly into the outstretched arms of the irritated motorist. They are riding a wave of inevitability, not because they are creating something that is technologically superior or more sophisticated but because they are satisfying a powerful customer need. They are also eliminating noxious odours and air pollution."

Simply put, such businesses are prone to be disrupted by outsiders who focus on the outcome and deliver better solutions to achieve that outcome.

Also, consider this:

In its ideal state, technology is invisible. Because technology is never the end, it is only a means to an end. And a failure to see the true ends and wrongly focusing on the means to ends is where most businesses falter and fail.

You're not in the product business, you're in an outcomes business.

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