“If you can’t explain it simply, you don’t understand it well enough.” —Albert Einstein
Does your company understand what type of business it is? In my experience, there are three types of companies. Understanding what type of company you are is a key factor in unleashing your potential for truly sustainable success.
In a previous blog I shared my definition of sustainable success: (1) maintain above average market growth while you (2) earn employee engagement, (3) deliver shareowner value, (4) create customer loyalty, and (5) operate as a conscious and accountable member of the community.
To accomplish these objectives, companies must start by understanding what type of business they are, and must connect their understanding of the company to the priorities they set and the choices they make. There are three types of companies: suppliers, appliers, and combos.
The majority of companies in the world are suppliers. They provide products that meet customer’s needs. The product must match or beat the customer’s expectations in many areas, including specific features, availability, delivery, and quality. The best of these companies make it easy for potential new customers to choose products by selling them either directly or indirectly via convenient means. Accessibility to their product is key for supplier companies.
The best suppliers can also create new products, staying one step ahead in the game. Pricing is nearly always an important factor and profits stay high only for companies with demand or without competition (e.g. patent-protected drugs). One of the biggest challenges for suppliers is maintaining customer loyalty, even when competitors offer lower prices. Suppliers must invest financial and human capital in each of these areas to stay one step ahead of their competitors.
Some companies understand a customer’s needs so well that they can become appliers. Using goods and services from multiple sources, appliers install or deploy a product that helps a customer solve problems.
Applier companies understand that their employees are their greatest asset. Investing heavily in human capital is important for appliers. Competition is part of every market, but appliers understand their employees can set them apart by delivering value and building strong relationships. One of the biggest challenges for appliers is to stay up to date on all the products and services in their industry, but appliers who build strong relationships can earn higher levels of customer loyalty and often, higher profitability.
The final category comprises combination companies, or what I call “combos.” They are both suppliers and appliers. A great example is Home Depot. With their original motto “You can do it. We can help,” Home Depot has generated revenue both as a supplier of goods and an applier of expertise. Another example is Xerox: “Do what you do best. We’ll manage the rest.” Similar to Home Depot, Xerox supplies customers with technology and applies technology to meet customer needs.
Companies like Xerox compete on features, availability, delivery, quality, or price as a supplier and compete on solving customer problems as an applier. Companies that both supply and apply have the challenge to compete against firms that specialize in only one area but also the opportunity for loyalty and higher margins by becoming a true partner with their customers.
Priorities and Choices
Today, there are great companies succeeding in all three categories. This success stems from an understanding of what type of business they are. Does your company understand what type of business it is? Are you a supplier? Are you an applier? Are you both? The answers lead to decisions that will make your business more successful.
As a supplier, do you understand your customer well enough to anticipate their future needs? Who makes the buying decision for your customer? Is it an applier? What part of your value proposition is most important in your market? Do innovations in technology change your relationship with your customer?
As an applier, are you investing enough to keep your workforce current? Are you leveraging your customer knowledge to expand your business? Are you pricing your services to match the value you provide customers?
As a combo, how do you manage both parts of your business to optimize each? When do you recommend your own products and when are you best served to recommend others?
Achieving sustainable success is the objective of every company. In all cases, a clear understanding of your business enables you to make decisions on where to invest resources and where to focus to achieve growth—for the long term.