Drucker Series: The business we are in is determined by the customer

​One of the foundational concepts I learned from Peter Drucker was that what our business is, our product is, must be defined “from the outside, from the point of view of the customer and market.” He continues to say:
 
“What the consumer sees, thinks, believes, and wants at any given time must be accepted by management as an objective fact deserving to be taken as seriously as the reports of the salesman, the tests of the engineer or the figures of the accountant—something few managements find it easy to do.”
 
This customer and market-focused approach to business stands the test of time and is still something many, if not most, companies struggle with to this day. 
 
The research is clear, being market-driven – with a focus on the customers and market as a whole – is desirable. Market-driven companies are more profitable than those focused singularly on customers or competitors, and exceptionally more profitable than self-centered companies.
 
This focus, on the customer and market, is something that Drucker was precise about:
 
“it is the customer, and he alone, who through willing to pay for a good or for a service, converts economic resources into wealth, things into goods.”
 
“The customer is the foundation of a business and keeps it in existence. He alone gives employment.”
 
So, if our business, or product, is determined by the customer or consumer, we need to understand from the customer’s point of view what value we create, “the want the consumer satisfies when he buys a product or a service.” How do we do this?
 
Drucker has that answer too, “management must make a conscious effort to get honest answers from the consumer himself rather than attempt to read his mind.” The first step to do that Drucker writes is to “raise the question: Who is the customer?—the actual customer and the potential customer? Where is he? How does he buy? How can he be reached?” So much of how we look at and define markets are in this one quote. Actual and Potential customers talks to the market maturity lifecycle. At any time there are actual-current customers, and potential customers, those non-customers we think should be in the market and are not.  The next three questions are at the heart of market and customer segmentation, where are the customers, what are their buying process, what channels can we reach them through. These are fundamental questions to know and understand.
 
Drucker continues “The next question is: ‘What does the customer buy?’” and suggests that just raising that question “is enough to prove inadequate the concepts or market and competition on which managements usually base their actions.” For it is that question that gets to the motivation for a purchase, gets to understanding the problem they are looking to solve with their purchase, and here is the kicker, two identical products could be solving different problems for different customers. We need to know and understand these differences – this is key to unlocking the final questions “What does the customer consider value?” Which Drucker says is “the most difficult question.”
 
This question is so critical to defining our business or product based on the value we deliver to the customers, as:
 
“what the customer considers value is so complicated that it can only be answered by the customer himself. Management should not even try to guess at it—it should always go to the customer in a systematic quest for the answer.”
 
Through two chapters written 64 years ago, Peter Drucker laid the foundation for market-driven companies of today (and the future), and these ideas are still as valuable today as they were then. These concepts may even be more important today, given the speed of the economy and the competitive set many markets have within them.
 
What a customer needs and values defines our product and our business.
 
To understand this, we need to talk to our actual and potential customers to understand who they are, what they need, what they value, all within the lens of defining our business, our products.
 
Are you doing this? Do you talk with the customers in your market (both current customers and non-customers) outside of the sales and support process? Do you understand the differences in customers, where they are, what they value? And do you base your decisions on what you learn from the customer, as much or more than the opinions of sales, accounting, or development? If you answered no to any of these, you should explore how knowing the answers to the questions Drucker posed would change your decisions and ultimately your business.
 
If you want to talk about the importance of the customer in defining your business and products, the importance of being market, and how your company can get better at this send me an e-mail at grant@inventisstrategies.com. I always love to talk about Drucker and the value of engaging with the customer and market.
 
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Note on Peter Drucker: These quotes are all taken from “The Practice of Management,” Peter Drucker, 1954, HaperCollins.  They are also found in “Management: Tasks, Responsibilities, Practices,” 1973, HarperCollins, which included most of the chapters/sections from The Practice of Management with some updated and new content.  Here are the full quotes that were used:
 
“The question can therefore be answered only by looking at the business from the outside, from the point of view of the customer and the market. What the consumer sees, thinks, believes and wants at any given time must be accepted by management as an objective fact deserving to be taken as seriously as the reports of the salesman, the tests of the engineer or the figures of the accountant—something few managements find it easy to do.” Chapter 6 – What Is Our Business--And What Should It Be?
 
“It is the customer who determines what a business is. For it is the customer, and he alone, who through being willing to pay for a good or for a service, converts economic resources into wealth, things into goods.” Chapter 5 – What is Business
 
“The customer is the foundation of a business and keeps it in existence. He alone gives employment. And it is to supply the consumer that society entrusts wealth-producing resources to the business enterprise.” Chapter 5 – What is Business
 
“What is our business is not determined by the producer but by the consumer. It is not defined by the company’s name, statutes or articles of incorporation but by the want the consumer satisfies when he buys a product or a service.” Chapter 5 – What is Business
 
“management must make a conscious effort to get honest answers from the consumer himself rather than attempt to read his mind.” Chapter 6 – What Is Our Business--And What Should It Be?
 
“The first step toward finding out what our business is, is to raise the question: Who is the customer?—the actual customer and the potential customer? Where is he? How does he buy? How can he be reached?” Chapter 6 – What Is Our Business--And What Should It Be?
 
 
“The next question is: ‘What does the customer buy?’” Chapter 6 – What Is Our Business--And What Should It Be?
 
“To raise the question ‘what does the customer buy?’ is enough to prove inadequate the concepts of market and competition on which managements usually base their actions.” Chapter 6 – What Is Our Business--And What Should It Be?
 
“Finally, there is the most difficult question: ‘What does the customer consider value? What does he look for when he buys the product?’” Chapter 6 – What Is Our Business--And What Should It Be?
 
“Indeed, what the customer considers value is so complicated that it can only be answered by the customer himself. Management should not even try to guess at it—it should always go to the customer in a systematic quest for the answer.” Chapter 6 – What Is Our Business--And What Should It Be?