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You don’t understand your business and it’s a problem – Part 1

Oct 8, 2024 | Reflections

Many leaders don’t think much about the type of business they’re running

My wife approached the checkout line with our two toddlers cascading towards full meltdown. 

The store manager saw her plight, quickly pulled her aside, and opened an additional register. She was on her way in moments. Ask my wife today why she shops at Publix, that’s the story she tells.

Fast forward a couple of years. We were staying in a London flat—a summer trip we’d been planning for months. During dinner on our first night, there was a knock at the door. The entire building was gathered on the stoop to tell us we couldn’t stay there because of an ongoing legal dispute between them and the flat’s owner. Dismay turned to anger as we went back and forth over the next 7 days with dozens of calls to a VRBO call center back in the US trying to secure alternative lodging and a refund. 

We know the difference between good service and bad. But why is bad service so commonplace and good service so rare?

The answer is that many leaders don’t think much about the type of business they’re running. 

They know they’re running, say, a law firm, or a restaurant, a nail salon, or an environmental-services company. They know their industry’s tools, regulations, equipment and jargon. But they don’t consider whether they’re managing a product-based business or a service-based business.

Leaders who do not understand the key differentiators of services businesses fundamentally do not understand how and nor why their organizations work. As a result, they cannot effectively make key resource allocation decisions, nor position their businesses for success.

The difference is real

If you were like me, you probably do not think a lot about the difference between product and service businesses.  Business is just business. And years ago that may have been true. But consider, US Gross Domestic Product is 77.6% generated by services now, and 4 of 5 employees work in the services sector.  98% of businesses in the US have fewer than 100 employees, so odds are if you are reading this, you work in a small services business!

Product businesses are what they sound like: organizations engaged in the design, manufacture, sales and support of a product, a good that is used to do something. Services are fundamentally different. Services are actually events in which the service is produced and consumed at the same time. Products endure, services evaporate.  

Products benefit from the cumulative total of all the work that went into producing the item.  Each iPhone you purchase inherits all the knowledge embedded into Apple about what makes a great iPhone.  Manufacturing itself is so highly standardized and managed, that even if any of the persons who touched your phone on the assembly line was having a bad day, it did not affect the quality of your new phone.

Products actually don’t have to be physical goods anymore.  Software is a great example of an intangible product. It is something you purchase that is complete in itself. 

Services are not complete in themselves. In a service, there is a direct relationship between the employee and customer. It all hangs on the employee and what they bring to the interaction. Employee having a bad day? Service will suffer. Find an employee that loves their job and they will serve the customer above and beyond.

Services are exceptionally broad.  But no matter the industry, there are very real differences between a product business and a service business. Consider:

  • Boeing manufacturers airplanes (product) vs. Delta/America/United/Southwest which deliver transportation as a service
    • The plane is immaterial to the experience – we assume that it is going to take off, fly and land without incident.  The service is in delivering us from one location to another. Flight attendants can have a tremendous impact on how we feel about the experience.
  • Intuitive Surgical’s Da Vinci makes a surgical robot (product) vs. the Mayo Clinic which delivers ‘healing’ as a service.
  • McDonald delivers food as a product. A Michelin 3-star delivers a hospitality service using food.

If money has changed hands and you do not walk away with anything, odds are you are dealing with a service. The type of business you are operating means that there is in fact a way in which these businesses run best. 

Next week, we will unpack 3 problems that emerge if you do not understand your service business:

  • Leaders squandering their time
  • Leaders wasting money investing in the wrong place
  • Leaders having the wrong team in place 

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