Making a Purposeful Case

Lead with purpose, not short-term profitability.

Purpose is the rudder that steers organisations, without it, even an initially profitable endeavour would become lost and vulnerable.

When deciding whether to proceed with a business idea (e.g. “should we…?”), the leading question inevitably is “…will it make money?”.

Do not jump to profitability. Lead with “…why?” instead. If the purpose is truly valuable to customers and collaborators, save for poor execution, profit will follow.

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I am big on purpose.

Without purpose, we have no identity. Without identity, we are undifferentiated, replaceable commodities. The same applies to businesses, the effects of which may have been amplified over the last two years.

The way we evaluate business ideas need to reflect the increasingly digital world. Businesses, especially traditional ones, cannot prioritise short-term profit and hope to retrofit purpose later.

I am no longer physically visiting Waitrose, Tescos or Aldi; instead, we order weekly online for deliveries with the majority of the items on repeat order. Shopping now boils down to functional attributes with minimal interaction - I’ll go with whoever offers the functionality I need, at the lowest price and with the least fuss. Chances to win back customers are becoming increasingly rare as interactions become increasingly digital.

Redefining Viability

Starting with purpose, here are three related views useful for determining the viability of an idea:

• What is the idea really about? What needs gap is it looking to fill?

• No business exists in isolation. What value is being created for collaborators, not just customers and the business?

• How will we deliver a uniquely better product/service; how will we maintain our identity over time?

Readers may recognise the above as elements from marketing, economics and strategy.

Relationship of Marketing, Economics & Strategy

Marketing: What is the idea really about?

Fixating on productivity (achieving more output for less input) does not always lead to good places. Productivity inevitably comes down to cutting or operational excellence (OE). As one cannot grow by cutting¹ - no matter how much you cut, growth in profit will in the long-term, be constrained by how much you grow. On the other hand, gains from OE are also available to your competitors, so any resulting advantage is at best transient. Running a tight ship is necessary, but insufficient to staying ahead.

Ultimately, the success of a business is what it offers to the market. This is a matter of purpose: why does A exist, how is it different from B and C?

1. What needs will the idea address, for who?
   Before attempting to design a product/service, it is worth understanding the need that is being targeted. For a given need, there could be many ways to satisfy it. The need to communicate can be met by handwritten letters, 11pm video calls, or for the particularly grievous mistakes, there is always Marks and Spencer’s Next Day Flower (and chocolate) service.
   

2. What are the gaps in the market today?
   A wise colleague once reminded me that “the biggest competitor to Mini Cooper is not another car. It’s a new kitchen”!
   
   The standard definition of “market” (buyers and sellers of a specific product) may be too narrow. We should instead broaden the definition to buyers and businesses that target a specific need.
   

3. What is unique about our idea?
   Given that there either already is, or could be alternative ways to meet the target need, why will a customer choose you? The answer may evolve over time, however, a lack of a clear response foreshadows the race to cost-leadership.

Economics: What value is being exchanged?

It is insufficient to view value proposition as something solely between your business and your customers². Success for a non-vertically integrated business also depends on its relationships with your collaborators (e.g. other businesses on which your business depends).

1. What is the customer/business value proposition?
   Value (perceived worth) is different to utility (usefulness); price is a function of value, not utility. A diamond engagement ring has little utility, however, the value attributed is still measured in “months of salary”³. It is the value that counts, not utility.
   

2. What are the existing value propositions within the ecosystem?
   The optimal value proposition should create value for all parties in the ecosystem. If the business fails to cultivate enduring relationships with collaborators, success could be inconsistent and short-lived.
   

3. How will the idea affect the stability of the market?
   Perhaps stability is overrated; nevertheless, volatility is something to be prepared for and more importantly, an opportunity to be exploited.

Strategy: How to stay unique?

The term sustained competitive advantage implies uniqueness that endures.

1. What is your business uniquely good at?
   Strength is not what you have (e.g. intellectual property, or even market share), but what you are able to do⁴. Understanding the strength of a business allows you to gauge the ability of a business to exploit new opportunities and resist threats.
   

2. What external factors are there, how could they change?
   External forces can profoundly affect businesses when it challenges foundational assumptions that a strategy is premised on.
   
   AMD (processor and graphics card company, competitor to Intel) appears to have made the right decision to divest its semiconductor manufacturing business in 2008. The divestment allowed them to take advantage of the 7nm fabrication processes from TSMC - an advantage that Intel has struggled to match⁵. At the time of writing, AMD dominates performance⁶ and has 40% of the processor market share⁷.
   
   The strategy to divest fabrication could also prove to be a liability - multiple factors, ranging from COVID, competing demands (from Apple, which also uses TSMC), drought to geopolitics has meant that AMD is now struggling to fulfil demand⁸.
   

3. How fierce could the competition be?
   Wisdom from antiquity: always leave an out - do not press a desperate enemy⁹. Otherwise, if you must strike, then strike swiftly and conclusively.
   
   For the businesses targeting the same need, it is worth understanding whose lunch you will be eating and if they have other options. Desperation can lead to irrational, and sometimes ingenious actions.

The ability to create superior value for customers and collaborators comes from purpose - which must be the starting question for every business idea. Although long-term profitability is the principal outcome for any business, it is an outcome and should not drive the means.

1. What Prahalad and Hamel lucidly describe as "denominator management [being] the accountant’s shortcut to asset productivity”.

p9. Hamel, Gary, and C. K. Prahalad. 1994. Competing for the Future: Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets of Tomorrow. 1st ed. Harvard Business Review Press.

2. Chernev defines the term optimal value proposition as “such that it creates value for target customer and collaborators in a way that enables the company to achieve its strategic goals”.

p23. Chernev, Alexander. 2019. Strategic Marketing Management: Theory and Practice. 1st ed. Chicago, IL, USA: Cerebellum Press. https://play.google.com/books/reader?id=F-eEDwAAQBAJ.

3. Cawley, Laurence. 2014. De Beers myth: Do people spend a month's salary on a diamond engagement ring?. BBC. https://www.bbc.co.uk/news/magazine-27371208

4. Prahalad, C. K., and Gary Hamel. 1990. ‘The Core Competence of the Corporation’. Harvard Business Review 1990 (May-June). https://hbr.org/1990/05/the-core-competence-of-the-corporation.

5. We've Never Seen Intel Struggle Like This - ExtremeTech. https://www.extremetech.com/computing/313208-weve-never-seen-intel-struggle-like-this

6. PassMark Intel vs AMD CPU Benchmarks - High End. Accessed 07 November 2021. https://www.cpubenchmark.net/high_end_cpus.html

7. Distribution of Intel and AMD x86 computer central processing units (CPUs) worldwide from 2012 to 2021, by quarter. https://www.statista.com/statistics/735904/worldwide-x86-intel-amd-market-share/

8. AMD's overreliance on TSMC is hampering the company's growth prospects | OC3D News (overclock3d.net). https://www.overclock3d.net/news/misc_hardware/amd_s_overreliance_on_tsmc_is_hampering_the_company_s_growth_prospects/1

9. When left with no choice, opponents will fight to the bitter end.

p129. Tzu, Sun. 2003. The Art of War: Complete Texts and Commentaries. Translated by Thomas Cleary. 1st ed. Boulder, CO, USA: Shambhala Publications. https://play.google.com/books/reader?id=trpSpjQjg_cC.

Cover photo is The Great Wave off Kanagawa by Katsushika Hokusai.