The Essence of Business Success

Posted 1 year, 7 months ago | Originally written on 9 Nov 2022

Success in business is predominantly the result of two tasks: outbidding and undercutting rivals for the same resources. Outbidding determines its capacity to consume resources and undercutting its capacity to conclude successful sales. While customer service and quality are very important, these are lagging measures. That is, it is far more insightful to know whether a business outbids and undercuts than to whether it offers great customer service and quality. Better still would be to have all four properties but the reason why firms with the former two properties can still hold their sway is because these are leading measures. After all, clients are wont to first respond to price than anything else.

Unfortunately, outbidding and undercutting are contradictory: the more one outbids the less the profit margin at which to undercut. Of course we can only undercut to the extent that we can outbid. Buying widgets for 1 unit of currency and selling them for 2 is profitable unlike the converse. Without profitability a business is obviously nonviable. The extent to which a business can be profitable as a measure of its profit margins tells us how efficient it is. Furthermore, it’s capacity to do this at scale is it’s productivity.

Therefore, in a nutshell, every business should strive to be scalably profitable at producing high quality with delightful customer service.