The Power of Questions
The quality of your life, and your business, depends on the quality of the questions you ask yourself. And one of the best questions we can ask as business owners is,
What business am I really in?
I first heard this question from Tony Robbins, at his Business Mastery seminar. In previous articles in this series I’ve shared how this question creates a powerful frame for viewing your business. It impacts your productivity, shapes your brand and marketing, and influences your pricing decisions.
Understanding what business you are in also helps you see opportunities for expansion and evolution in your business.
Indeed, asking this question can help you stay in business as market dynamics change. Companies who ask the right questions can future-proof their business. Companies who fail to understand what business they are really in often find themselves out of business.
Case Study: Netflix and Blockbuster
Netflix, emerged on the scene in 1997 as a more convenient way to rent movies. Since then it has expanded to streaming content and into content production.
On the surface it may appear that the people who ran Netflix were better at seeing the future and innovating, or that they saw changes in consumer behavior that Blockbuster didn’t see coming.
Both of those may be true. But there is a more fundamental element underlying the different trajectories of Netflix and Blockbuster.
Netflix asked a better question. It understands what business it is really in. Blockbuster did not.
How to Future-Proof Your Business
Business graveyards are filled with failed businesses that thrived at one point in time but didn’t adapt to the changing marketplace.
What gets in their way is often a belief that they cannot adapt their business model to the emerging trends. And this belief stems from a failure to ask that crucial question:
What business are we really in?
When you can see the future and define the business you are really in, you give yourself the tools to adapt to a changing market dynamic. This is how you future-proof your business.
Netflix and Blockbuster show, it also can influence whether you will still have a business as market dynamics change.
I don’t know whether the executives at Netflix asked this question in this exact language, but on some level, every business that successfully navigates changing environments asks this question.
Let’s look at how asking what business am I really in? impacts 3 elements related to expanding and future-proofing your business.
(1) Product: What Do You Sell?
Every business sells something, otherwise it’s not a business. The problem that many businesses have is that they don’t know what they sell. More accurately, they may believe they know what they sell, but they don’t really understand what their customer is buying.
Asking what business am I really in? helps you clarify what you are offering to your customers. How you define your product defines who your competition is; it allows you to see opportunities and threats that arise in the marketplace.
Renting Movies vs Content on Demand
On the surface, the business of both Blockbuster and Netflix (in the beginning) was renting movies to customers. But the business they were both really in was in providing customers with movies they could watch in their home.
Netflix’s shift from DVDs by mail to streaming video was a natural evolution of a company that said, the business we are really in is delivering content on demand.In fact, Netflix founder and CEO Reed Hastings told Wired Magazine that he considered the company to be a low-tech video on demand service. Hastings saw the future of streaming movies; he planned to expand to streaming content once the technology lowered the costs of delivery.
Netflix is in the business of offering the ultimate convenience when it comes to renting and watching content.
This was reflected in its early adoption of a subscription model to allow unlimited consumption of content; it continues with the auto-play feature for series. You can binge watch an entire season without ever pressing a button in between shows.
(2) Pricing: How Can You Boost Your Revenue?
When you understand what business you are really in, you open the door to consider pricing models that may have previously appeared unsuitable for your business.
When Netflix started, it offered DVD rentals at a price per rental. It quickly adopted a subscription model, allowing delivering content to consumers in a convenient way opened the door for a subscription pricing model.
The subscription model kept consistent income flowing into Netflix.
It’s easy to forget this now, but when Netflix introduced the subscription model, it created confusion for customers. They weren’t used to renting movies that way. Eventually, consumers adjusted, and now subscription models are normal.
(3) Pivot: How Do You Expand Your Offerings?
Sometimes changing environment calls for a pivot, or a broader expansion, either in the product or in the pricing model. When you understand the business you are really in, you can see related offerings or other avenues of revenue generation that you might not had seen previously.
Netflix is now more than a channel for content on demand. It also produces original content.
This was part of the vision. In a 2002 interview with Wired Magazine, Hastings said:
The dream 20 years from now is to have a global entertainment distribution company that provides a unique channel for film producers and studios.
Since the earliest days of media, content creators have desired to own the distribution channels and the distribution channels have desired to create their own content to fill those channels.
As a content creator and producer, Netflix can fill its distribution channel without having to rely on outside content creators or snags in licensing agreements.
Even if its streaming service died off tomorrow, Netflix now has content that it can license to other distribution channels.
And if its streaming service remains strong, Netflix may still decide to syndicate its content to other channels as it gets older, the same way other content creators syndicate their shows on cable networks.
The expansion of its business into content creation and production gives Netflix a hedge against the future.
Future-Proof Your Business
In today’s world, no industry is immune from the threats of change. Old business models die, and new ones emerge. Someone is always the first to reframe a business or a business model.
Netflix was a leader. It introduced new pricing models and a new way of doing business in an established industry. By the time Blockbuster tried to catch up, it was too late.
Are you a Netflix or a Blockbuster?
What business are you really in?
Please share your thoughts in the comments.
- Fun fact: 21 years ago, as a senior in college, I wrote my honors thesis on this topic, focusing on joint ownership of sports franchises and cable television networks. This was just before the New York Yankees created the YES network. As a lawyer, I specialized in intellectual property and content licensing, and worked on some licensing deals in the early days of streaming. Netflix wasn’t the first to see this future, it’s just a great example. ↩