A DIY Guide to Business Fundamentals
What are business fundamentals? The core competencies, skills, and expertise on which the success of a business depends are known as business fundamentals. Entrepreneurs and the one-third of U.S. adults who work in online marketplaces may find that a slightly different interpretation of these fundamentals can help them much more than the traditional presentation taught in the core curriculum at business schools.
Business schools have traditionally centered these core competency courses around the needs of large corporate employers who recruit most of their graduates. According to a Financial Times report covering the top 100 business schools in the world, only 16 percent of MBA graduates accepted jobs with startups or started businesses upon graduation in 2017.
As discussed in the classic 1985 Harvard Business Review article “The Heart of Entrepreneurship,” entrepreneurs face challenges that differ substantially from those facing managers in large corporations. Fortunately, an updated presentation of business fundamentals has emerged that more strongly resonates with entrepreneurs.
The Seven Forces of Business Mastery
This business fundamentals framework, known as the “Seven Forces of Business Mastery,” was developed by entrepreneur and CEO coach Tony Robbins. Robbins has a strong track record as a business consulting authority, particularly due to his work with other successful entrepreneurs.
As this Fortune Magazine cover story explains, Robbins and his teachings were instrumental in the founding of Salesforce by entrepreneur Marc Benioff in 1999. Today, Salesforce ranks as the sixth-largest software company in the world, reporting $8.39 billion in revenue in 2017 and a market capitalization of $113.14 billion in August 2018. Robbins is also the chairman of a holding company comprising 40 privately-held businesses.
Robbins has worked closely with many professionals and celebrities, including Bill Clinton, Hugh Jackman, and Peter Guber. He has made it on many lists, such as the Power 100 by Worth Magazine, the Top 50 Business Intellectuals by Accenture, the Top 200 Business Gurus by Harvard Business Review, and the Celebrity 100 by Forbes. Money Magazine reported Robbins’ net worth at about half a billion dollars in late 2015.
Robbins argues that seven “forces,” or fundamentals, control the success or failure of any business. He asserts that continuous, incremental improvement in his model’s seven fundamentals will result in success for the enterprise as a whole:
- Create the ultimate business map
- Constant and strategic innovation
- World-class marketing
- Sales mastery systems
- Anticipation: financial and legal analysis
- Constant optimization and maximization
- Create raving fan customers
Robbins also teaches that actions in business and life only make sense when they contribute to an outcome—an objective considered and decided upon in advance. One then works backward from the result to determine the most effective contributing actions. Because six of these forces contribute to the seventh, we examine the latter first.
Creating Raving Fan Customers: the Ultimate Business Objective
Robbins argues that customer satisfaction is insufficient as an ultimate business objective because customers who do not feel more than satisfied will quickly defect—i.e., they will buy competing products or services as soon as a competitor offers them a better deal. Dr. Michael Porter from Harvard Business School initially presented this concept in his landmark 1980 book Competitive Strategy: Techniques for Analyzing Industries and Competitors. Author Ken Blanchard further developed this concept in his 1993 million-selling book Raving Fans: A Revolutionary Approach To Customer Service.
Echoing Blanchard, Robbins argues that the ultimate objective of any businesses must be to create raving fan customers for life. The first step is to develop a raving fan corporate culture. This is when everyone knows that the reason the firm exists is to “wow” customers beyond their wildest dreams and that the firm is legendary according to how they over-deliver on brand promises.
For example, by better understanding, anticipating, and consistently fulfilling their customers’ needs, Apple’s raving fan culture has created millions of dedicated and loyal fans because Apple adds far more value to their customers’ lives than competitors can match. Why do thousands of customers line up outside Apple Stores, sometimes for days at a time and in rain and snow, to be the first to buy the latest iPhone model? They are not only customers but also fans. These customers are so loyal that they will not defect to competitors even if the company makes serious errors.
Furthermore, these raving fans also function as enthusiastic customer evangelists that persuade their friends, family, and acquaintances to buy Apple products in ways that Apple’s advertising could never accomplish by itself—crucial during a time when many forms of traditional advertising are losing their effectiveness.
Raving fans are not limited to tech firms like Apple. Singing sensation Taylor Swift performs in packed stadiums around the world and is a prime example of marketplace domination by creating superfans—called Taylor Nation or Swifties—through a raving fan culture.
Now let’s look at the business fundamentals that Robbins asserts will develop raving fans.
Create the Ultimate Business Map
Strategic planning has always played a role as an essential business fundamental, and as an important one for startups seeking venture capital funding. However, Robbins points out that marketplaces today change more rapidly than ever before. Disruptive technologies and unexpected competitors can suddenly emerge, displacing businesses in months, rather than years. How can companies position themselves in such hyper-competitive environments?
He suggests that drafting traditional multi-year business plans makes for an old-fashioned and suboptimal practice because the planning process cannot possibly keep pace with such rapid market changes. He suggests that these days, many traditional business plans become obsolete even before they’re completely written.
Robbins instead argues that firms need short-term business maps—strategic planning tools that depict the shortest route from where a firm currently is to where it needs to go. In other words, these maps close the gap between a business’s current position and the position their leadership seeks.
To create a business map, Robbins recommends that the leadership of any business consider a series of analytical questions.
1. What business am I in?
Management theorist Peter Drucker offered the profound observation that “the customer rarely buys what the business thinks it sells him.” Often a disconnect exists between the leadership’s perception of their business and an accurate portrayal that describes the business in which the firm accurately operates, as the following example illustrates.
Is Starbucks in the coffee business? CEO Howard Schultz observed during a trip to Italy in 1983 that Italians routinely meet in cafes before and after work. Schultz recognized how the Italian cafe customers were buying into an experience of a transitional meeting place between home and their jobs. That is when he understood that his business was actually about creating a “third place,” a community experience beyond selling coffee.
2. How is business? What business am I really in?
In support of these questions, Robbins argues that the ways business leaders frame issues during planning in the midst of a rapidly changing competitive environment afford the greatest impediments to success—and also the best opportunities. For example, he cites how in 1997, with Microsoft’s software running on 97 percent of the world’s PCs, Steve Jobs asked himself one of the most critical questions of his life: “What business are we really in?”
Apple decided to suddenly redefine its corporate mission to be in the business of connecting people to their passions—to their photographs, music, videos, and each other. Two decades later, Apple is the world’s largest company, with a market capitalization exceeding $600 billion.
3. Why did I get into this business? Why am I in it now?
These questions directly relate to the development and renewal of the corporate mission statement, an essential and fundamental requirement for any business. Business success requires a lot of energy from its leaders, which can wear out.
According to Robbins, a company’s leadership needs “a reason and a vision of something you’re truly passionate about where you’re serving more than yourself. Harness that passion to keep moving forward.”
4. Who am I? Who is my current customer? What does my customer need?
Whether they define themselves as skilled producers, managers, or entrepreneurs, the leadership needs to align their true nature with their roles to better serve customers as well as the business overall. We discuss the customer-related questions at length in the sections below.
5. Where am I in the industry and economy? How do I prepare for the next season?
These final questions emphasize how success depends on doing the right things at the right times. The leadership needs—above all else—an accurate and complete analysis of the situation currently facing the business, as well as precise identification of the current opportunities on which the firm can capitalize.
It is important to note how Robbins’s questions appear to pay homage to two foundational assessment models taught in business schools. One is the SWOT Analysis which was developed by the Stanford Research Institute in the 1960s to analyze the strengths, weaknesses, opportunities, and threats of a company. The second is Porter’s Five Forces Model, a framework that identifies and analyzes five competitive forces that determine any industry’s weaknesses and strengths: competition, new entrant potential, the power of suppliers and customers, and threats from substitute products.
Constant and Strategic Innovation
In perhaps his most famous quote, Drucker also offered another profound observation. At its core, business consists of only two essential functions: “Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.” Robbins’s model incorporates both of those fundamental functions.
Even with high-quality brands, consistent and stable products no longer impress customers today, who quickly tire of new services or features. These days, customers expect constant innovation. If companies do not meet those expectations, customers will defect to competitors who do. Industry-leading firms like Apple and Starbucks dominate their markets because they continuously innovate. These market leaders continuously create products and services that offer more, newer, and better features and benefits.
However, Robbins argues that those innovations need to be strategic; they need to target those customers’ most compelling needs. Apple accomplished that result by inventing the smartphone. As captured in this historic video from 2007, Apple bundled a revolutionary mobile phone, a widescreen iPod video and music player with touch controls, and a breakthrough “internet communications device” in one convenient package, which we know today as the iPhone. With the iPhone, they created an entirely new category of product, ushering in the smartphone industry.
World-class Marketing
Many of us can think of examples of firms that do not have the best products but dominated markets because they had the best marketing. Robbins agrees with Drucker that outstanding marketing plays a fundamental role in business success.
For example, for years, IBM offered products that were never the best in their class. Yet, the firm deployed an army of sales representatives and system engineers that maintained close customer relationships. IBM knew their customers and their stories well; they knew those customers’ needs and understood how to best tell IBM’s story in a way that compelled their purchases.
Sales Mastery Systems
In a clear departure from the business school curriculum—one that bears particular significance for entrepreneurs—Robbins also includes the mastery of sales and sales systems in his model as a fundamental business capability.
AACSB-accredited business schools offer extensive courses in marketing, but in general, they do not teach sales as an academic discipline. This curriculum gap has persisted since Harvard University introduced the first MBA program 100 years ago, even despite the insatiable, never-ending demand for qualified sales professionals. This gap might persist because of the view shared by Robbins that great sales professionals are relentless, talented extroverts who are found, not trained.
Marketing may lead people to want to buy from companies, yet businesses only receive payments as a result of sales. Unless firms convert those leads into paying customers, businesses cannot grow, and some may not survive. Robbins argues that firms need at least three sales channels or systems that will consistently convert prospects into customers.
Anticipation: Financial and Legal Analysis
According to Robbins, the number one reason firms fail is because company leaders with little interest in accounting don’t know where the firm is spending its money, and lose sight of critical metrics that can forecast progress or warn of demise. Yet measurements that can identify troublesome blind spots and accurately portray the firm’s current financial condition and the road ahead are fundamental to any firm’s successful operation. Robbins recommends setting aside one day per month to review in detail critical financial reports like the cash flow statement, statement of changes in financial position, income statement, and balance sheet.
Constant Optimization and Maximization
We finish by presenting a critical business fundamental largely untaught in business schools outside of highly technical operations research and management science courses: optimization and maximization. At times, the best growth opportunities may not originate from new initiatives, but instead from executing existing core processes more efficiently or effectively. Aggregating the effects from a group of small marginal or incremental improvements in only a handful of critical functions can result in compounded, geometric growth for the enterprise overall.
Robbins claims that this is the main reason poor performing companies hire him and the principal reason for the success of the companies he owns. Some might be surprised by the fluency with which Robbins talks about such a technical business fundamental.
Optimization can have dramatic effects on financial results, and Robbins cites some little-known “accounting tricks” that can imply how setting some easily-obtainable objectives can energize financial performance. For example, if a firm operating with a typical 20 percent net profit margin cuts costs by only about 12 percent, that is equivalent to a 30 percent net profit margin—a 50 percent increase in net profit!
