Do You Have a Product-Driven or Market-Driven Business?

The first step in identifying your company's driving force is to determine whether you have a product-driven or market-driven business.

In the previous blog post we told you that in the next few weeks we’d be focusing on some of the basics of owning and managing your own small business. In that first post we defined a market and suggested you might want to revisit the definition of your particular market and use that definition to aid you in how you produce your product or service and for whom. This week’s post assumes you have done that whether formally or informally. And if so, then you are now ready to take a look at another of the basics: driving force.

All businesses — both small and large — on the basis of their successful experience operating in the marketplace, develop certain mindsets, usually based on the owners’ and managers’ perceptions of their competitive edge or the uniqueness of their product or service. These mindsets become the driving force behind the strategic and tactical decisions made by owners and managers. In their epic treatise, authors Tregoe, Zimmerman, Smith and Tobias identified eight such driving forces. They are:

  • Products offered (think General Motors or tobacco companies)
  • Markets served (think Proctor and Gamble)
  • Technology (think Apple)
  • Production capability (think agriculture)
  • Operations capability (think hospitals and airlines)
  • Methods of distribution and sales (think Amazon and Wal-Mart)
  • Natural resources (think oil companies)
  • Profit/return (think General Electric)

 

Realizing your particular driving force is another basic that will help you focus your sales and marketing efforts and get more bang for the dollars spent in promoting your product-driven or market-driven business. It will also help you in making strategic and tactical decisions about how to grow your business. For the purposes of this blog we’ll deal with only the three driving forces most small businesses need to consider. That’s why the first step you may want to take is to decide whether you have a product-driven or market-driven business. The difference is actually quite simple.

A product-driven business has a finite set of products, usually unique or without a lot of competition in the marketplace. Tobacco companies are the classic example. A fairly well-defined and finite set of products — cigarettes, cigars, chew and their variants — is their hallmark. Thus, in order to grow, they must continually look for new markets (groups of people) who will find their products attractive and who have the ability to buy them. Conversely, a market-driven business — perhaps like yours — has a well-defined market and pays attention to their wants and needs and continually adjusts their product lines to meet those needs. These companies constantly seek information from their market about what it is they want and what they are willing to buy. (Go back and look at the example of the small sportswear manufacturer in the previous blog post.)

I can hear some of you now: "But my driving force will always be profit/return!" Be careful there. Obviously every business, both large and small, seeks to be profitable; otherwise they won’t be in business for long. But businesses driven solely by the need to meet a predetermined amount of profit or a targeted rate of return often make huge mistakes in decisions to expand their product lines or offered services or where and how to produce those products and services. In particular, they make the wrong “buy, build or partner” decisions. Companies like GE have the luxury of periodically selling off product lines or divisions that do not meet the company’s profit/return standards. Most small businesses do not have that luxury.

Sticking with the product-driven or market-driven business approach is probably the best bet for most small companies. However, if you think your business may be driven by any of the other forces, contact Murphy Business for additional help.