A New Game

A while back, when I was still teaching Business Plan Writing and Strategic Planning, I used to give my students an in-class exercise that I called “What Business Are They In?” Now, I know the question “What business are we really in?” has become one of the common management clichés, and you’re all tired of hearing it. But the reason this became one of the stereotypical questions of our profession is that most people don’t really know – which is to say, they’ve never really thought about it. Most of my students were either starting a small business or trying to expand an existing one, and in many cases the key problem they were having was that the business they were really in wasn’t exactly the one they thought they were in. I still see examples of this issue from time to time, so I thought it might be fun to revive the exercise for all of you.

Let’s take a business everyone is familiar with: the coffee house. You’ve probably been in one this week; you may even be in one right now, if you read these posts on a mobile or wi-fi device. It seems like a simple enough business, doesn’t it? They brew coffee and sell it to people. Some of the people also buy food. But since these businesses are selling you 25 cents worth of coffee and 10 cents worth of milk for $2.95, it seems clear that they’re not actually selling you coffee. So what business are they REALLY in?

Consider a Starbucks as the generic chain coffee house; a Coffee Bean and Tea Leaf or a Peet’s are not going to be all that much different. All of them offer coffee, food, and some brewing paraphernalia for sale, as well as (relatively) clean and comfortable places to sit and consume food and drink. Starbuck’s goes in for music as an additional product, while Coffee Bean sells gifts for coffee drinkers, and Peet’s has their own tie-in products, but functionally it’s still the same business. What they’re selling you is mainly convenience; you could certainly brew your own coffee and steam your own milk, but the coffee chains will sell it to you, hot and ready to go, right when you want it. Some people will use the coffee house as an office, a study hall, or a conference facility, which are all things you also can’t get by having a coffee maker in your kitchen.

A different example would be the Fox Hollow Coffee chain. Most Fox Hollow locations are sited in small, stand-alone buildings like the one pictured on their web page, most often with a drive up window on each side and two long driveways to handle a large flow of cars. The whole operation is basically two or three coffee stations, three cash registers, and two drive-through lanes. There’s nothing else for sale, and most Fox Hollows have nowhere to sit even if you wanted to. So what are they selling? Well, speed, mostly. I’ve held a stopwatch on the Fox Hollow near my house, and they’re almost twice as fast as a Starbucks – and Starbucks is at least three times faster than any of their competitors. Add in the convenience of two well-designed drive-through lanes, and you can get your morning coffee in a matter of seconds, without ever leaving your car.

All of this is obviously quite different from the one-off neighborhood coffee houses like the ones mentioned in my last post (and the Slate article linked there), which serve as art galleries, concert venues, community centers, non-exclusive neighborhood social clubs, meeting halls, and a wide range of other community functions. These operations are selling a community, a lifestyle, a sense of belonging, a place of comfort or refuge, or sometimes all of the above and more. In fact, if you were to make a survey, you’d probably find that the single-unit coffee sellers across the US are in fact involved in literally dozens of business models, none of which are really like a Starbucks (or the equivalent) even though they all allegedly just sell coffee…