Tuesday, March 13, 2012

What You Sell and What They Buy

So this post may be rambling. I apologise in advance...

My dad was a pretty good business man. I, honestly, didn't care too much for 'being in business' as a kid but I did try and pay attention to him. When I was in high school, he started talking about a book called "Behind the Arches", which is a fairly hefty book about the McDonald's corporation, right from the start of it.

I learned lots of interesting tidbits from that book, but the basis of one story sticks in my head. Because this is all looking back a *long* time I really can't remember the specifics but basically it came down to this: when explaining the process of the business to some students, they were asked "so, what business is McDonald's in?". The answer that was given was "fast food".

That answer was wrong.

You see, while McDonald's might be selling burgers, it was said, it's actually in the business of real estate. This is to do with the fact that the McDonald's corporation tends to own the real estate that most of the franchises are built on. A good portion of the income of the McDonald's corporation is from drawing rent, basically. When the time comes (theoretically? :) ) that the franchise is no longer making money, all of a sudden McDonald's has land to sell. And it has a *lot* of land. In a *lot* of high traffic areas.

What you sell is not necessarily your business.

One other bizarre scene from my life has stuck in my head, and it basically talks about the flip side of this little statement. I was at a town hall meeting once (actually, again while I was in high school) and it was attended by a gentleman from the Rocky Mountain Institute. He was talking about renewable resources and recycling etc., looking at it from a "this is good for business" point of view.

He talked about how companies were beginning to realise that what people are buying is not the product, but what the product provided. From there, these companies were realising that leasing products was viable and finally, therefore, the more they can reuse product the better.

There were two examples that I can remember. Firstly, there was the carpet company that realised that people that outfitted office spaces *really* didn't want to buy carpet: they did, however, *really* want to buy the fact that floors weren't hard and cold. This led the company to actually lease carpets, which then made it all the more financially wise to be able to reuse at much of that carpet as possible. The outcome was carpet that could be fed into a wood chipper, for all intents and purposes, and to be able to use 100% of the result to remake new carpet.

The other example was a company that made lifts for office buildings. Again, they realised that people don't want to buy a lift. Instead, people are actually just looking for a way to get to other floors quickly and efficiently. This led to leasing the elevators themselves, which then gave the company a financial incentive to make the lifts as service-able and as reusable as possible.

So that became the reverse of the first story: people aren't buying things for any reason other than the fact that they need that thing to get a result they are actually looking for.

If a mass produced, safe and fast teleporter was built tomorrow, would anyone be actually buying lifts? Of course not. But that is not something to be scared of, even if you make lifts! Why? Because you're not making lifts... you just happen to need to right now to fulfill the requirements of the customer. Because while you may be selling lifts, you're in the business of getting people around buildings...

It's really odd that those two things stuck out to me, because I always just imagined that it was coincidence. The more I think about it, though, I really see that connection and I'm glad that I did pick up on it.

But what does that have to do with you? Well, assuming you're like me and in the IT industry, I think it distills down to something really simple: people aren't paying you to *produce* anything, they're *actually* paying you to get them a way to do something they couldn't before.

Do you really need to write up a whole framework of code to justify the price you put on a site? Not at all! They're not paying you to write code: they're paying you to get them a result.

Just the other day, I had a first time coder ask me "how long would it take me to write a web shop?". I delved a little deeper and the reason he wanted to know how long it would take was so that he could work out how much to charge! Obviously, outside of my current point, I convinced him not to write his own (like I say, this was really his first ever 'real project'), but I just suggested finding a product that already does e-commerce and basically theming it. Then when it came time to price it, he was amazed that he could charge that for such little work... until he realised that he wasn't being paid to write code: he was being paid to get results, and that result has a price on it, no matter how it is achieved.

So what's the moral? This one is especially aimed at the coders at the start of their career: the world doesn't need another framework, but there sure are a lot of people that will pay you to get themselves further ahead. You don't need to write it to justify the cost: you're being paid for information.

You might sell code, but information is your business.


  1. Well said. IMHO it's all about value / perceived value. Customers value the benefit more than the specific feature behind it. They will pay for the benefit associated with their web pages loading 20% faster.

    They don't care about the server / software features that makes that happen. Speed is what they value. Faster page loads for better user experience is what you sell.

    1. Absolutely true. The funny thing I find is that as coders, at least, we tend to value the wrong things. The things that we enjoy are the nuts and bolts that get that feature, and so we don't understand why people don't love us for the way we do it, as opposed to the outcome...

    2. I'd caution you both to be a little careful here. I know there are a lot of clients that couldn't care less about what is going on under the hood, but I think it is imperative that we try to MAKE them care.

      When we pitch new clients, we talk nuts and bolts. We explain how following best practices will give them a modular, extensible product and not a mess of tangled code.

      The outcome is very important (and we put glossy UIs in our portfolio to show off) but it's at best half of the product. Our clients know that they're getting code that has institutional knowledge baked into functional tests and can easily be extended to add new features as they need them.

    3. edit: the 'We/Our' in paragraphs 2 and 3 is my company specifically and not a collective 'We/Our'.

    4. Hi Zack,

      Thanks for that feedback: it's a really good point that it is important to actually know what you are selling. I guess my only 'answer' to that is that I can know a lot about a software product (as far as the nuts and bolts are concerned) even though I didn't write it.

      Take for example the e-commerce site I mentioned above. While I did encourage this other coder to use Magento and just theme it, I have spent a lot of time in the Magento code myself and so I feel fairly comfortable working my way around a lot of it.

      In fact, on top of being able to work my way around a lot of it myself, I am able to reach out to a lot of other coders around the world in case I have a problem with it... sometimes more easily than if I had a problem with something I had written myself completely.

      Don't get me wrong: I agree that you need to know the product that you're selling, but again, I don't think that the only one to do that is to have built it yourself.


    5. @Zack Brown - but even then, the customer probably isn't interested in design patterns and unit tests. The customer is interested in balancing short and long term goals, being able to adapt to changing circumstances, and reducing risk. So you don't sell them the best practices - you sell them the benefits of those best practices, which are business benefits too.

  2. Thank you very much for this post. For years reading Rich Dad, he tries to explain the concept behind the Ray Crock´s scene: "my business is real states ... ", but i just didn´t get it until your explanation. Thanks man.

    1. Your welcome Marco. Maybe I should do more posting around midnight... it tends to make things of mine easier to read :)

  3. I believe the carpet company is Interface.

    1. Thanks for the information: I've wondered now and again what happened to them since this change in business. I guess I'll be able to look them up now... hopefully!

  4. This is also the case for IKEA. They own the land (and the area around the stores) which they rent to other companies. The IKEA itself draws large amounts of customers to all stores, and earns a lot along the way.

    1. By other stores / companies do you mean other companies in the buildings around the IKEA, or is it a situation where they are leasing property inside the IKEA itself?

      While I assume it's the former, the latter reminded me of a department store back in Australia. In reality, this store just rented space, staff and essentially a single brand to companies inside of the store. Each department was owned by a different company and they just sold all of their stuff under the one brand...

  5. " you just happen to need to right now to fulfill the requirements of the customer"


    1. Yeah, I agree that that's a bit badly typed. Maybe a comma after 'now'?

      What I was trying to say was something like "you're not making lifts... it's just that right you need to be making lifts, to fulfill the requirements of the customer."

  6. You're right. Don't just write code, achieve the results!!!!!!!!!!!

    I guess a lot of people also remember about the Space Pen story, that also states the same.