Forums: Discussions for entrepreneurs and small business.

Here`s an interesting thought that may be true, although it seems counter-intuitive. Setting aside the philosophic and psychological meaning of the word "success," most of us would agree that success means "more" of something in the context of business.

A successful business has more customers, generates more revenues, and sells more product from one year to the next, right? What if that`s not true?

There`s a key difference between a privately held and a publicly held corporation, and that difference is in accountability. In a privately held company, the success and failure, business decisions and actions are made by the owners or partners. They`re accountable to themselves, and use their own standards of success in their logic.

In a publicly held company, owned by many stockholders (through institutional investing companies), who is it that creates what sort of growth philosophy and strategy? It`s true that the CEO and BoD are responsible for coming up with plans and putting them into action, but isn`t it the "shareholders" who decide if that`s the right set of actions?

Stockholders vote with their wallets, based on whether or not the perceived value of the company is going up or down. And that means the value of the company is largely perceived as what someone will pay for each share of stock.

In a privately held small business, if you have an increase in your customers, and they`re buying more from you, the company is growing. You`re increasing your revenues, hopefully in positive relation to your costs, and therefore becoming more successful. The whole thing rests on how many new customers you can gain, and how many previous customers you can keep---returning customers.

But suppose we say that for a publicly-held enterprise, it isn`t the amount of "in-store" business (customers) that matters? What if it`s the number of new locations that counts? Suppose the measure of growth isn`t based on revenues from selling to customers, but instead is based on revenues generated by more and more stores being opened?

Wouldn`t it be interesting, and par for the course in today`s culture, if executive management finally split away completely the idea of selling product from building new stores? Losing sight entirely of the concept that business requires customers, what would happen if the number of buildings was all that mattered?

We`d see an increase in financial reports focused on not only the expected number of new openings, but also the costs of running those buildings. We`d see important studies of how to have a store with as little inventory as possible, calling it "last-minute" warehousing or inventory.

There`d be learned studies about "human capital," and "human resources," and how much it was costing to put bodies into these stores, not to mention how automation could save costs. Customer satisfaction would cease to matter, and in fact, customers would increasingly be seen as "problems."

The ideal and successful company would be one that sells nothing "in store," buys more and more real estate, builds more and more stores, has no human beings in the store, and is entirely automated. The value of the real estate would be considered a corporate asset, and the amount of inventory would be a liability.

So what happens when real estate values begin to fall? What about when customers don`t shop as much? With "in store sales" being nearly irrelevant, the loss in projected real estate value would be key to the overall value of the corporation.

Take it one step further, and consider "program trading," where computers move large blocks of stock based on computer-generated marker points. It`d be a Perfect World! Empty stores with no inventory would be valued by anonymous machines. The value of any large corporation would be determined by computers having no capacity to understand whether or not merchandise and/or services were being exchanged.

Oddly enough, it seems to me that this type of lunacy is starting to dominate the world of "big" business. Companies buy and sell each other, moving hard assets from one column or book into another. Reports separate entirely "in store sales" from the implied "real" value of the company. Customer Service is a cost center, serving no real purpose other than to appear to be a "feature" of the company used for advertising.

If that`s the case, then there`s a single, fundamental competitive advantage for any and all small, privately-held companies: Customers! Any business that actually sells to other people is satisfying (meeting) a need. Large enterprises that prefer to remove all customers from the mix will "suddenly" discover that they have no actual foundation.

Seems like that`s exactly what`s happening! It reminds me of business owners who believe that SEO trumps everything, including having something people want to buy.