September 25, 1997

What business are you in?

How do you think Bill Gates would answer the question, "What business are you in?" If you think his answer would be "software," you aren't even close.

Do you know what business you are in? If you think the answer is easy, you may be underestimating the question. For example, how do you think Bill Gates would answer the question? If you think his answer would be "software," you aren't even close. In fact, one measure of Gates' brilliance--if his being the richest person in the world isn't enough--is the speed with which he realized that he wasn't in the software business.

So what business is Gates in? He's in the "disappointment" business. Bill Gates sells millions of copies of software every year to consumers and businesses around the world, and each sale results in a reasonable amount of revenue. People buy the software expecting to gain efficiency, en-hanced productivity, and the ability to do tasks such as word, numeric, and data processing faster and more easily. But imagine if every piece of software Bill sold did exactly what the user wanted it to do. Imagine that Bill's software had no bugs and contained all the features you--and every other user--wanted. You'd never buy another piece of software.

Gates knows this fact. So, every time you buy a piece of software, Gates throws in, at no extra charge, a little disappointment. The free disappointment--in the form of poor performance, bugs, and missing features--is what keeps you coming back again and again for the upgrades. And the upgrades are what keep Gates in Pepsi, Nikes, and Dockers.

Another man who knows his business is Andy Grove, chairman of Intel. Grove is in the "obsolescence" business, for he has spent much of the last 10 years making sure his customers' products--and his own--are obsolete shortly after they are delivered. His logic, which has a certain suicidal brilliance to it, is that by continuing to make his products obsolete, he does the same to his customers' products. As a result, those customers continuously need to replace their products with newer ones, obviously incorporating Grove's own new components. That's a great idea, because it makes competitors struggle to keep up if, as Intel has done, you can maintain the ability to continuously add features and capabilities to your products. But don't slip.

So, again I ask, what business are you in? At a talk a few weeks ago, I suggested to a $400 million IC manufacturer that it was in the "innovation" business. In addition to selling its current products, the company's job is to develop for its customers new and useful ways of using these products. Although this company and Intel are very different businesses, this company effectively needs to operate in some of the same ways that Andy Grove pushes Intel: defining and creating new products and markets that customers can service with the company's components.

Although the success of your company depends on how effectively you design and sell products today, you need to know how your company will sell its products tomorrow. It isn't enough to hope that you'll find a new customer tomorrow who'll use your product as your current customers do.

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