Business culture has a problem.
You know those facts of life everyone seems to know in business? Those “do this, don’t do that” pieces of information people take for granted because they’ve been taught the same thing since business school?
What if the mantras you thought were truths were just myths? Although they can be difficult to distinguish, following myths instead of truths in a fast-paced environment can quickly eat up profits, confuse management, and upset shareholders. The question becomes “How do you separate the truth from the tall, tired tales?”
After spending years examining what works in business and what doesn’t, Ed Kless, senior director of partner development and strategy at Sage, has deflated the 10 biggest myths in business, which he discussed in SUM Innovation’s recent webinar as part of SUMtech 2015.
Here are the highlights from the webinar — and the new business truths you should add to your playbook:
Myth No. 1: Your Customer Service Makes You Stand Out
While some business owners think they can differentiate their business by calling it a customer-focused company, Ed recanted with: “I’ve never encountered a business that openly admitted its customer service is terrible.”
According to Ed, that doesn’t mean you shouldn’t focus on your customers; you absolutely should. However, the idea that you can rise above others in your market through a superior customer service experience alone is false. Unless you want to go all out and provide customers with a “Disney-esque” customer satisfaction experience, Ed suggests looking elsewhere to stand out from the crowd.
Myth No. 2: The Customer Is Always Right
Customers don’t always know what they want in the future. Sure, you can ask them, but would you really be surprised if their wants changed? Other times, some specific customers are flat-out wrong. A customer who demands an exorbitant effort to please for minimal revenue is a drain, not a resource.
Instead, Ed challenges you to shift your thinking on this phrase from the individual to the group. The individual customer is not always right, but your customer base can be. For instance, if you want to make red ties but your customers keep buying blue ties and leaving red ones on the shelf, they’re right. You need to make more blue ties and cut back on red ones.
Ed warns not to let this concept prevent you from innovating, though. Always keep the customers’ future desires in mind, even if they don’t know what those might be yet.
Myth No. 3: Businesses Are Based on Exact Science
Speaking of innovation, Ed also noted that you can’t rely on what happened before to predict what will happen next. You shouldn’t ignore past data, of course, but that information is still part of the past. If you repeat what was successful last year, you could end up with a completely different result this year.
Instead of trying to replicate actions and reactions, he suggests analyzing causes and effects. Maybe people bought blue ties last year because a popular movie featured blue ties. If you try to sell blue ties again and this year’s popular movie features red ties, last year’s successful strategy will fail.
As Clay Christensen, a Harvard Business School professor, put it, “This means we either pursue a path that is a crapshoot or are forced to look into theories of causality: What causes what and why.”
Myth No. 4: Your Strategy Should Revolve Around Generating Revenue
Saying that your strategy shouldn’t revolve around revenue doesn’t mean you should stop trying to make money, Ed says. It simply means you’re asking the wrong question.
Rather than trying to maximize future revenue, Ed suggests business leaders work to understand who their future customers will be, predict their needs, and determine how much value they can deliver. When you focus on creating value first, profits will naturally take care of themselves.
Myth No. 5: Leadership Is About Changing Behaviors
Employee accountability can be a tricky subject. Managers have bent over backward trying to answer the question “How do we get these people to feel accountable for their work?” But it simply isn’t possible.
According to Ed, you can’t impose accountability on anyone. Employees must choose to be accountable on their own. While you can force employees to be compliant by laying down rules and requirements, compliance will never be as effective as accountability. If you want employees to take pride in their roles, Ed says, you have to give them freedom.
Myth No. 6: Focusing on Efficiency Will Make You More Effective
Business is a “cult of efficiency,” Ed says. When you ask a subscriber to this cult how to do business, that person usually focuses on delivering customer satisfaction first, followed by aggressively cutting out inefficient internal practices. After all, the logic says that having fewer wasted costs within the company translates to higher profits, right?
Not entirely. Ed claims that efficiency is mostly a natural progression of doing something long enough and improving over time. You don’t have to strive for efficiency; it will come on its own. Instead, he suggests focusing on strategy, which is the art of staying ahead of the need to be efficient. If you constantly innovate and meet the desires of tomorrow’s consumers, efficiency will take a back seat to effectiveness because customers will demand what you have to offer.
Myth No. 7: Market Share Equates to Profit
This is a pervasive misconception within the business world. Ed mentioned he has even witnessed CEOs on stage yelling about the virtues of capturing market share. In reality, however, market share isn’t the golden path toward enlightenment and wealth.
Don’t just try to expand your market share as quickly as possible; make sure you remain profitable while your company grows, regardless of the speed of your growth, he says. As a business consultant, Ed used the example that he could come into almost any organization and double or even triple its revenue or market share. But that wouldn’t make the business a success.
According to Ed, increasing market share isn’t difficult; increasing market share while remaining profitable is. Ultimately, a bigger market share is a symptom of success, not necessarily a driving factor.
Myth No. 8: Excessive Profits Indicate That a Company Is Acting Unethically
Similarly, the business world often mistakes the pursuit of profit for the cause of profit. It makes sense on the surface: If you pursue money, you will find money. But according to Ed, profit is actually an outcome of good business, not the root cause.
Ed illustrated this truth through the words of John Mackey, CEO of Whole Foods Market. While our bodies need to make new red blood cells every day to live, our purpose in life is not to make red blood cells. In business, we need profit to stay afloat, but our purpose is to perform a service, not create a profit.
Myth No. 9: Price Should Be Based on Cost
Ed also brought this truth to life with a personal anecdote. During a wine tour in Napa Valley, the tour guide told his friend a specific wine costs $200 because each bottle is filled by hand and requires a special process to seal. But that isn’t the true reason for the bottle’s price.
Because many people who enjoy wine are willing to pay a premium for it, the wine producers can justify the costs of filling each bottle by hand and putting them in deluxe packaging, Ed says. The price of the wine isn’t derived from the cost; it works the other way. Due to the demand for the product and the high price consumers will pay, the company can justify the costs incurred to produce it.
Myth No. 10: Business Is a Zero-Sum Game
In the business world, there’s a common misconception that in every transaction, the customer gives the business just enough money to cover costs and hit acceptable revenue goals and the business gives the customer just enough to make the cost worth the exchange. According to Ed, this simply isn’t the case.
For example, if Starbucks charges $3.50 for a white mocha and you purchase it, both you and Starbucks gain from the exchange. You want that mocha more than you want your $3.50. Whether you want it for 25 cents or a whole dollar more than $3.50 doesn’t matter. Ed explains that what matters is that you trade something you want less for something you want more. Starbucks gets the same benefit — the company wants your $3.50 more than the white mocha. In the majority of exchanges made every day, Ed says, both parties win.
Although these 10 myths aren’t the only fables prevalent in business today, understanding the truths behind them can help you and your business grow the right way. To learn more about myths, truths, and what it means for a business to have a soul, listen to “The Soul of Enterprise” Fridays at 4 p.m. EDT, or read Ed’s book, “The Soul of Enterprise: Dialogues on Business in the Knowledge Economy.”