John replied, “I don’t know, we’re not in the motorcycle business.”

Puzzled, the journalist asked, “Well what business are you in? Don’t you sell motorbikes?”

He replied, “Harley-Davidson sells 43-year-old accountants the ability to dress in black leather, ride through small towns and have people be afraid of them.”

Harley-Davidson sells a dream – you might say part of the American Dream – of being a bit of a rebel who can do whatever he damn well wants. The motorcycle is merely a means to achieve that feeling.

People buy products or services to get an outcome. As Harvard marketing professor Theodore Levitt famously put it, “people don’t buy a quarter-inch drill, they buy a quarter-inch hole.”

The outcome can be functional, financial, emotional or social – or quite often it’s a mixture of several of these. To continue with the drill example, the functional outcome would be to make a hole in the wall to hang a picture, and the financial outcome desired might be to do it for the lowest cost. Alternatively, you may want to enhance your self-image of being a handyman or boast a little to the neighbours. In this case you might be willing to buy a more expensive drill, or a drill kit with other attachments, to hang on your garage wall. Different drill makers have assessed their capabilities, identified a market niche, and produced products that make different promises or value propositions.

If you’ve done a good job of this, you can withstand a lot of competition. When Japan introduced its motorbikes to America, they were cheaper, faster and more reliable than Harley-Davidson. Because they had a clear insight into the business they were really in, Harley-Davidson didn’t chase what Japanese motorbikes offered. They were loyal to their customers’ deepest wants, and in return retained a loyal niche of customers.

What feeling or emotionally important connection do you provide? You could say:

• Mortgage brokers are not just finding you a loan, they’re in the business of delivering the Australian dream.
• Insurance companies are in the business of preventing panic attacks and giving you a good night’s rest.
• Clothing stores are in the business of making you look like the person you’d like to become.
• Schools are in the business of putting old heads on young shoulders.
• Fine restaurants are in the business of providing exclusive experiences.

Now, your value proposition doesn’t have to be anything like those. But it probably isn’t what people – or perhaps even you – think of as the obvious one, based on your product or service. If you’ve misunderstood your value proposition, not only can it limit your growth, but it can also put you out of business.

One of the jobs my partner and I had in the early days of our audio-visual production business was to launch a new camera for Kodak with a show for camera dealers and the press in Australia. The camera we were asked to launch was their first with self-developing film, intended to compete with Polaroid. We sent out an x-ray of the camera as an intriguing invitation and created a show with the aim of demonstrating that for Kodak, this was just another step in a long history of being at the forefront of changing ways of taking photos.

We concentrated on amateur family photos, where the framing might have chopped off part of a relative’s head, or where an out-of-focus thumb intruded into the corner of the frame. Our show projected their history and their new camera, set to a poem we called, ‘Ode to the humble snapshot.’

Some years later, their own scientists would create the first digital camera. But when the admittedly scratchy first version was presented to senior management, they rejected it because it didn’t fit their concept of their value proposition and business model.

Kodak used to sell their cameras close to break even and make all their money on film, which they dominated worldwide. So, a camera that didn’t need film was seen to be sabotaging their profitable business model. Whereas the founder George Eastman had twice in his lifetime abandoned current technology to take a leap of faith into a new way of taking pictures, this was too much for the professional management team that succeeded him.

Other companies took up and refined the digital camera and in 2012 Kodak filed for bankruptcy, as nobody was using film anymore. Now, that was a level ten screwup.

What we had instinctively understood – but Kodak’s management of the time didn’t seem to – was that they weren’t in the film business, per se. They were in the memory business.

Your definition of the business you’re in should tap into the deeper emotional reason someone would want to buy your product or service. Do you know what that is for your business?

Big established businesses ought to know what business they’re in. For small businesses, however, it’s well worth exploring what business they could and should be in. Without that exploration, you may be limiting your growth potential by missing market segments you could serve well, or by failing to optimise what you offer to market segments you already serve.

It’s useful to consider this with three parameters:

1. Your organisation’s capabilities that are exceptional.
2. Market segments that have significant unsatisfied problems, or desires.
3. What functional and emotional outcome you could promise to deliver.

To consider fresh possibilities, ask yourself and your team these questions:

• What exceptional capabilities do we really have, whether currently in use or not?
• Which of our existing customers or market segments have a need for something beyond our current range of products or services?
• What new market segments have unsolved problems or desires, for which we could use our resources and capabilities to create solutions?
• In each of these cases, what outcomes would we be promising those customers?

After this exercise, you should have a list of possibilities to consider and test.

This is an extract from Startup, Scaleup or Screwup by Tom Williams.