What You Think You Do
I remember the first time I sat in on a customer interview. I’d spent my career to date publishing research for individual investors under the assumption that they wanted help identifying stocks they didn’t know about that were likely to go up, but here I was trying to help the Product team figure out why the people who paid to get that research weren’t actually buying the stocks.
The woman leading the interview asked a series of questions and over the course of the conversation it became clear that the customer wasn’t interested in my stock ideas, but rather if I thought his stock ideas were any good. See, it wasn’t discovery he was after, but validation. Where the customer found value was in knowing if a professional thought he should buy stocks he already wanted to buy.
At that moment I realized that we didn’t sell information, but confidence, and my mind was blown.
Leaving aside the specific implications of that epiphany for that business model, the broader point is that if you operate a business and you’re not regularly talking to your customers, there can be a material difference between what you think you do for them and what you actually do for them. And if there is, that’s a massive barrier to growth because you will never double down on the value proposition that’s making your business go.
We see this all the time in the Permanent Equity portfolio of companies. For example, when we invested in our airplane parts business, we thought it sold airplane parts. But we realized along the way that while lots of airplane parts businesses sell airplane parts, far fewer could reliably and quickly trace those parts to their origins. This trace is a requirement for airplane parts to be installed on commercial aircraft, and that can be a problem for a customer who needs to find a useful part quickly. And while existing customers knew our airplane parts business could do this well, potential customers had no idea.
So the management team at the business worked to digitize their trace documentation and put it online. Now customers can see immediately that our business not only has the part in question, but crucially that they can use it to solve their problem.
Sales are up.
Because what we learned in talking to customers is that they aren’t in the market for airplane parts, but for reliably useful airplane parts. The joke now is that our airplane parts business isn’t in the airplane parts business at all, but in the business of digitizing paperwork. Though to paraphrase Shakespeare, there is truth in every jest.
Have a great weekend.
-Tim
