Let’s say you start a company that designs a direct-to-consumer product for an underserved market. You put together a great team, place ads on social media to attract new customers, and start generating revenue.
One day, you get an email from your factory overseas that they’re not able to get the raw materials to manufacture your product. The earliest lead time they can provide is nine months out. Sourcing from a new factory will take at least a year. You’re stuck.
After a month, you’re completely out of stock and can no longer fulfill orders. Repeat customers who came back to purchase additional product feel let down. You stop placing ads because you don’t have the inventory to fulfill the orders. Competitors, who had barely been on your radar before, have been showing up everywhere.
Reluctantly, you make the decision to shut down the business. Most disappointingly, you have customers who want to give you money, but you’re not able to serve them. You thought focusing on the customer was the right move. What went wrong?
Capital, labor, input, output
These two sentences from my accounting textbook really stood out to me:
The benefits of supplying accounting information [in public financial statements] extend to a company’s capital, labor, input, and output markets. Companies must compete in these markets.1
It’s dry, succinct, and packs a lot of punch. My first reaction is “Hey! What are you trying to do, relegating the customer relationship to mere output?” For the author of a newsletter whose goal is to help readers focus on the customer, this is a bit hard to swallow. But it is also true. The medicine must go down.
Take a look at the Logistics Report of the Wall Street Journal online today:
The first article on Best Buy begins:
Best Buy Co. executives say the electronics retailer has stocked up on enough goods to handle holiday sales demand this year despite supply-chain disruptions that have undercut the retail sector’s inventory restocking efforts.
If Best Buy doesn’t have inventory, it won’t be able to serve customers during peak holiday times.
Or how about this one about labor market shortages in China:
Labor shortages are materializing across China as young people shun factory jobs and more migrant workers stay home, offering a possible preview of larger challenges ahead as the workforce ages and shrinks.
With global demand for Chinese goods surging this year, factory owners say they are struggling to fill jobs that make everything from handbags to cosmetics.
Of course, problems in the labor market abroad translate to input market (supply chain) problems for trading partners.
You can’t just focus on customers—the output market—to the exclusion of your supply chain (input market), financing (capital market), or workers (labor market). To borrow from the dry language of my accounting text, you have to operate well in the capital, labor, and input markets so you’re available to serve the output market—that is, your customers—successfully.