Join Eddie Davila for an in-depth discussion in this video Making profit-related decisions during development, part of Business Foundations.
- Cost, quality, and speed are all related to company flexibility. For example, when you buy a car, you're given certain options. Vehicle color, leather or fabric interior, electronics, navigations and media options, tire options, but they don't ask you the type of battery you want in your car. They don't ask you what kinds of spark plugs for your engine. They also don't ask what types of oil and antifreeze to use in your car. Why? Well, the company is trying to balance a number of things.
They want to give you choices so the car feels special, so the car feels like it's yours. But they can't let you choose everything, because offering the customer choices requires extra time, extra inventory, and it's possible the customer really doesn't care. If the company offers you 10 different tire options for one car, they would probably need to carry inventory of all 10 tires. Lots of inventory in low volumes, higher per unit prices from the supplier, plus your workers now have to become more versatile.
At the same time, when companies offer lots of options, customers might be willing to pay a premium to get exactly what they want. Also, when a company offers more options, it's possible to attract a wider market of customers. Now we have cars for people that like different colors. For people that want luxurious leather interiors and also for parents that would rather have cloth interiors that are easier to maintain. We also have a car that appeals to people that just want a car with basic stereo options as well as families that want the very best media options for those long trips with the kids.
So, as your company develops new products and services, consider all of the possible options. Which options does the customer value most? For each feature, how many options will you need to offer and are they willing to pay the premium for that option? Does that make your market bigger? Will offering that option deliver a profit? At the same time, which features are customers willing to accept as standard? Standard features are easy to mass produce.
If materials are needed, you can buy them in bulk for a good price. Fewer options might make it easier for a customer to decide whether or not they want to purchase your product or service. The next time you go anywhere, a restaurant, a coffee shop, the post office, the grocery store, consider all the choices they let you make. Consider the ones they don't and then try and think about how the number of choices impacts their cost, their quality, and their speed.
He also reviews the basics of the people side of business: managing employees and developing customer relationships. Last, he covers the financial and information management aspects of business and provides a basic explanation of economics, so that you can understand the relationship of your business to the bigger picture.
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- Understanding business goals, stakeholders, and resources
- Developing a product or service
- Selling a product or service
- Raising capital
- Managing employees
- Managing customer data
- Understanding finances
- Managing resources
- Understanding economics