What business are you in?

How a small business owner answers the question "what business are you in?" can be very instructive in at least two ways.

Firstly, a business owner needs to be able to clearly and succinctly articulate their business model so that almost anyone can understand it. The term "business model" came into vogue in the dot-com era, and simply refers to the firms' basic value proposition, including how it creates and delivers value to the market place. The business model for a supermarket for example, is to assemble a variety of grocery items at a convenient location, in a way that delivers value to its customers through both saved time (they can buy all their grocery needs under the one roof) and saved money (by passing on to its customers the discounts it achieves by bulk buying).

If a small business owner can't neatly describe his or her business model to prospective bankers or business partners, there is a real risk that the target market won't "get it" either, and the business may struggle.

Secondly, how the question "what business are you in" is answered indicates the "space" the owner of the business wants to play in, in terms of potential customers, product offerings and, importantly, competition. The example of the former Australian transport business icon, Cobb & Co, will help to illustrate the importance of this facet of "business definition" (a recent book tells the story of Cobb & Co - Wild Ride: The Rise and Fall of Cobb & Co).

Ninjas of my vintage may recall learning at school that Cobb & Co coaches were at one time to be found transporting mail, cargo and passengers down every highway and dirt trail in colonial Australia. We were told that the need for Cobb & Co's services - which relied upon horse drawn coaches, had come to an end once the horse was superseded by the car.

Cobb & Co is said to have been the Qantas of its day. At school the lesson was one of history, and Cobb & Co were given as an example of the way things used to be. However there is a much more powerful business lesson to be learned. How come Cobb & Co today is little more than a tourist museum, whilst the American company that its founders modeled it upon became American Express?

On the surface this would seem to be a classic example of "marketing myopia" - that is the trap many businesses fall into when they define their businesses too narrowly. Cobb & Co used to ship people and gold around the Australian colony - remember Australia's gold fields fuelled much of the country's expansion at one stage. And in some senses, is that not what American Express does internationally today? The two businesses could be said to have the same (very) broad business definition. But the more narrowly defined business failed to recognise opportunities (to evolve from transporting people and gold into a global travel and financial services business) and threats (to horse drawn travel).

"What business are you in?" appears to be such a simple and innocuous question. Yet to the well trained ninja, it can be a powerful diagnostic tool for gaining deep insight into a business.