March 01, 2022

Understanding Your Business

I've told this story multiple times on Twitter, but it is worth repeating here.

Back in the day at Nordstrom, Neiman Marcus decided to open a new store in a market where an existing Nordstrom store performed well. The CEO publicly stated how the new store would damage Nordstrom. A reporter followed up on the juicy quote, asking our CEO if we were concerned about the threat?

Well, our CEO asked my team to quantify what happened in the past when new Neiman Marcus stores were opened in our markets. Guess what? Our stores performed BETTER when Neiman Marcus opened a new store in an existing market.

Better!

Our CEO politely responded to the question, citing data showing that when Neiman Marcus opened a store in a market we owned our sales increased. He told the press that we welcomed competition because competition brought in new customers, new customers who would purchase from our brand. 

We didn't hear anything from Neiman Marcus for years after that comment.

Some companies simply know more about business than other companies. The words/actions of a company reveal what a company knows about business.

It's one thing to understand your customers.

It's quite another thing to understand business.

You need to understand both, obviously.

But too few of us understand business. We've sat at the trough of the customer, not realizing that we weren't learning how our businesses really operate. Ask StitchFix. The algorithmic genius of the 2010s can't make money right now while sales are GROWING. They might prove us wrong, absolutely. But at this time, they might not understand how their business actually works.

When I arrived at Nordstrom in 2001, the online side of the business ... those folks ... they did not understand business. $300,000,000 in sales and a -10% EBIT. Our team didn't understand Nordstrom customers, but we understood business ... and within two years the online business was a breakeven.

The "omnichannel movement" of the past twenty years? Authored by folks who did not understand business.

Invest in increasing your understanding of how business works. Your career trajectory depends upon having a knowledge of business.

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