Thinking Differently about Suppliers and Customers

Furthering the discussion about innovating from my last post, here another upshot of a conversation I had with office mate Peter Tunjic, which I want to extend a little.

Perhaps the traditional concepts of customer and supplier lead you to bad thinking and behaviour. Perhaps a better way of thinking is that there is just the business, and everyone else is a trading partner.

Who could give you money?Outrageous you say! Heretical you say! Well consider this. Business need cash to survive, your trading partners either provide you cash, or resources that you utilize for an eventual transformation into cash.

So who can give your business cash?

  • Investors give you cash for shares – so you can start to operate.
  • “Customers” give you cash for products or services – so you can continue to operate.
  • Benefactors give you cash for good behaviour – so you can grow
  • Government grants give you cash for research – so you can grow
  • Banks give you cash in return for a promise to repay it in the future – so you can grow
  • Perhaps there are more?

So who do you give cash to?

  • “Suppliers” take your cash – in return for products and services you use to operate
  • Employees take your cash – in return for labour that you use to operate
  • Governments take your cash in return for the right to trade.

Now why this is important is that sometimes :

  • Its not obvious that another entity is just a supplier or just a customer, why should we choose and classify them?
  • By labeling our trading partners in this way, we mask opportunities.
  • By labeling our trading partners in this way, we poorly allocate resources to manage them.

Consider the two sided market place such as 99 Designs. They have designers competing to win projects (and perhaps get paid cash for their work, but perhaps not) and businesses logging design jobs and eventually receiving a design for the money they pay. Both are critical trading partners for 99 Designs to survive. The designers won’t come to the site if there are no customers supplying design jobs, and the businesses won’t come if there are no designers to do the work. In a two sided market place you need two groups to interact. But who is the customer here?

Consider the online business that generates content, wrapped in advertising, that is read by people who also pay a small fee to read content behind a paywall. The people supply eyeballs that the business sells, but they also provides cash for content.  The journalists supply content in exchange for cash but they also receive profile which they may trade on, and the advertisers supply content and cash. Again, clear demarcation of customers and suppliers is impossible.

So an innovative company may look at all the trading partners it traditionally calls suppliers and ask the question “what are they prepared to give me cash for?” It may also look at the trading partners it traditionally calls customers and ask “what are they supplying that I can sell for cash?”

Thinking this way gives rise to management of relationships based on their importance in the supply chain, not just sales people managing customers and purchasing officers managing suppliers. Which is why we start to see job titles such as community manager, engagement manager and supply chain specialist!

So to reiterate the point of my last post – if you want to innovate successfully, question the basics of everything you do.