Business Success

Success is an interesting concept because it can mean different things to different people depending on the situational context as well as individual perspectives on what it means to be successful.

When it comes to determining business success, there needs to be a simple, logical understanding of what success means and what is required to achieve it. Given that I have previously defined business as the act of creating value for profit, I offer the following definition related to its success:

Business success signifies the degree to which a business is surviving and thriving beyond break-even.

There are three important key words in the above definition, each of which is described below:

Break-Even: Fundamentally, if a business fails to break-even (meaning that the costs of running the business are higher than the revenue it generates, resulting in a net loss) it can not be deemed a business success because chances are it can not sustain such financial losses over a lengthy period of time without reaching a state of bankruptcy. Can it be said that a failed business was successful in bringing people of diverse backgrounds together (or any other metric not having anything to do with revenue and cost of doing business)? Yes, of course, a business can create societal value and if one is to measure business success in ways other than financial results, success can take many forms. However, if the business achieves other types of success but can not keep itself afloat financially, it will cease to exist and any other activities deemed successful will no longer be in practice when the business ceases its activities — therefore a financial measure is critical to determining business success because it is a core indicator of business performance. Now, this is not to say that business success is solely a measure of profit generation. Questions can (and ought to be) asked as to what value the business is creating in order to generate profit and if such value contributes positively or negatively to its ability to survive and thrive beyond break-even.

  • Defying the odds. Market disruptions due to the internet revolution have created a very interesting marketplace dynamic enabling a number of high profile (but revenue-poor) publicly traded businesses to defy the odds of bankruptcy for extended periods of time. This dynamic has been made possible due to another core indicator of business performance: value creation. In the case of — for example — Amazon.com, the perceived value it created along with its market potential for future revenue mesmerized investors, keeping Amazon.com alive well beyond the average life of an otherwise privately held business. In such cases, a business can not be determined a business success in the traditional sense of having achieved break-even (nor should it). Rather, in such cases, a business can be determined a darling of the investor class until such time as the promise of its value offering is realized in the marketplace and a natural break-even is achieved.

Surviving: So long as a business achieves break-even (or remains a darling of the investor class), it can be said to be surviving. However, for most (especially in business) survival is not enough (just ask the investor class). An interesting dynamic can take place here — unrelated to financial performance — that can negatively impact a business’s ability to survive: its role as a creator of value (for profit) and its performance in this regard. If a business fails to create consistent value or if the value it creates is no longer perceived as acceptable (due to competitive forces, changes in public perception or various other dynamics), survival can be at stake as value creation directly affects revenue generation.

Thriving: The extent to which a business creates sustained value and — as a result — generates sustainable profit beyond break-even can be said to indicate just how successful a business is perceived to be (successful, very successful, wildly successful, the most successful, etc.).

A clear understanding of business success is critical to devising strategy carefully designed to achieve and sustain it.