Every company is the same. 

Or, at least, every company can be described by one definition:

Every company is: a combination of people -and- machines -and- money -and- time, making a product -or- service -or- both, sold to a customer, for a price.

Whenever I have trouble wrapping my mind around a company’s business model, I’ve trained myself to revisit the definition above. It helps me simplify things. I came up with it after continuously talking through start-up legal advice with clients over the years. 

It’s especially useful when you are trying to figure out (a) what a company actually does, or (b) what’s going wrong within a particular company when something is broken. The idea is to break the definition down into components to hone in on which business areas need the most focus. 

Let’s take each of the components in part:

Every company is: [a combination of people -and- machines -and- money -and- time], making a product -or- service -or- both, sold to a customer, for a price.

People. Machines. Money. Time.

These are the four levers available to scale any company. Typically, first-time entrepreneurs start with a lot of time and little of the other three. They work their way to a product or service through sweat equity (time lever), gain traction, and then double back and get financing (money lever) to hire employees (people lever) and buy machines (machine lever). 

These days, technology (machine lever) is ever present from day one and is the big game-changer of our era. This used to be the most capital intensive part of a company, but has recently become much less costly. New technology and ever-increasing computing power grants us the ability to scale the operations of a business at dizzying speed with nominal to moderate cost outlay. I’d rather be someone with no money and a laptop in 2023 than someone with tons of money but needing to build a factory in 1873. 

The combination of these four levers are the secret sauce of any company – the unique mixture of people dedicating their time, talent, imagination, and capital (or ability to raise it from others) – and leveraging machines to build stuff. 

These four levers also comprise the overhead cost structure for a company’s operations. 

Finding the secret sauce of these four levers – and operating them in harmony with one another at relatively low cost and at a swift pace – is fundamental to any company’s survival.

Every company is: a combination of people -and- machines -and- money -and- time, [making a product -or- service -or- both], sold to a customer, for a price.

I wrote a separate blog post about products versus services with some high-level thoughts on the differences between them. As I said in that post, software gives us the opportunity to “productize our services”, so sometimes the lines can get blurry when trying to label a company as either a product or service provider (historically, before software ate the world, this used to be easier). 

Either way, you have to know what your business offers – whether products or services or both – and to be able to articulate it to the outside world. This applies not just to customers, but also to investors, lenders, potential employees, vendors and so on. 

Additionally, the company must exercise tight management over the costs that go into creating and delivering the company’s offerings. These are your cost of goods sold (COGS) and cost of services (COS).

Every company is: a combination of people -and- machines -and- money -and- time, making a product -or- service -or- both, [sold to a customer], for a price.

A company’s understanding of its customers is specialized knowledge that can make or break the company’s success. 

You must clearly understand which customers want your products or services (i.e. “product-to-market-fit”). 

Note the overlap of (a) understanding your customer and (b) the product/service component. This overlap requires you to develop a critical path to identifying product-to-market-fit between your offerings and your customers. If you don’t do that quickly enough, the business will flounder, tread water financially, and fail.

By building relationships with your customers – especially the early ones – you can find out what they do and don’t like about what you’re offering. Then, iterate according to their feedback. Technology (machine lever) speeds up this process dramatically and allows a company to fine-tune its offerings continuously. Nowadays, this is not a one-time activity – since you consistently have to receive customer feedback and adapt your offerings to their needs. 

The knowledge ascertained at the overlap between your target customer and the fine-tuning of your offerings drives your marketing & sales strategy.

Every company is: a combination of people -and- machines -and- money -and- time, making a product -or- service -or- both, sold to a customer, [for a price].

Pricing establishes the lifeblood of any company: cash flow. 

Without pricing your offerings correctly with an eye towards profitability, a company won’t be able to generate enough cash flow to operate sustainably and the company fails. 

Put differently, if you don’t understand the costs of (a) your secret sauce (i.e. the four levers, combined), (b) product/service creation (COGS or COS), and (c) developing the specialized knowledge that establishes your product-to-customer-fit, then you won’t be able to protect your margins and price your offerings correctly. 

Once more, the definition is:

Every company is: [a combination of people -and- machines -and- money -and- time], [making a product -or- service -or- both], [sold to a customer], [for a price].

That’s it. That’s the one sentence definition that describes any company, broken down into simple fundamental parts, providing a roadmap for snapshot analysis and fast-track comprehension of any business model.

When evaluating your own business, or investing in or acquiring one, ask yourself:

• Do you have the right combination of people, money, machines and time? (note: this is a much harder question to answer than most people think)
• Do you have a well-defined product or service? 
• Do you know who your customer is, and why they want what you are offering?
• Have you priced your offering properly, working backwards from an accurate assessment of your costs? 

Find out where you are weakest and focus your efforts there.