Tuesday, December 22, 2009

What is Business?... in engineering terms.

Business is simple. Business is a process or function (for programmers) or a flow (for others). At its core it is the process where we invest resources (inputs: money, time, and effort). We use those inputs to produce intermediate stuff (inventory, product, or results). We then exchange intermediate stuff for (output: money). An incredible book called "The Goal" by Eliyahu M. Goldratt is a must-read for engineer-types because it introduces the concept of Flow or Critical Path analysis. This type of analysis is essential for business, because there IS always a weakest link, and it is usually NOT engineering.

Where is the weakest link? Usually it is in the exchange step. Lets take a deeper look at all 3 steps, engineering-like.

1.) Invest Resources (money, time, effort)
This part involves raising money, finding employees, motivating them, deciding what to build or do, and applying time and effort in its design.

2.) Produce Intermediate Stuff (inventory, product, or results)
This step of business involves actually making product (production) or inventory. It might be just buying stuff (inventory) low to later be sold high. It might be producing results for your client (if you are a service business).

3.) Exchange Intermediate Stuff (for money)
This step involves finding customers, selling, delivery, and collecting money for your hard work. Hopefully this step makes you enough money to cover the costs of #1 and #2!

So, where is the weakest link? Usually #3. Lets face it... building stuff isn't that hard. Designing stuff is hard, but not impossible (just takes time & effort). The real trick is finding customers and selling!

Just remember this axiom: buy low, sell high.

In other words, you better be doing #1 and #2 right so that people will WANT to buy, and that you will make enough profit to cover #1 and #2!

Good luck.


  1. Your warning that having a customer is the weakest link in the business process is appropriate for inspired engineers who often focus on a single great idea. I find that customer issues usually aren't with the idea (or core product) but with a lack of stuff (whole product) they require with it to make it useful. Never underestiamte how much stuff will be need to be integrated with your great idea to get custoemrs to buy it!

  2. Scot,

    Excellent point... it is true that a "complete" product is essential.

    I would add that a 'good story' behind the product is essential in today's world.

    That said, product (what to sell) is a marketing & sales function, in my simplified view of business.

    For engineers this means, if they want to 'improve the product', they need to learn some business (marketing and sales!)!

    Thanks for the comment!


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