5 Questions Every CEO Must Answer

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5 Questions Every CEO Must Answer

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Vice President

When I talk with business owners and CEOs it is often on the topic of growth – how to grow revenue faster, expand into new markets, increase asset value and profits, and so on. In helping them I’ve found the answers to five (5) questions to be indispensable. Otherwise, it is just textbook theory, bromides and anecdotal wisdom.

These are the five questions that, in some way, shape or form, I ask.

  1. Who (individuals, companies) benefits most from using your product, and why?
  2. What specific benefit(s) do they receive from using your product?
  3. What unique benefit does your product offer that no other competitor can or does match?
  4. How many potential buyers (individuals, companies) value this benefit(s)?
  5. What proportion of these potential beneficiaries does your product reach today?

There is a “6th question” that I also ask, accompanying each of these five: How do you know? There is also a reason that some of the words in each question are highlighted in bold.

Let me say from the outset that these questions are not easy to answer. It takes a lot of work – and a great deal of emotional scrutiny – to get valid answers – answers that are true, no matter how euphoric or concerning that truth might be. From asking these questions over the past 30 years this is what I have concluded:

  • Not having the answers to these questions is typical of 90% of CEOs – perhaps more.
  • Having good answers is no guarantee of success, but it sure does increase the odds. In my travels, CEOs who can answer these questions credibly, factually and convincingly typically have a good batting average. They are winners. They know when they have a winner on their hands, know hot to pitch it to secure investor backing, and know how to go to market to win. Also, like a shrewd and unemotional investor, do not fall in love with a product; if the answers are not good ones, these are typically CEOs who remove a product from the dance car.
  • Not having answers to these questions is risky business; it may not presage market doom, but it sure does diminish the odds of success.

Over the next few sections I’m going to explain why each of these questions is important in its own right and why, taken collectively, they help shape the direction and decision-making that CEOs and Owner/Operators need to take. Being able to ask – and answer – all five questions is a skill that every CEO can learn.

Question #1: Who (individuals, companies) benefits most from using your product, and why?

Let me start by stating what the answer never is: everyone! While late night infomercials may imply that all of humankind will benefit from using a non-stick cooking utensil that also serves as a home defibrillator, I have yet to see a product that benefits everyone. Don’t believe me? Then convince yourself considering these examples.

  • Water? No. Some people only drink tap water, while others prefer bottled. And of those who drink bottled water, some are happy to drink osmotically filtered water, while others insist that there water come from natural springs. And not just any natural spring! Some insist that it come from a European spring, contain certain hard minerals, and so on.
  • Penicillin? No. Unless you have contracted a bacterial infection for which penicillin is an effective antibiotic you will not have a need for it (your doctor certainly won’t). And further, if you are allergic to penicillin you will definitely not find it of benefit.
  • An Apple iPhone? No, again. An Apple iPhone – or any smart phone, for that matter – is useless in those regions of the world in which neither cellular transmission nor electricity are ubiquitous. In India, where per capita cell phone use is among the world’s highest, considerably less expensive phones using the Android operating system offer the decided benefit. Everything is relative.

Answering this first question requires painstaking and iterative testing of just “who” really benefits from using one’s product (or service, or offering). If there is any question a CEO should be obsessed with asking – and require her/his organization to ask – it is this one. The answer to this question sets the stage for answering all the others. I’ll take it even a step further. If this question is not answered convincingly, credibly and – honestly – then the answers to the other questions are pretty much moot.

In answering this question, the CEO is seeking the answer to three subordinate questions:

  • What is the advantage a buyer gains by using our product?
  • Which buyers benefit most, i.e. the advantage is more significant and meaningful?*
  • Do I know how to such buyers in advance, i.e. demographics or something readily recognizable?

This is a difficult question – both to ask and to answer. That’s not merely because it takes a lot of work. It’s because each time one scrutinizes and tests the answer, then asks the question again, the answers tend to narrow the field. Condense. Restrict. Focus.

Asking the question the first time is easy. Perhaps even the second. But by the time one gets to the fourth or fifth iteration, pressing hard each time on the legitimacy of the answer, it can become downright painful. It can be like one’s personal episode of “The Emperor has no Clothes” – sobering, and perhaps even a little embarrassing, coming up with a compelling and credible answer. The reality with a lot of products, unfortunately, is that to the buyer they are indistinguishable from the other guy’s product. Your product may offer something you know is uniquely valuable, but if the buyer does not know it, or cannot understand it, then for all intents and purposes your product has little to stand on.

CEOs who can answer this question know:

  • the description of buyers for whom their product offers a distinct and identifiable advantage that addresses a specific need or requirement
  • the description of buyers for whom this product advantage is superior
  • why the product advantage pays off so well for a specific group(s) of buyers. In other words, they are able to step into the buyer’s shoes.

I have written and will continue to write about what constitutes a “benefit” and “advantage”. There is no easy, off-the-shelf formula for this. Harvard professor Michael Porter narrowed it down to two broad categories:

  • differentiation, i.e. offering something distinct from competitors that enough buyers value and recognize as valuable
  • cost leadership, i.e. being able to offer no less than what other competitors can, but at a meaningfully lower price that attracts their wallets

Very few companies can claim cost leadership. Differentiation, it turns out, is quite hard to deliver in the long term. Perhaps over a few weeks or months if one is lucky, but competitors can copy so quickly.

Here is a way to ask this question of your product and your company: if 1,000 buyers (your market) were in a room and could vote on “product of the year” as you stood on a stage with your product alongside each of your competitors with their product, how many votes would your product get?

Answer this question and you will be well on your way.

Question #2: What specific benefit(s) do buyers receive from using your product?

There is an axiom taught in marketing classes that goes something like this: if you listen carefully, your buyer will tell you how to market to him. In other words, the better a firm understands its buyers, the easier the task of crafting an effective marketing strategy becomes. By the 1950s, consumer packaged goods firms were developing richly detailed buyer profiles that made the task of determining suitable marketing tactics much easier.

If the goal of marketing is to create valuable offerings for buyers, and the goal of the business is to increase the value of the business, then understanding the buyer – and their numbers – is crucial. A good test of how well a company understands this is to ask: what are the most valuable benefits your buyers derive from using your product?

Most CEOs – and certainly Founders – can readily list a couple or a handful. If I ask for them to be prioritized in order of buyer importance, most can list them off with a little thought. I make a note and like to email back the prioritized list to confirm.

This is where it gets interesting.

We ask for a few customer names – especially the steadfastly loyal, “true blue” ones who are representative of the whole – and conduct short interviews with them. When we ask them to tell us the greatest benefits in using the product, the answers often don’t match the CEO’s list. We’ve had situations where not a single customer responds with what the CEO regards as being the product’s flagship benefit. True, as we only talk to a handful of customers they may not be at all representative of the whole. Yet, the discrepancies are observed often enough – so far, close to 100% – that we simply cannot ignore them. By and large, there is overlap, but nothing close to the correlation one would expect from surveying the company’s most loyal buyers. In the real-life version of Family Feud most CEOs would have a dismal outing.

What is taking place that could have things so far amiss? I believe there are three explanations:

  1. No baby is ugly. Companies – especially Founders – often take pride in a particular attribute of the product. It may be something they labored over to perfect, a design that no one else had, or something they were the first to market with. Yet it may not be, or perhaps never was, relevant to buyers who may now take it for granted or place it further down the benefits roster. That a product attribute is, or was, of special meaning to the company matters not at all if it is not relevant and important to the market.
  2. The Pearl in the Oyster. I have witnessed times when a B2B customer reveals why it loves a supplier’s product, citing an attribute or “use case” never suspected by the supplier. If the customer’s rendering is eloquent and incisive the impact can be significant, with the supplier concluding that it has found the pearl within the oyster. Off it goes, changing its promotional materials. However, a pearl to one buyer may not be a pearl to another – or any others. Identifying and validating the number of potential buyers who are just enough like the initial buyer in necessary. Otherwise, the supplier risks having the customer reference story of a lifetime for which there are no takers.
  3. The Emperor has no clothes. In practice – particularly among smaller companies with razor-thin budgets – getting to know the market and what makes buyers tick and why is a time-consuming task. The company forms assumptions what will resonate in the market. As a starting point, it’s not a bad one. Yet in my experience, few firms choose to venture beyond the starting point as they and gain market traction. Initial conjecture transforms into fact. Over time, the reluctance to test out initial assumptions grows.

Yet I have met CEOs who have an exquisite handle on their customers, knowing what matters to them and why and – importantly – know that benefits are not universal across the market. Some product benefits matter more than others to some segments of the market, while others matter not at all. These companies and their CEOs are not out hiring expensive market researchers. They gather their buyer knowledge methodically and relentlessly, codify it, store it, test it, scrutinize and refine it. They insist on it annually in business plans from their managers, and never permit themselves to draw a straight line from the past through the present and into the future. Some of the techniques they use:

  • competitive win-loss sales analysis
  • customer decision-making maps (B2B) – knowing how dynamically changing organizations decide is key
  • regular informal, yet structured, interviews with sales personnel and channels
  • CEOs who call customers – a handful every week – to say ‘thank you’, and ask: what do you like about us and what could we do for you to like us more?
  • buyer email surveys, online warranty questionnaires
  • online customer panels (which almost every major publication and car manufacturer now have)
  • annual key customer reviews
  • face-to-face customer councils
  • lots of success and reference stories (then testing out each for extensibility)
  • product benefit “heat maps” – tracking why each customer purchased and looking for clusters

Question #3: What unique benefit does your product offer than no competitor can or does match?

Before you cry foul and claim that this is a spin of the second question let me assure you that it is not. A CEO may be able to cite three specific benefits that customers derive from using the company’s product (offering, service – anything of value that is sold). But what if every competitor can cite some of them, too. Or all of them! More troublesome, what if one or more competitors offer a specific buyer benefit that your offering cannot?

In a world where, for the cost of an internet connection and a few hundred dollars, anyone can run an online business, barriers to market entry are as low as they have ever been – unless you are in a business like manufacturing and selling prescription drugs. Accordingly, with so many competitors in the market, the task of differentiating your offering from others gets harder each year.

Every company and seller does something to make their offering different, to be sure. A unique name, offered by you (yes, there are no other “you’s” in the market, but is that a reason to buy?), with a custom logo your brother-in-law designed, and so on. Yet, being different is not the same as successfully differentiating one’s product in the market.

There are two things that I have learned when it comes to a product offering a unique buyer advantage:

  1. Most claimed “unique” product attributes begin to fall apart after a few questions. That’s the bad news.
  2. With work, a unique product attribute (that meets the tests described below) can typically be identified.

These are the tests I like to use in determining if a product benefit is truly unique, and meaningfully so.

  1. The unique benefit must be compelling – deliver a relevant, important and specific advantage to the buyer. If there is uniqueness but no buyer advantage – real or perceived – then the uniqueness is irrelevant. It will not sustain the business.
  2. The competition does not, or cannot, offer the same unique benefit. Honestly, now… when was the last time you checked?
  3. The proposition of value that derives from the unique benefit must appeal to enough buyers to make it worthwhile for the business. If the unique benefit of your offering only appeals to a market niche equal to 20% of your business plan you will have a problem.
  4. The unique benefit should lend itself to positioning the product in the eyes of the market to create a large enough niche that can be reinforced and protected. To this end, the work of Jack Trout and Al Ries is worth knowing. Inside out, in my view.

It is unlikely that the unique advantage of your offering will give you the opportunity to experience an iPod moment. Yet, there is nothing wrong with experiencing a “decent” moment where your business can grow, garner share and return a handsome profit to its investors.

Question #4: How many buyers are there?

A typical response to this question is to provide a number that equates to what is commonly referred to as the Total Addressable Market (TAM) – also known as the Total Available Market. Now, before going further, when it comes to sizing markets there are a lot of acronyms, each depicting a particular market slice. Not only is there TAM, but there are TAM1 and TAM2, SAM, SOM, PAM … and others. To make things confusing, the definitions are not uniform. I’m aware of at least three distinct definitions for each of these and, if I looked harder, I’m sure I’d find more.

For the purpose at hand, I’m going to define just three views of the market. Each one that follows is a subset of the other. I’ll also add that the best one can ever hope to do is to make a broad estimate of the market size for any market. In truth, no one knows. A market is constantly changing for a myriad of reasons and, by extension, is not measurable in any accurate way. By analogy think of the stock market and market capitalizations. Neither are ever the same on any consecutive day.

  • TAM (Total Addressable Market) – think of this as the sum total of all the purchases that will be made in a period of time, say over a year, for your product and products like yours worldwide. Rest assured, this is not the size of any company’s potential market. It is a number of companies like to use, though, because it is big and forgiving, and appeals to investors.
  • SAM (Serviceable Addressable Market) – I also like YAM (“Your” [fill in company name] Addressable Market) this is the maximum potential market for which your product offers relevant, important, specific and realizable benefits to buyers. In other words, this is the maximum size of the segment of the market for which your offering holds appeal. You must remember, however, that you have competitors whose offerings very likely offer one, more or all of the specific benefits that your offering does.
  • SOM (Serviceable and Obtainable Market) – Or YOM, if you like. In an ideal world this is the best you could possibly hope for given the limitations of geographic coverage and budget in any given period of time.

Successful CEOs are aware of the TAM, but don’t pay much attention to it. Taking the long view, they focus on the SAM, i.e. the world market they could aspire to over several years if the combination of investment, performance and strategy align and operate effectively together. In the short term, though, they are obsessed with knowing the SOM, and what they have to do to chip away at it and grow. They will aim for it, knowing they can never obtain it, giving that competitors do not take kindly to giving up market share.

Successful CEOs also have another discipline when it comes to market sizing: they take as honest and accurate a census of the addressable market given the particular advantages of their offerings and proceed to build and execute realistic plans to go after those potential customers. They know that this slice of the market is in turn smaller than the SOM. Yet, knowing to which buyers that are likely to appeal creates the foundation for a business plan and strategy that is very likely to be much better focused than the plans of competitors who naively believe they are chasing a much larger number, and spread resources thin by using a shotgun approach.

A VC I know once told me: the single leading cause of death of startups is lack of focus. The flip side of the same coin also holds true: the single leading success factor is a belligerent focus on those buyers who offer the best opportunity for success.

Question #5: What is Your Reach?

This is the fifth I ask CEOs as I first described. To be sure, there are many more questions to be asked. These five, however, form the basis for sizing up where a company is, and where the investigation of issues and difficulties may lie. The #5 question: What proportion of these potential beneficiaries (who value your product’s benefits) does your product reach today? The most accurate answer almost always is less – considerably, so – than the response I often hear. That’s due to a couple of reasons.

First, unless you have the brand muscle of an Apple, BMW, Cartier or Delta Airlines it’s a safe bet that not everyone in your serviceable addressable market (SAM) has heard of you. Even if you sell to a small niche market which may number in the hundreds to thousands, I have yet to see anything close to 100% awareness, recall – aided or otherwise – or recognition of a company or its offerings to the degree required for someone to actually buy it. It takes a lot of money, a lot of time, and a lot of promotion to be heard over the din of tens of thousands of other voices clamoring to be heard. Jack Trout and Al Ries called this the tyranny of choice, and Barry Schwartz labeled it the Paradox of Choice in his 2004 book of the same name.

Second, and closely related, your product or offering has to be able to get into the hands of your addressable market. If you’re selling heavy machinery, it’s no small feat making your offering physically available to potential buyers. Ah, yes, you counter, but we have the internet. True, but I doubt many buyers are likely to shop and buy heavy machinery online. If your offering is suitable for retail distribution you could sell through Amazon and be in the company with, at last count, an estimated 208 million other products offered by Amazon and its sellers (If you browsed the entire Amazon database of offerings at the rate of 5 offerings per minute it would take you 80 years to view them all. Does the “tyranny of choice” strike home now?).

If the concept of a Serviceable Addressable Market (SOM) was not clear in the fourth blog in this series, it is hopefully clearer now.

This is the “where the rubber meets the road” question of the five I like to ask. That’s because this is the question that, when answered, inevitably leads to another set of questions …. like:

  • How and by what means can I reach more of my target?
  • Can I do it from home, or must I establish roots elsewhere?
  • What does success look like? What performance markers will you use to gauge progress?
  • How long will it take, and in what progression must the steps occur?
  • Can I afford to? Can I afford not to?
  • Do I the resources it will take? The people it will take? Do I have what it will take?
  • Can I do this organically, or will I need the help of others?

These are the questions that lay the groundwork for shaping strategy and tactics, and choosing the best decisions under the circumstances. (They imply execution for, even though execution is a topic deserving its own careful consideration, planning and execution are interdependent. Strategies cannot be chosen without an eye to what can and cannot be delivered.)

It is no different to improving one’s aim in archery or on a shooting range. Unless one first knows where the target is, how distant it is, and if weather conditions need to be compensated for then improving one’s skill at holding the bow or the rifle, in and of themselves, are unlikely to have much impact.

I would argue that dealing with strategy becomes a more effective task when these five questions are first asked. They sharpen one’s focus and if answered honestly and validly, narrow the options. and improve the odds of success.

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Written by Michael

Michael Douglas has held senior positions in sales, marketing and general management since 1980, and spent 20 years at Sun Microsystems, most recently as VP, Global Marketing. His experience includes start-ups, mid-market and enterprises. He's currently VP Enterprise Go-to-Market for NVIDIA.

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Hans Ober
Hans Ober

Thanks for the reminde with these 5 questions. Sometimes we overcomplicate things in our mind, but it really should boil down to these 5 questions. Thnaks!

Senior Manager

Amen Hans! Couldn’t agree more 🙂

Senior Manager

The ‘unique’ offering is probably the toughest thing to nail down these days. It takes a lot of effort and thought to develop a product with truly unique features or benefits. But once you do, the upside is tremendous! Nice list.