Hi

In the last email we discussed the 2 fundamental principles of business and how they apply to agency businesses.

There is a simpler way to write the 2 fundamental principles of business:

The long version:

1. Continuously create value that solves problems for a large number of customers.
2. Keep the cost of creating value lower than the price the customer pays.

The short version:

Create and keep a customer.

Yup, its as simple as that.

(the short version is Peter Drucker's creation)

So, where is the profit??

Profit comes from creating and keeping a customer.

Huh?!

When you create a customer, you have to solve a problem. And if the perceived value of the solution is higher than the cost, you make a profit.

Back to the example from last issue

Our example is for a digital marketing agency that works with small clinics. The marketing agency will ensure that the clinic can found on search engines easily. This will lead to increase in number of patients visiting the clinics.

From the fundamental principle of business defined above, the digital marketing agency will do the following:

1. Sign up small clinics as clients
2. Create systems and processes to increase local search rankings for the clinic
3. Retain the clinic as a client.

The digital marketing agency makes a profit when

• The cost of acquiring clinics and the cost of operation is lower than the revenue
• Clinics stay on as clients for long. This will allow for automation, and further cost savings on operations.

So, where does First Principle Thinking figure into the above business?

Let's tear down each part of the digital marketing agency's business and analyse using First Principle Thinking.

Tomorrow.

Best

Anoop Kurup