Mike Periu explores the trade-off between resonance versus profitability.
I recently had dinner with a good friend whom I hadn’t seen in 18 months. A fellow entrepreneur, he surprised me with the news that he had started a new company in the energy sector, far different than has previous company in technology. After speaking at length about the transition and the challenges of his previous venture, it was clear to me that this transition was a perfect example of a concept I had analyzed recently with a fellow at the Kauffman Foundation’s Education Ventures Program: the trade-off between resonance and profitability.
Resonance and profitability in business
I’m a firm believer in using frameworks to analyze business problems. A framework gives structure to problems, integrates different types of information and lets you see your business from a different perspective. The resonance versus profitability framework is useful for understanding at a very high level what future awaits your company. I have recently made important changes to my business based on what I learned through this framework.
The term resonance has different meanings depending on the context. When I refer to resonance in a business context, I’m referring to how well-received your products are among current and potential customers and how well your offering satisfies the “wants” for which your customers are willing to pay.
There is no need to define profitability. We all know what that means! The challenge lies in understanding the relationship between resonance and profitability and then using this information to make decisions about which direction your company should take.
The resonance versus profitability matrix
The best way to use this framework is to create a four quadrant matrix, dividing resonance and profitability into high and low:
Think about your entire business and plot where it lies on this matrix. If you have multiple lines of business then plot each one separately.
Using the matrix to make strategic decisions
The resonance versus profitability matrix can be used to help you understand where your company is today and where it should be in the future. There are four options:
High profitability, high resonance
If your company is in this quadrant then you should celebrate. This is the type of business that can grow quickly, generate large amounts of cash flow and is valued at a significant premium to competitors. Don’t spend too much time celebrating though; you have to make sure that your company doesn’t slip into another quadrant.
