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Warren Buffett has two rules of business.  #1 - make money.  #2 - always remember rule #1.  I'm not one to argue with Mr. Buffet.  Our bank account balances show that either time, luck, or wisdom have made one of us a billionaire and not the other.

But there is a new world of business emerging.  In the old school teachings (and even in some current and respected business schools) companies were entities that produced items, theoretically termed "widgets".  Companies purchased raw materials to produce their "widgets" and then sold them at a profit with the goal of gaining market share over competition.  This isn't the reality of most of the current business world.

It's not as much a change in business practice as it is a change in currencies.  In days far past goods were bartered.  Then tokens were used to represent value.  For most of modernity up to nearly the end of the 20th century currency was based on the amount of gold a country had in their treasury.  Now, and most people don't realize it, all currency is electronic.  Even the cash you use is based on an electronic credit or debit, and is actually just a convenience item.  Rather than gold having a currency value, currencies have value based on how they counter trade with other currencies and interest rate differentials.  The standard for value is relative volatility, which is produced through the electronic currency markets.

Enough economic talk.  What does it mean?  It means companies don't actually make products any more in order to make money.  There are even scenarios where companies don't make a product, or prevent products from being made to make money.

Amazon.com has just started turning a profit.  But, the profit is not based on the shipping of units or production of "widgets" - they are profitable because they have returned money to their investors.  With a market capitalization of over $13 billion, they on paper have more cash on hand than most countries.  Having survived the dot.com bust as the brand name of where to buy your books and music, they have created value where there was none before, based only on speculative stock investment.

With few exceptions, furniture companies don't make furniture anymore.  People in countries other than where labor is affordable (i.e. not the U.S. or E.U. countries) design and make furniture.  Corporate shoppers scope the markets and find the couches that meet the price/design/quality specifications they want.  Then, they contract a number of units to be produced and purchased.  Those items are then shipped back to the U.S. or E.U. countries where they show up in Ethan Allen and other such stores.  So Ethan Allen doesn't make furniture?  Absolutely not.  They provide the capital to have furniture produced, and the store fronts to view and purchase the furniture, but it's highly unlikely there is an Ethan Allen employee who has recently had a work related splinter.

How does a company survive in the new business picture then? 

* First, to give up the notion of market share.  The days of big box retailers, megamalls, and complete domination of industries as a business goal are gone (don't tell Microsoft).  There are going to be some painful merger lessons in the next couple of years that are already starting to unfold (AOL/Time/Warner).  The new generation of under 40 consumers don't want what everyone else has - they want something custom.

* Second, to find the specific way to find the specific customer wanted.  Information is everything, and data mining is the new gold mining.  Mass television media marketing is an ultimate waste of money now.  It used to be that "everyone" watched certain shows.  That's not the case anymore.  Even the most popular shows don't attract enough viewers to justify the tens of thousands of dollars (cheap end) to produce a commercial and purchase commercial space, and devices such as TiVo disable commercials anyway.

* Third, to be the person selling the commercial space.  It has no value, and no one needs it, but everyone wants it.  It's going to be maybe another 2 years before the heads of huge companies with top-down structures listen to their employees and customers enough to figure it out.  Take the profit while it's there to be taken.  It wasn't that long ago that bottled water seemed like a silly idea.

* Fourth, to change with the market CONSTANTLY.  As noted above, you won't be able to give away television ad space in about 2-3 years.  Don't build a 5 year plan based on passing fads and a new world of constant change.

* Fifth, to be the passing fad.  Be the buzz.  No one really knows what's going on now - it's too confusing.  It used to be possible to tell everyone at the same time that a certain thing is good.  There's no way to saturate all of the markets enough now to get a buzz.  The very impression of being cutting edge makes a company look cutting edge.  Sorry Sears, you just aren't cutting edge any more.  As a matter of fact, if anyone over the age of 18 has heard of you, you aren't cutting edge.  Just remember 18 year olds don't have much money to spend for the most part, so walk the fine line - create a buzz, then find the people who have the money to buy your buzz.

* Sixth, to not sell an actual product right now.  It's the wrong part of the U.S. business cycle right now to even attempt it.  Sell a service, sell an idea, sell a concept, but by all means don't try to sell a product.  For now, leave that to the companies outside of the U.S./E.U. trade zones with cheap labor.

* Seventh, recognize the cycles are happening more rapidly than they used to, and be ready to actually sell a product again at a moment's notice.  It gets back to the whole constant change thing.  Just how long is it that Chinese laborers will make $40 children's toys before their workers look at what they're making and say "I wish I could afford for my kid have one of these"?  Not much longer.  With the combination of spiraling energy costs and growing U.S./E.U. resentment, the days of outsourcing are just about over.  Good news - tens of thousands of furniture makers in western North Carolina will start making furniture again.  Bad news - the cheap labor markets we've exploited for the last 30 years are going to be a little resentful, so don't expect imported raw materials to be cheap.  And don't be too shocked of the images of the people you see on television (if you still watch it) burning the American flag and shouting "Death to America".  The people outside of the U.S./E.U. trade zone outnumber us 5 to 1 now, and the margin is growing.

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