Business as black box

Building a business is building a black box. People don’t know, or care, what is inside that black box. They want to know what the box’s input is, and what its output is.

Inputs and outputs can be as varied as you like, but there’s a catch. The inputs and outputs need to be familiar. You’re putting things into the box that you already have lying around, and you’re receiving results that you already know how to work with.

No one cares about rocket science, people care about the input of objects, and the output of those objects being in space.

No one cares about the mechanics of curing disease, people care about taking the input of a pill, and the output of living longer.

Being too smart can hurt you. You get too focused on the internals of the black box, and think that other people will care about them. Sure, the internals of your box will be interesting to those building similar boxes, but outside of that no one cares.

Starting to explain the internals can confuse the important thing: what are the inputs, and what are the outputs?

Market positioning is an exercise in describing precisely what your business’s inputs and outputs (I/O) are. For buyers, the more specific the I/O of a black box matches their situation, the more appealing it is as a solution. Misalignment between the raw material the buyer has, and what a business accepts/provides, are the main reason buying a product or service doesn’t succeed. The more you can be sure the I/O matches, the more likely things will work out.

Solutions for specific niches are flying a flag saying: we specialize in the type of I/O you have, so we know it'll work. It’s the difference between buying a CRM that any business can use, and one built for your industry vertical.

The black box lens also helps determine where to put the bounds around the product or service being offered. For example, the target market for a large language model where the inputs include training data and parameters, and the output is a raw model that requires special skills to interact with, is quite small. By contrast, the target market of a large language model where the input is a conversational statement, and the output is a conversational response is colossal. By pulling parameters into the black box, and shaping the I/O in a way where more and more people have those raw materials at hand, you can expand a target market from thousands of people to billions.

Some other examples where this lens is interesting…

It helps explain why it’s really hard to replace pen and paper in a traditional business with software. The inputs and outputs of a software program are vastly different from those of paper on a clipboard.

It also clarifies why businesses built on open source succeed. Yes, the underlying code is open source and anyone could download it and run it, but that process has vague I/O. Businesses built on open source provide I/O that it can actually be plugged into larger businesses.

And at the end of the day it explains why every business boils down to the question of: is this a black box I can use that saves me money?

This is a very reductive way of looking at things, but business broadly is about cramming a massive set of very different looking organizations and products into a small set of concepts. Every business is in the same set of legal structures (corporation, LLC), and their performance is captured in the same balance sheet, P&L, and cashflow statement.

Of course businesses are not truly fungible black boxes. Only looking at the financials of a company will leave massive gaps in your understanding. And over-applying this lens can be spiritually damaging—caring about whats in the black box is a big part of what life's about (see if it can change you it can harm you and a theory of maturity). But every business will be evaluated from these shared perspectives at one time or another. Understanding that what your business offers will also be evaluated as a black box, can save you a lot of pain and confusion.