serve on the city council in
Greenwood Village Colo., a suburb of Denver, and I have asked
myself this question: ďWho is the cityís primary customer?Ē The answer I came up with may surprise
Businesses ask themselves this question all
the time. An organization usually has many types of customers, and
the challenge is to identify the primary
customer. In the business world, this is called market
segmentation, and itís important because organizations cannot be
all things to all people. An organization needs to focus.
A city is not too different. It provides services, generates
revenue and has to meet a payroll. While a city is not in business
to make a profit, it should be run in a business-like manner. Just
like a business, a city needs to focus on its primary customer, even
to the extent of marketing its services. (Please watch the video
Most people would say a cityís primary customer is its
citizenry. It's called a city for a reason, after all. Not
surprisingly, most elected officials may drill down further
and say the primary customer should be the voters.
I want to present the case that in most cities, the primary
customer should be the business community, and maybe even a
segment within that category. But the primary customer should not
automatically be the citizens or voters.
Customers typically receive goods or services in exchange
for monetary consideration. Customers generate revenue and itís
pretty simple to follow the money trail.
The business community pays sales and use taxes, commercial
property tax, "head" taxes, franchise fees and other
levies. Homeowners pay residential property tax (at a much lower
rate than commercial property owners) and other fees.
But itís not the gross revenue thatís important; itís
the net revenue.
Businesses are net-cash contributors and citizens are
net-cash consumers. This should be true in every community and if
it's not, something is fishy. Perhaps the city is giving away too
much in business incentives. As a matter of public policy,
citizens should never subsidize business. It should always be the
other way around.
The business community may generate, let's say, 40 percent of the
revenue in a given city but the cost of service to that market
segment should be less, and the difference will be a contribution
to the city's coffer.
Citizens may generate, let's say, 60 percent of the revenue in
that same city but the cost of service to the residential market
segment should be more, and the difference will be a withdrawal
from the coffer. This is like a dividend to the citizens. They get
something for less than it actually costs, paid for, to some
degree, by the business community.
So while citizens may generate more gross revenue, the business
community generates more net revenue. If the city were a business,
which market segment would you want more of?
The answer is more businesses.
The citizens are more like shareholders, each with the
ability to vote exactly one share. They elect the board of
directors - the city council - and the boardís mission is to maximize shareholder
value. Itís in the shareholderís best interests when the board
correctly identifies the primary customers and establishes policies
that attract more of those customers.
A thriving business community pays dividends to
shareholders in the form of more hiking and biking trails, faster police response,
more snowplows, lower residential taxes, a stronger economy, more jobs, better
pot-hole repair, more flowers, better traffic control,
less-expensive trash removal, a cleaner environment, and many
I am not advocating that a city blindly court business
because some businesses could easily diminish shareholder value.
Excessive traffic, inappropriate signage, and unacceptable levels
of noise are just three of many examples of how a business could decrease shareholder
value. A good council member will always do what's in the
shareholder's best interest.
Citizens are customers for sure, but they are shareholders
first. Citizens benefit when their elected representatives are
able to identify the primary customer.