4 Ways to Make Value Creation Core to Your Business
Judging from the news and what policymakers say, entrepreneurs are in the business of creating jobs. And, in fact, recent research confirms that entrepreneurs do indeed create jobs.
But as anyone who has ever started a business knows, creating jobs (beyond one’s own) is practically never the goal for entrepreneurs. Rather, creating jobs is a necessary means when building an organization, scaling the business, and growing market share to cover costs. And it is a costly one, meaning it is often a good idea to wait as long as possible before hiring.
While it is certainly important to put together the right team — to create a group of people with the right attitudes and skills — for a business to survive, it needs to find an advantageous niche in the market. That’s why most methods for how to start a business focus on finding the new firm’s appropriate product-market fit.
From Lean Startup and the Business Model Canvas to Disciplined Entrepreneurship, well-known and effective entrepreneurship methods, used both in practice and in the classroom, focus on involving customers as early in product development as possible. Businesses generally do better if they craft the business model around customers’ actual needs.
But a way to build a better business is to think of it in terms of value. In other words, to identify and continuously direct your business toward where you make most difference in you customers’ lives.
Here are four ways to think about value in your business:
1. Value is subjective.
As experienced entrepreneurs know, because they often learned it the hard way, a business’ success depends ultimately on whether customers value what it offers. And this valuation is on the customer’s own terms, not on yours. Value, in this sense, is purely subjective.
This fact was recognized already in 1871 in the groundbreaking book The Principles of Economicsby economist Carl Menger. He developed a whole theory of the economy based on consumers’ subjective value and how entrepreneurs benefit from facilitating such value. Menger’s ideas spawned the so-called Austrian school of economics, which holds that entrepreneurship is the “driving force” of the whole economy.
Recognizing that everything you do, and whether it works out, depends on whether customers find value in it is a powerful way of seeing the forest and not just the trees. It allows you to focus on what is important.
2. Aim to facilitate value.
Value, Menger teaches, is specifically the satisfaction gained when using a good or service. Or, put in the words of his follower Ludwig von Mises, it is the removal of a “felt uneasiness.” In other words, whether your offering is valued is not a matter of the product itself, but the benefit it offers.
Volvo’s recently launched Care by program recognizes that what their customers want first and foremost is not simply to own a car, which is the typical business model among automobile manufacturers. Instead, the real value might be for them to have access to a convenient and comfortable means of transportation. If that is the case, then a better business model is focused on offering that value instead of ownership of the product.
3. You benefit from serving your customers.
The simple but ugly truth is that most entrepreneurs are rather bad entrepreneurs, at least in value terms. This means that there are plenty of opportunities to do better, if you think about your business in a different way.
It is easy to get bogged down with details in product design and development, not to mention supply chain and human resource management. While many of these things are important to control, what should come first is whether any changes will directly benefit the customer.
After all, why go through the hassle of tweaking or redesigning your product, if those changes do not bring real benefit to your customer? But if they do, then customers would be willing to pay a higher price. Putting the customer’s subjective value first is a win-win.
4. Your competitive advantage is value.
Thinking of your business in terms of value, or customer benefit, is also how you should think about competition. If your product offers something to customers that they really value, then there is no reason for them to consider other products.
In fact, a very highly valued product — from the customer’s own point of view — practically sells itself. And the higher the value you offer, the higher the price customers are willing to pay. So it is, again, a win-win situation.
Your competition has only one recourse if you position your business with respect to customer value, and that is to offer even greater “want satisfaction” — they must offer customers the means to remove an even greater “felt uneasiness.”
Thinking of your business in terms of what value it offers to your customers, not in terms of dollars but in their actual felt satisfaction, is a powerful way to do entrepreneurship. It helps you avoid making mistakes and allows you to quickly identify what is important.
Thinking in terms of value, many decisions become a no-brainer. “Should we hire more people?” is the wrong question to ask. The proper question is, “does hiring more people bring real value to our customers?”
Source: entrepreneur.com
