Creating Value – The Essence Of Every Business

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Creating Value

​At the essence of every successful business is its ability to create value. To create value, you must simply - make things better for people. To make things better you can either:

1) Reduce a pain or annoyance that people are currently enduring

2) Increase a gain or advantage that people are currently enjoying

3) A combination of the above

A door-to-door auto-mechanic is an example of a business that provides value by eliminating the pain of taking your car to the mechanics garage. 

A Conversion Optimization tool is an example of a business that provides value by increasing your gain through increased revenue. 

A tax-preparation software provides value by reducing the pain of manually doing your taxes, and increases your gain by optimizing your returns.

Value Exchange

Creating value should be the priority of every business. But value should be created in exchange for equal value. For example, a company will provide a service - which is valuable to the customer, in exchange for a fee - which is valuable to the company (to keep operations running).


It’s important to note, though, that the value provided by the customer doesn’t necessarily have to be in the monetary form. In today’s day and age, a customer can exchange his personal information, his limited time, or other forms barter in exchange for a company's value -- as long as the company is willing to make the trade.

For example, Facebook is willing to allow users to use its service for free in exchange for all the personal information in can gather from it’s users. Facebook can then trade the information gathered to advertisers for a fee; and the users enjoy increased entertainment & social status by using the Facebook application for free.

facebook_creating_value_exchange

At the end of the day, each time an exchange of value is being made, both parties are making an implicit agreement that the value they are exchanging is worth the trade. They say ‘money makes the world go round’. In truth, it’s ‘value’ that makes the world go round. Money is simply a tangible form that allows us to trade for various forms of value.

Forms of Value Creation

Value can manifest itself in several forms, and can be delivered in several forms as well. To maximize your success, it’s key that you understand this. Here are some examples of how value can take form:

Service-based value: A mobile-auto mechanic will drive to your house and fix your car for a fee. He’s offering his time & expertise as a service where he is solving two problems for you: a) Your broken car b) Your need for convenience

​Audience-based value: Facebook provides small-businesses and marketers with an audience to market their offerings. Similarly, when you go to the theatre and watch a trailer, you are part of an audience that is being advertised to. The cinema leverages your gathering to provide value to the movie-makers who promote their upcoming movie

Product-based value: The most common form of value we see in our day to day lives. Any tangible product that can be used. For example, the keyboard I type on.

For example, Walmart provides monetary value by offering low-prices on a variety of items. Facebook offers provides entertainment value to the community, while also offering convenience-based value to business who want to market directly to a specific audience.

Maximizing Value Creation

An entrepreneur may get too tunnel visioned and miss out on additional opportunities on creating value. The more value you create, the more value you can ask for in exchange. Entrepreneurs & Business owners fail to explore opportunities that could increase their revenue while creating value! This can be done by experimenting with ‘Modularity’.


Instead of pursuing a singular focus, we break down potential value offerings into components. We can then start playing Lego's with these components to offer value and generate revenue via multiple streams. For example, Costco offers quality & low prices on groceries for an annual subscription fee. But by drawing customers into their store, they now have a new value offering: Audience Aggregation. Which they then use to sell advertising, insurance and even roadside assistance!

costco_creating_value_audience_aggregation

Costco Aggregates Audience & Sells Additional Services

TripAdvisor offers value via trusted reviews using a Freemium revenue model. But then uses Audience Aggregation to sell Subscriptions to hotels and booking agencies. Furthermore, they sell advertising to various firms.


The truth is, Modularity models exists all around us (think Cinemas!). We tend to miss it because it blends so seamlessly into our lives. As you grow your business, consider the various 'Lego' pieces you can fit/rearrange into your business model. The growth potential can be stupendous!

​A busy business executive will pay a premium for a product that saves him one hour of his time every day. A student with a lot of time on his hands and no money may not be so eager.

Creating Value: For the mass? Or for the few?

When creating value you must consider the value your customer receives, and the value you receive from the customer. This is crucial to survive & thrive as a business. If there aren’t enough customers who want your value offering, then you’ve wasted time creating it. However, you don’t need a huge group of customers to thrive as a business. You only need enough.

For example, a business can offer high value at a premium to a few customers and still make enough profits to thrive. E.g: a high-profile consultant or the diamond industry


In a similar fashion, a business can offer value to several customers at a low cost and make profits to thrive. E.g: a blogger with millions of followers or Walmart.

Creating value is the "make or break" for your business. It's simple on the surface, but there are several factors that can optimize the amount of value you create for your audience. More value leads to more profits.









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About the author

Shawn Dexter

Shawn Dexter is a Product Manager, Entrepreneur & Software Developer. He is passionate about innovation management & technology.