Are you in business? Are you creating and placing value in the marketplace, with the intent of serving others and securing your own financial gains?
How are you measuring that value? How do you know if it’s sufficient for your audience’s needs – and yours?
And how do you confirm that your users and customers can actually understand and apply that value in their lives, their jobs, and wherever they need to make use of it?
As an entrepreneur and author (and aren’t all authors entrepreneurs at heart?), I’m compelled to know if my ideas and ramblings have any use in the world. And to know if they can provide me a living.
Being the left-brained analytic that I am, I needed a way to:
- Define the value is at the core of business and business success: what really is ‘value’?
- Unpack that value, and break it down into a few critical components that I can validate and measure it.
- Create the approaches that can prove and validate value with real people.
- Finally, and most importantly, I needed a framework to ensure the value I offer can actually be understood, used, and applied by real people in the real world.
This article describes my attempts to make sense of all that.
Hopefully, what I’ve crafted here can provide a simple but powerful formula to help you ensure your own value creation, delivery, and use.
And I’ve learned that the final part about ‘use’ is where much success is found or lost. This formula has helped me determine if the following is true about the value I create:
– It’s sufficient for my users and customers, that it’s worth enough in the world,
– It’s sufficient to provide enough income for me personally, as well as my operations,
– My users can find, access, and understand that value,
– And they can apply it to change or improve or advance their goals or solve their needs.
I call this measure ‘Surplus Value’. It defines how successful I can be in business and in the world. And there are two types of Surplus Value – ‘Internal Surplus Value’ (ISV) and ‘External Surplus Value’ (ESV).
But first, let’s back up, to look at a working definition of ‘Value’.
What is Value?
Entrepreneurs and their ventures – your ventures – are all about innovation and creating new value where it didn’t exist before. This is different than small business where the goal is sustainable margin and growth through incrementally better or more competitive service, access, price, operations etc. And it’s different from most larger corporations where the goal is market domination, operational efficiencies, or cash accumulation.
But in any of those models, what’s the meaning of ‘Value’? How do you know if you’re creating it, and creating enough of it? We all know that delivering Value is at the center of our usefulness in the world – and it’s the driver of any financial gain we hope to realize. But how do we define it?
Value is usually defined as the difference between the price of your thing or service and its utility to the user or customer.
That’s a commonly accepted definition of value. And it works well in this context and this formula.
If the thing costs $100 and the utility gained by the user is worth $500 to them – that’s Surplus Value.
But if the customer only gets $50 in utility and they paid you $100, it has no Surplus Value. In other words, it was a waste of their $50.
This difference between cost and utility to the user, out in the real world, is what I call ‘External Surplus Value’ or ESV.
Now, within that $100 price you charge, as an inventor or developer or entrepreneur, you must also ensure another value surplus: that $100 that you charge must exceed your cost to create and market it. This is the ‘Internal Surplus Value’ or ISV.
Both the Internal and the External forms of value are critical to your personal life, your business operations, and your capacity to grow and advance.
The greater your ESV, the greater your ISV. The role and importance of the ESV is obvious, and it’s the one we all focus on relentlessly: it’s doing the right thing for your audience, your users, your customers, and the world.
The Secret Sauce
But it’s the Internal Surplus Value that provides the secret sauce to the entire value-creation machinery, because it drives three key economic outcomes:
- It supports you personally, as well as your family.
- It pays your basic business and operational expenses.
- It provides surplus capital to further research, innovate, and expand the value you create.
(Potentially a fourth Internal category is propping up equity and those that contribute to it – your investors. That’s a different topic for another day, and one that must be considered carefully and managed judiciously.)
By creating enough ESV to ensure that third slice of ISV – your capacity to expand and enhance Value and Utility going forward – you drive the accelerating cycle of reinvestment that fuels your own entrepreneurial growth, sustainability, and innovation, as it fuels the engine of our global economy.
Too many entrepreneurs and entire companies fail because they only create enough ESV to cover the first two slices of ISV. They generate enough income to pay their salaries and run their operations, but they don’t innovate, invest in new research, and drive the creation of new value.
Don’t Shoot in the Dark
Be aware that all of this depends on your ability to validate and prove sufficient ESV to ensure that third slice of ISV. Only then can you achieve all that any business wants or needs:
– Drive your own sustainability and growth,
– Advance the innovation that allows you to compete,
– Serve others in the world,
– Contribute to the economy you play in.
And that validation process – the steps required to prove your value and utility – must happen with real users in their native environment. There is no other way. Without that, you’re operating in the dark.
You must also separate that validation process into the five key stages of Value and Utility creation:
1. Initially identify what the real world would consider Utility and Value, and decide how you will prove that with real people. That intimacy with real users will also inform, drive, and inspire how you innovate and differentiate yourself.
2. Actually create that Value at a price (much) less than it’s worth to your user. As you develop and prototype, you must continually test your assumptions and designs externally to confirm they can produce sufficient ESV.
3. At launch and beyond, ensure you can communicate the Value effectively, including driving awareness and reaching your target audience (you can’t communicate to anyone that you can’t reach). Because this is now largely done electronically, through online and virtual channels and media, you must validate those digital channels exhaustively.
4. Ensure users can understand, engage, use, and apply that Value and Utility. Otherwise, all the real or potential utility that you’ve invested so much in is lost or wasted.
5. Finally, how will you operationalize all that learning and discovery? How will you feed all of that great user insight back into your value creation systems to produce more Surplus Value?
Accelerating Surplus Value Through Exceptional Experience
Core ESV and utility is not the only way to ensure and advance your usefulness and relevance. The experience you design in will add to or subtract from ESV, and therefore that critical ISV.
Entire companies have risen and fallen with the advancement of user experience. Consider what Apple and the iPhone did to the Blackberry. Or what the simple Google interface and user experience did to the complexity and clutter of the once mighty Yahoo.
Can you find examples in your business space where the experience is a critical factor or even the key characteristic of the ESV?
It’s possible to advance ESV with experience alone and therefore ISV as well. If you can, it’s often a game-changer and a fairly defensible position. Consider it seriously.
And as with the core value creation process above, you cannot validate any experiential differentiator without direct engagement with living, breathing humans. Consider that seriously as well!
In my free online e-Workshop, pay special attention to these sections:
- User Narrative: to learn about the lives, jobs, and needs of your audience
- User Dialog: to learn about validating both your value and how well real users can understand and apply it
- Usable: go in-depth with the experience you provide to learn if it works with real people
- Useful: does the value you create really provide any utility for your users?