How to create, deliver and capture value for your business?
Value is one of the most essential concepts in business. It’s what customers are looking for, and it’s what drives profitability and success. But what exactly is value, and how can you create it? In this article, we’ll explore those questions and more. We’ll discuss the importance of creating, capturing, and delivering value, as well as some tips on how to do so effectively. By understanding and applying these concepts, you’ll be able to create more value for your customers, employees and shareholders alike!
What is value creation? How to create value?
Value creation is when something becomes more valuable. This happens when you change the raw materials into a different form. For example, when you cook food, it becomes more valuable than raw ingredients.
Value creation happens when you turn raw inputs into products that people want. The more you can improve the products, the more people will be willing to pay for them. When people are willing to pay more, it means that value has been created.
Value can be defined as the worth of something in terms of the satisfaction or utility it provides. In other words, it’s what customers are willing to pay for a product or service. Value can be created in a number of ways, but it typically boils down to providing more satisfaction or utility than what the customer paid for.
If you look at the lean startup canvas, You create value for your customers by solving their problems. To do this, you need to understand them very well. This way, you can come up with the best solution and offer them value through your unique value proposition.
By understanding and applying these concepts, you’ll be able to create more value for your customers, employees, and shareholders alike!
How do you deliver value?
You give your customers value through your solution. Customers find this value through your channels. The cost of delivering this value is shown on your cost structure box.
When you take a lean approach, the focus is on delivering value to your customers quickly. If you can’t create value for your customers, they won’t pay you.
It’s a good idea to start with a minimum viable product (MVP) instead of your finished solution. This is because it allows you to test the waters and get feedback from your customers before you invest too much time and money into something that may not be what they want.
No matter which approach you take, it is important to deliver value effectively. This means making sure that your product or service is available when and where customers want it, and that they can use and enjoy it easily. It also means providing excellent customer service and support, so customers are happy with their purchases.
Fortunately, there are a few key things you can do to deliver more value to your customers.
First, make sure you understand their needs and desires. What are they looking for in a product or service? What would make their lives easier or better?
Second, focus on the quality and features that matter most to them. Don’t try to be everything to everyone – focus on delivering the best possible experience for your target market.
Finally, make sure you’re providing value at every stage of the customer journey. From the initial contact all the way through to post-purchase support, you should be focused on creating a positive, valuable experience for your customers.
What is value capture and how to capture value?
While value creation refers to the total additional benefit created in transforming the input to output, value capture refers to your ability as a business to ‘capture’ that value yourself, as your retained profit.
There may for example be immense value created in the products or services that you provide, but if the majority of that value is captured by your customers (potentially because they are able to bargain down the price), or your suppliers (potentially a part that you are dependent on a particular supplier making, which they can thus a high price for), then the value that you create is ultimately captured by others.
You capture value back from your customers through your revenue streams. For business modeling purposes, it is important to list both your sources of revenue and specific pricing. If you aren’t sure about specific pricing yet, ballparks are okay.
The mistake a lot of entrepreneurs make is pricing their products against their solutions by slapping a small margin over what it costs them to deliver value. This is a mistake because your customers don’t care about your costs, they care about the value they capture from your product. By anchoring your pricing model against customer value creation, you not only make it easier for customers to buy from you, but you often are also able to charge more for your products with a value-based versus cost-based approach.
There are two main ways to capture value- pricing, and differentiation.
Pricing is the most direct way to capture value, as it simply entails charging customers more than the cost of producing the product or service. Differentiation, on the other hand, involves creating a unique offering that customers are willing to pay more for.
The importance of considering both value creation and value capture
Creating value is essential for business success because it’s what drives profitability. If you can’t capture and deliver value effectively, you won’t be able to generate enough revenue to cover your costs and make a profit. And without profits, your business will eventually fail.
When starting a business, think about how much money your business can make and how likely you are to get that money.
If you don’t create any value when selling a home (like by being an intermediary without adding significant benefits to either side), then you won’t make very much money. If you create a lot of value but can’t capture it, then your business won’t do well financially.
Both creating value and capturing value are important for organizational success.
Value creation vs Value capture
Value Creation refers to the process of developing products, services or initiatives that provide benefits to customers and end users. It focuses on identifying unmet needs, developing solutions, and continuously refining offerings to improve the value delivered. Effective value creation requires understanding target users deeply, ideating innovative offerings, designing excellent experiences, and building organizational capabilities to bring solutions to market.
Value Capture refers to a company’s ability to extract some of the value they create in the form of profits. It involves implementing pricing, monetization strategies, and business structures aimed at maximizing revenue retention from the value delivered to customers. Even if immense value is provided, if a business can’t capture some portion of it as profit, the model isn’t sustainable. Approaches to value capture include studying willingness-to-pay, diversifying income streams, contractual terms limiting margin loss, and optimizing lifetime loyalty.
In summary, value creation focuses on identifying and meeting user needs through great products and services. Value capture focuses on pricing and business model configurations that allow profits to be sustainably realized from the value provided. Both are essential, but require different strategies and execution capabilities.
| Dimension | Value Creation | Value Capture |
|---|---|---|
| Definition | The process of developing products, services, and initiatives that provide benefits to customers and users | A company’s ability to extract some of the value they create as profits |
| Focus | Identifying unmet user needs and crafting solutions to fulfill them | Implementing pricing, monetization approaches, and business structures that maximize revenue retention |
| Key Questions | – What do customers need? How can we improve their lives? How should we design an excellent experience? | How much are users willing to pay? What potential revenue streams can we tap? How can we lock in profitable pricing agreements? |
| Key Capabilities | Market research, Ideation and innovation, Experience design, Agile development | Data analytics, Pricing strategy, Deal structuring, Partnership management |
| Key Metrics | Customer satisfaction, Net Promoter Score | Profit margins, Revenue growth, Lifetime customer value |
| Risks | Failing to create products/services users want | Losing captured value to competitors, channel partners, etc |
The process of value creation, delivery, and capture
Starting a business can be a daunting task, but the rewards of entrepreneurship are undeniable. Creating, delivering, and capturing value for your startup is the key to success. In this ultimate guide, we will explore how to achieve these goals and set your business up for success.
Creating Value: How to Develop a Winning Idea
Every successful startup begins with a winning idea. But how do you come up with a great business idea? Here are some tips to get you started:
- Identify a Problem: Look for a problem that people are willing to pay to solve. The bigger the problem, the more value you can create.
- Research the Market: Once you have identified a problem, research the market to see if there is a demand for your solution. Is anyone else offering a similar solution? How can you differentiate yourself?
- Brainstorm: Get creative and brainstorm different ideas. Don’t be afraid to think outside the box. Consider collaborating with others to generate more ideas.
- Evaluate: Once you have a list of potential ideas, evaluate them based on their feasibility, potential profitability, and scalability.
- Choose: Finally, choose the idea that best aligns with your skills, values, and goals.
Delivering Value: Building a Solid Business Model
Having a great idea is just the first step. You also need a solid business model to deliver value to your customers. Here are some key elements of a successful business model:
- Value Proposition: Clearly define the problem you are solving and how you are solving it. Your value proposition should be unique and compelling.
- Target Market: Identify your ideal customer and understand their needs and preferences. Tailor your product or service to meet their needs.
- Revenue Streams: Determine how you will make money. Will you charge for your product or service, or will you offer a subscription model or advertising?
- Channels: Determine how you will reach your customers. Will you sell directly to them or through intermediaries? Will you use social media, email marketing, or traditional advertising?
- Key Resources and Activities: Identify the resources and activities you need to deliver your product or service. This may include technology, equipment, personnel, or partnerships.
Capturing Value: How to Maximize Profitability
Finally, it’s essential to capture the value you create by maximizing profitability. Here are some strategies to consider:
- Price for Value: Don’t compete on price alone. Price your product or service based on the value you create for your customers.
- Upsell and Cross-sell: Offer additional products or services to your existing customers. This can increase customer loyalty and profitability.
- Increase Efficiency: Look for ways to streamline your operations and reduce costs. This may include automating processes or outsourcing certain tasks.
- Expand: Consider expanding your product line or entering new markets. This can increase revenue and profitability.
- Retain Customers: Focus on customer retention by providing excellent customer service, personalized experiences, and loyalty programs.
How can you ensure that you capture as much value as possible from your startup?
You derive value by generating revenues for the business. Revenues are a function of price and quantity. Value-based pricing is a great way to not only price your product right but also to help capture more value.
Value-based pricing is a method of setting prices based on the perceived value of your product or service to the customer rather than on its cost, competition, or other market factors.
For example, if you have a new service that helps businesses save time and money, you would price it based on the value it provides to the customer rather than on how much it cost you to develop or the going rate for similar services. So if your product or service provides 10x of value to the customer, you can charge anywhere between x to 9x for your offering.
What are some common mistakes made when it comes to value creation and capture?
One of the most common mistakes is failing to properly define value. Many startups focus on features instead of benefits, or they think that value only comes from new products or services. However, value can come from many different sources, and it’s important to consider all of them when planning your business strategy.
Another mistake is failing to properly communicate value to your target market. Even if you have a great product or service, it won’t matter if your target market doesn’t understand the value it offers. Make sure you take the time to clearly explain what makes your offering valuable, and why potential customers should choose it over other options.
Finally, many startups fail to properly capture value. This can happen for a number of reasons, such as not having a pricing strategy that aligned with the value you’re offering, or not having a system in place to track and measure the value you’re providing. Make sure you have a plan for capturing value, so you can ensure your startup is sustainable in the long term.
When it comes to value creation, the lean canvas is a great tool to help you map out your plans. This simple framework can help you identify the key areas of your business that need to focus on value creation, and it can also help you track your progress over time.
What are some other resources for learning more about value creation and capture?
The best way to learn about value creation and capture is to read about it and then experiment with it in your own business. There are a few key resources that can help you out:
1. The Lean Startup by Eric Ries – This book is a must-read for any entrepreneur who wants to create a successful startup. It’s all about how to create value efficiently, and it has a lot of great tips on how to do so.
2. The Innovator’s Dilemma by Clayton Christensen – This book is another must-read for entrepreneurs. It’s all about how to create value in industries that are being disrupted by new technologies.
3. The Startup Owner’s Manual by Steve Blank – This book is a great resource for understanding the process of starting a company. It covers everything from customer development to product/market fit.
4. The Lean Entrepreneur by Brant Cooper and Patrick Vlaskovits – This book is a great resource for understanding how to apply lean principles to entrepreneurship.
5. Running Lean by Ash Maurya – This is a great resource for understanding the lean startup methodology and how to apply it to your own business.
These are just a few of the many great resources out there on value creation and capture. If you want to learn more, I would encourage you to read as much as you can on the topic. There are a lot of great ideas out there, and the more you read, the more likely you are to find something that will work for your business.
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