Create Value: Discover What People Want & Create it
Create Value: Discover What People Want & Create it
1. Create Value: Discover What People Want & Create it
Create Value: Discover What People Want & Create it
You can think about the purpose of every business, larger small, is to make someone else's life, a little bit better every day. So, value creation is the process of discovering, what people want or what people need, and then creating that thing and making it available. And the best businesses in the world, are the ones that are the best at this process. They're really good at finding something people want, or something people really need. And they're really good at making that thing actually exist, and serving those customers in that way. And so, the way that businesses do that, can be very different. There are some businesses that create, just a tiny bit of value, for a lots and lots and lots and lots of people. Can you think of a business that that would fit that mold? Toilet paper. Toilet paper, great. Creating a little bit of value, right? It's important value, (laughs) but creating a little bit of value to a lot of people, consistently over a long period of time. And so, when ...
you go to the store and buy toilet paper, you're not spending an enormous amount of money, but that company is able to serve lots of people, over a very long period of time, and so, they create enormous value. What about a company who creates a lot of value, for just a few people? Like Apple. Maserati. Maserati is a great example. Why is that? Well, So, they only make a handful of each model car, and they cost a lot, lot, lot of money. Exactly. So, each customer to Maserati, each paying customer is worth a ton of money, because the customers get a ton of value out of it, and they don't need to serve very many customers, in order to make it worth it, for them to keep doing what they're doing. So, there are all sorts of ways, to approach this process of value creation. The general idea is, looking for something people want or need, and then finding a way of creating that, okay? So, we're going to talk about specifically how you do that. Now, the reason this stuff is important, by the way, is an idea that I'm going to call, Economically Valuable Skills. And Economically Valuable Skills, are the skills that you yourself can create, or it can develop related directly, to the five parts of every business, right? So, if you can learn how to create more value. If you can learn how to market or sell or deliver value, make customers happy and analyze finances. The better you get at those things, the more valuable you personally become. So, if you want to get a raise at work, getting better at these skills is the best way to do it. If you wanna create a valuable company, getting better at this process is the best way to do it. And so, if you have a corporate job, for example, and you look at what you do on a daily basis, and it doesn't directly match up, with one or more of those five things, guess what? You're probably not very valuable to the business. So, what's the best way to become more valuable, and make sure you get promoted and paid more, and the business wants to keep you? Try to find a way to work directly, on one of these five parts of every business, right? Same thing goes for an entrepreneur, right? If you want to become a more valuable entrepreneur, and have greater potential to build a business that works, working on these five areas is the best way to do it. That make sense? Yeah. The iron law is why it is often better, to find ideas in existing markets, right? So, this is a trap that a lot of entrepreneurs fall into, is I have this new awesome idea, for this thing that has never existed, in the history of the world, and nobody has ever seen this, right? It's a brand new idea. If it's a brand new idea, you have absolutely no idea, whether or not it's going to work. You don't know whether other people have tested it. It's completely new uncharted territory. If it works, great, you have a dominant position there, and that's a really good thing. If it doesn't work, then you could potentially waste a lot of money. Now, in existing markets you have a huge advantage, which is, you already know that, there are people spending money on this stuff. And so, by entering in an existing market, with something that is likely to serve customers, in a slightly newer, slightly better way, you can be assured from the outset, that there is a market that is spending money, on this thing that they care about. And if you can create and deliver that value, you're probably going to have customers, okay? So, that's why entering an existing market is usually, a much easier thing to do, than to build something completely from scratch. That make sense? Yeah. Okay. Now, the iron law of the market says, make stuff people want, right? So, that kinda begs the question, What do people want? What do people tend to want? And this is even a more interesting question, when you think about all of the different cultures, around the world. When you think of all of the industries and markets, and all the diversity of human experience, can we understand some things about what people tend to want that can help us figure out ideas that that may work. And there was a wonderful book written by, two Harvard Business School professors, Paul Lawrence and Nitin Nohria, who is actually now, I believe, still the Dean of Harvard Business School. They tackled this question and the book is called, "Driven." And their answer to this question, what do people tend to want? They came back with four things. There are four, what they call, Core Human Drives, or things that people generally want, almost all the time around the world. And the four drives in order are, the drive to acquire. So, that's the desire to collect material things, or the desire to acquire things like imagery, or things like power or status or fame, right? The drive to get more bring it closer to me, okay? The second is the drive to bond. So, to be loved and to feel valued in the relationships, with our family, with our friends, with our colleagues, with our associates. We are group creatures. We like to feel that, we have a bond with the folks around us, okay? The third is the drive to learn. So, we're pretty curious creatures. We like to be exposed to new things. We like to see things that we've never seen before. And that curiosity can be behind the desire, to go on vacation, right? Travel, see something new, or read a book. Now, the fourth drive is the drive to defend. And that's the drive to protect ourselves, our loved ones and our property. So, what are some businesses that are built around, the drive to defend? Smith and Wesson. Smith and Wesson. Yeah or, (laughs) home securities systems, right? Locks on doors. What else? What about a safe car? How so? Yeah. Let's think like an airbag in a Volvo. You buy a Volvo because quote unquote it's safe. Exactly. So, we're seeing, kind of an interesting dynamic here, right? Because we talked about the Mercedes, which is an acquisition type purchase. You're buying car in either case, but this one gets you more status, or you can buy a car that gets you around, but makes you feel safer than you otherwise would feel. So, you can see how you can layer these drives, into a single purchase, right? The idea is that the more drives, that your offer connects to, the more compelling it is to purchase or participate in. Those five things, acquiring, bonding, learning, defending, and feeling, are the things that motivate people, to take a particular action. And the more things that you can build into, whatever it is that you're offering, or ways you can talk about what you're offering, that connect to one of these things, the more compelling that offer is going to be. And here's where all of this theory, intersects with market research. If people are feeling a lack of one of these drives, in some way, shape or form, or some form of deficiency, a market will develop around the satisfaction, of that particular drive, right? So, if you look at something like Facebook or Twitter, there was a market deficiency need in people, feeling connected to folks that they went to school with, but they haven't seen for 10 years, and they wanna share baby photos, or updates between the two. Something that is less than a handwritten card, or a personal email, but not as intense as like, updating your own website, for example. There was a deficiency there, and the reason those businesses exist today, is they found a very efficient way, to give more of something that people felt a lack in. Does that make sense? So, what I found is that, this is a really interesting checklist to walk through. And when you're going about your day, looking for business opportunities, it's a good thing to look into the world and say, "Where could people be feeling a little bit more of this?" So, this is a really good priming checklist for now, but then you'll see how this intersects, with marketing and sales when we talk about those, okay? Now, next idea is called, Status Seeking. And Status Seeking, is the idea that, humans are social creatures. We care, tends to care, very intensely about how other people perceive us. And so, we spend an enormous amount of attention and energy, tracking relative status, and trying to raise our status, in the groups that we care about, okay? So, for example, talking about the example of, buying a Mercedes earlier. Part of the benefit of buying a luxury car, isn't just the transportation that it gets you, right? It's the perceived status, the bump in relative importance, or attention that other people give you, because you have invested in this, very specific social signal. So, in general, we like to be associated, with things that are powerful or luxurious or nice. Think of all of this. So, some luxury brands, think of some luxury brands. Prada. Prada. What does Prada sell? Bags and clothes and stuff. Yeah. How much do they charge for them? Way too much money. Way too, right, right. (laughs) So, if you take the functional element, of a product bag, for example, you could walk into Walmart, and buy a plastic or a nylon bag, for what, a couple of dollars? Yeah, five bucks. Yeah. Prada sells the same functional thing, for several thousand times that amount, right? Same thing with, you know, you can buy a Rolex watch, spend a couple thousand dollars on a gold Rolex watch. Doesn't tell time any better than a quartz watch, from the local supermarket, just doesn't. What people buy when they buy luxury brands, is the status. How it changes the perception, or how other people around them view them. Does that make sense? Mmm-hmm. Okay. Now, all of things being equal, when opportunities to increase social status appear, people tend to take them. It's one of those things, if you can have, something that satisfies the need and makes me look better, versus something that satisfies the need, and makes me look worse, or it makes me look neutral, people will pick the better one. And so, you'll see a lot of social signals. And we'll talk about this in great detail, in marketing and sales. But you'll see a lot of social signals, built into the product from the beginning, right? In the design of the product. In the way that the packaging is presented. In all of the things that make people feel, that their status is improving, when they purchase this thing, right? It's related to one of the core human drives, which is acquisition, but it's important enough that it deserves its own mention. People are status seeking creatures. So, this is a checklist I call, 10 Ways to Evaluate a Market, which is a series of things that you can think about, or ask yourself, to figure out if this, new idea really is as promising, as you think or feel that it might be. And so, the first thing is urgency. How badly do people need this right now? Is it something that they could potentially, wait their entire life to get? Or is it something that they need absolutely right now, a second delay is too much? The more urgently people want or need this thing, the more attractive the market, okay? The second is, market size. How many people would purchase this? Is this something that's going to be attractive, to billions of people around the world? Or is this something for which you have only, one or two prospective buyers? The more buyers you have, the more attractive the market, right? Pricing potential. What's the highest price, people would be willing to pay? Is this something that people are going to pay, five or 10 cents for? Or is this something that people are going to spend, billions of dollars on? So, take for example, a ship builder. If the Navy wants to buy an aircraft carrier, for $12 billion, you only need one customer, to make that potentially really worth it, right? So, what's the highest price people would be willing to pay? The higher the price they'd be willing to pay, the more attractive the market, okay? Cost of customer acquisition. How easy is it to acquire a new customer? Is this something that doesn't take very much time, and energy and attention, to attract attention and go through the sales process? Or is this something you're going to have to spend months, or years, trying to sell a prospect on? The less it costs in time and attention and money, the more attractive the market, okay? Good so far? Mmm-hmm. Okay. Cost of value delivery. How much does it cost to create and deliver the offer? Is this something that you can deliver to people, very quickly and very cheaply? Or is this something you're going to have to spend, a lot of time and energy and attention and money, delivering to your paying customers? The less time and money you have to spend, the more charge of the market. Uniqueness of offer. How unique is your offer versus the competition? How easy is it to be copied? So, in other words, is this something that you and only you have access to? Or is this a commodity that anybody else, can also acquire and compete directly with you? The more unique you are, the more attractive the market. Speed to market. How quickly can you get this thing up and running? How long does it take to create and sell? The less time and energy, the more attractive the market. Same thing with upfront investment. How much do you have to invest, before having an offer ready? The less you have to invest, the more attractive the market. Upsell potential is what related offers, could you present to purchasing customers? Is there something else that you can sell to people, who are likely to be interested in, this thing that you're offering? So, for example, back when I was working at, Procter and gamble, I did a little bit of work, on the Gillette brand, which has, the last I knew, something over 90% of the blades and razors market. Almost the entire market is Gillette. And so, that really limited opportunities for growth, right? What do you sell when you can't sell people, more razors and blades? You can sell them shaving cream. You can sell them shampoo. You can sell them lotion. You can sell... There are a billion things that guys who buy razors, or ladies who buy razors may want or need. The more related things that you can potentially sell, the more attractive that market is, right? Mmm-hmm. Okay. And number 10 is, evergreen potential. Once the offer is created, how much work do you have to put in to continue selling it? Is this something that, so for example, in publishing, you write the book once, and they print lots and lots of copies, and unless you wanna do a new edition, you don't have to continue working on it, right? That's great. If you're in technology, technology changes on a daily basis, and this thing that you're spending a lot of time, and energy and money creating, is going to be obsolete by next week, and you have to continue that cycle, right? The more evergreen the thing you're creating is, the more attractive the market, right? So, here's how I use this thing. You have 10 criteria, and what I try to do when I come up with a new idea, is try to rank each criteria from zero to 10. Zero is absolutely the worst possible case scenario, and 10 is, this is the most attractive thing, that I've ever seen in my entire life, right? When in doubt, in ranking these things, rank on the low side, okay? So, be pessimistic instead of optimistic. If you have anything over 50, you probably have a workable idea. If it's over 75-80 you should probably quit your job, and start working on that right away. This is an idea called, The Hidden Benefit of Competition. So, the classic entrepreneur mistake is, I want to enter a market, in which I have absolutely no competition whatsoever, because then I can get the entire market. What that puts you on, is the wrong side of the iron law of the market, from the very beginning. So, when two markets are equally attractive, when you've evaluated two ideas, and one has competition, and the other does not have competition, generally the one with competition is going to be, the safer, more profitable, more direct route, to making something work. And the reason is, you already know customers are spending money, right? The other part of this is, there are lots and lots and lots of people in the world. And people who are trying to do the same thing that, we are all doing, right? Look into the world, find a problem, find a need, solve that in a way that's profitable, and you can keep going. People have also been doing this, for hundreds, thousands of years, right? There have been a lot of business ideas, that have been evaluated and tested. If you can't find a really good successful example, of a business kind of like, the one that you are thinking of setting up, it may not be as good of an idea, as you think that it is, right? So, it's just one of those things, that having competition, protects you from the beginning. Here's the other hidden benefit of competition. If there's a competitor selling, something close to what you wanna do, the very best market research method, that exists in the world, is becoming a customer, of your potential future competitor, because you get to see their entire process, right? You get to analyze what they're making. You get to analyze how they're marketing it. You get to analyze how they're selling it. You get to analyze how they're delivering it. And you can get a pretty good sense of their financials, and you can do that all yourself, just by spending a little bit of money, right? So, having a competitor in the market that can study, is a really great way to learn about, a lot of the things that matter in entering that market. Two other rules of thumb. And I call these, these are kinda sister concepts. One is called, The Mercenary Rule, and then the other which we'll talk about in a second, is called, The Crusader Rule. So, the mercenary rule is, Don't be a mercenary. Don't start a business for the money alone, because it always takes more time and money and effort, to start up a business than you expect. We tend to be very optimistic in our estimates of, how much work it's gonna take, and how much we're gonna spend to make something work. And so, if the only thing, that you are fascinated about this particular business, is the potential pot of gold, at the end of that rain rainbow. If the only thing you're interested in is the money, you're probably not going to make it very far, because you still, in order to get to that pot of gold, you still have to wake up every morning, and make progress on this particular idea, right? So, if there's nothing aside from the money, that you're fascinated by, you're probably never gonna get there, right? So, just blindly following the money, is not a generally good strategy, right? Now, that said, there are some businesses, that you could pretty legitimately classify as boring, that also happened to be extremely profitable, right? Take something like garbage collection. Not the sexiest business in the world, never will be. Plumbing, right? But a very profitable one, something that people need, and are willing to pay, sometimes very large amounts of money for, right? As long as you can find something about the business, that's fascinating, something that you can get excited about, those boring businesses can turn into really, tremendous opportunities if you're able, to find that fascinating part of it, right? So, part of the, I'm just making this up, but part of something that might be fascinating about, running a trash collection business is truck routing, right? There are lots of complicated, logistical, mathematical systems, like all sorts of things, that could be fascinating about the process, of making that business work. If he can get excited about the process, the business becomes a little bit more exciting, right? But there has to be something more than the money, right? Now, the Crusader Rule, is there is a difference... So, you need to follow the money a little bit, right? There's a difference between, an interesting idea and a solid business. So, in order to make this idea work, you have to be able to pay the bills. It has to be worth the time and energy, that you're investing in making this thing work, or it's going to die anyway, right? So, it's okay. So, for James to have a business idea and evaluate it, and say, this is not worth my time, that's a really, really, really great thing. The failure mode is, when you have this awesome idea, and the skies opened up and the angels start singing, and you go all in on that idea, without really evaluating, if it's going to work as a business or not. So, it's really crucial when you have an idea, evaluate it before you start investing, because it needs to be sustainable enough, or it's not gonna to work. Makes sense? Mmm-hmm. Okay. So, what we're going to do is fortunately, because business has been practiced for thousands of years, you don't have to make it all up from the beginning. There are what I call, 12 Standard Forms of Value. So, things that people, have a demonstrated interest, or ways that value is created for people, that appear as patterns, over and over and over again, right? And so, you don't have to make up the entire, value creation process from the beginning, more likely than not, you should be able to pick, one or more of the standard forms of value, and have a head start on figuring out, what this thing is going to look like, right? Those 12 Standard Forms of Value, and we'll go through them in order, are products, services, shared resources, subscriptions, resale, lease, agency, audience aggregation, loans, options, insurance, and capital. And so, we'll go through as many as we can before the break, and we'll get the other ones after, okay? Now, first form of value, is what's called a product. And a product is just something tangible that people want. So, you walk into a store, you look at a shelf. That shelf has stuff on it. You pick the thing up. You go to the cash register and you buy it, and you get to take it home. You can hold it. That's a product, right? And the key to running a product type business, is to produce that product as inexpensively as possible, while also having a certain amount of acceptable quality. So, you want to invest as little as possible, in each unit that you make available for sell, as long as it's good enough, that somebody is actually going to buy it, in a way that's going to make them happy, right? You want to sell as many units, of that product as possible, at the highest possible price for the market, right? So, make it for a low price, sell it at a higher price, or the highest price that, that market will bear. And you need to keep an inventory, to deal with future orders. So, product businesses usually revolve around, making thousands, tens of thousands, or if it's a small business, a couple of hundred, and you have an inventory of finished stock, that you were just waiting to sell. Okay. So, for service oriented businesses, you need to provide a skill, either by yourself, or by your employees or contractors. I know you have contractors that, go and perform home inspection services. So, you have to have somebody actually, going out to serve the client, to do the actual work. And usually that work is something that, the client would prefer not to do themselves, right? So, you probably could shoot your own wedding, but it would be really disruptive, right? You could probably cut your own hair, but you would probably not get as good a result, right? Services are things that people buy, because they don't wanna do it themselves, okay? So, you have to have somebody to provide that skill, and you have to make sure that, that service is provided at a high enough level of quality, to make it worth it for that person to pay for it, right? Okay. Now, you have to attract and retain paying customers. And here's the trick about services. They can be really lucrative, right? Because if most of what you're investing, is your time and your energy, not a lot of money, most of what you bring in, can be considered profit, but here's trick. Unlike products, human beings do not scale, right? We only have 24 hours a day, and subtract enough time for sleep and eating, and all of those things to take care of yourself. You're never gonna get more time, right? So, you can't, legitimately, unless you hire lots of contractors, or expand the business out, you can't shoot a thousand weddings a day. There's just no way that you can possibly do it. So, the trade off for services, a lot of times it's easier to get started in a service, because most of what you're investing, is your time and energy, but there's a natural cap, on how much business you can do, and that cap is, the amount of time and attention you have, to actually serve your clients. Does that make sense? Okay. So it's really, really critical, if you're running a service business, to make sure your pricing, reflects the amount of capacity that you have. Because your pricing combined by, the amount of time that you have to invest, is the cap on your business profitability, at any given point. And there are ways of getting around it, like hiring employees or hiring contractors, but there's a natural limit. If what you're providing relies on human input, humans only have so much energy a day, okay? Now,(mumbles) [Guy In gray Shirt] No, it kinda sucks. It does. (laughs) Yeah. And it's a big thing. Like, it's nice when you're getting started, because there's not a whole lot of barriers, to getting started in the business, but once you reach that threshold, it's like, "Man, I could totally be making more money, "if I had 48 hours a day, "and I had the energy to actually do that." You reach the cap pretty quick. And so, a lot of growing a service oriented business, either means hiring contractors or employees, to scale out, to have more people doing the same job, or combining the service with things like products, or some of the other forms of value, to bring in revenue that's not directly tied to your time. Not to say services are bad model. It can be a great model. You just have to really know the trade offs involved, okay? Now, products and services are the two things, that most people think of class little like. That's what a business does, offers a product offers a service. Not true, not true. There are 10 other ways that businesses typically, provide value to customers. So, we're gonna talk about some of the less common, or less well known ways. So, form of value number three, is called, a Shared Resource. And shared resources are durable assets, that can be enjoyed by many people. So, for example, think of a running something like, an amusement park, okay? You're not selling roller coasters, to individual people, right? You're not really providing a service. You're building some really, you know, a big ride or some really attractive thing, that lots of people can enjoy. And as long as you maintain that asset, and you charge people to access that asset, so you give tickets at the beginning of the park, that rollercoaster, that amusement park, is a shared resource that you just charge for access. What are some other businesses, that follow this particular model? Creative Live would be an example. So, it's a shared space for trainings. Totally. And then the actual course recordings, are you get access to a website, that allows you to view the course recordings at any time. It's a shared resource. Like timeshares are rentals. Yeah, timeshares. Gyms are a great example of that, right? You buy a membership to a gym. You don't get to take the weights home if you want to. They're just there if you want to use them, in the space that you're paying access to, right? What's something like an internet subscription, or a call center? That's a little bit more of a service. Yeah. So, it's the durable asset part, that really makes a shared resource, a shared resource. So, the first part of creating a shared resource businesses is to create or acquire some asset, that people wanna use, right? And then, you want to be able to serve, as many people as possible, without affecting each individual's experience. So, if you sell too many tickets to your amusement park, and it takes five hours to get on the rollercoaster, people are not having a good experience, right? So, managing access to this shared resource, is a really big deal. You wanna have enough people using it, that you're making a lot of money, but not so many people using it, that they all get ticked off, that they're not getting what they paid for, right? You also have to charge enough to maintain and improve, your asset over time, right? So, your roller coaster is gonna break down at some point. And so, you have to invest money, in maintaining this thing that you've developed, so people can continue to enjoy it over time. And the really big trick, just like managing inventory levels, are the primary challenge or managing your time, is the primary challenge of a service business, managing levels of access, or what's called utilization, is the primary challenge, of managing a shared resource business. Getting enough people to use it, that you're making a lot of money, not so much that you tick everybody off and they go away. That makes sense? And a subscription provides, tangible or intangible benefits on an ongoing basis, in exchange for a recurring fee. So, internet service is a subscription. What other things that are sold by subscription. Magazines. Magazines. Cell phone. Cell phone. Razorblades these days. Yeah, yeah. (laughs) Razorblades, yeah. A lot of product businesses, are experimenting with a subscription type model. You can do that. What else? Microsoft office is switching to a subscription type. Yeah, exactly. Adobe is to, right? Instead of buying the software as a product, you can buy it as a subscription service. What makes a subscription a subscription is, the expectation of paying in the future, for benefits that are going to be provided in the future. So, if you think about it, you subscribe to a magazine, you are committing to buying future issues of the magazine, that don't exist yet, but you expect that they will exist at some point, and so you continue to pay for access to that thing, right? Sometimes the form of value is tangible, like a physical magazine. Sometimes it's intangible like internet service. It's kind of like, you're buying convenience to some extent, because you're buying the permission not to have to, write them a check, or send them your credit card number every month. (claps) Exactly. And so one of the wonderful things, as business people about subscriptions is that, you are asking your customers, to make a purchase decision once. And as long as they don't make the decision, to cancel their subscription, they continue to pay you, and you continue to provide service. So it's really nice. If you have a way to continue to provide value to people, over a long period of time, subscription products or subscription services, can be enormously profitable, because you keep doing, serving your customers, and they keep paying you. And all it takes is one decision, to get that process started. Could an e-course be a subscription? Yeah, sure. How would you do that? I'm just thinking of like, photography knowledge, doing an e-course to teach people, who don't know how to use their camera to use their camera. It would be limited, I would guess though. And you wouldn't, you know, after they learned what they needed to learn from you, they'd be gone but-- You'd be surprised. So, a really good example of this. One of my friends and fellow Creative Live presenter, (mumbles) anybody seen his materials? Fantastic, his Creative Live courses is awesome. He actually does both. So, he has a couple of online courses, that are classic product shared resource model. You pay the fee, you get access, you can take it whenever you want, but it's a thing. He also has programs where you sign up, and you pay $50 a month, and every month there's new stuff about, this certain topic to train you about, this thing that you care about. And you keep paying, and he keeps delivering training, on and on and on and on. So, the same general type of value being provided, but two very different models, or two very different forms of how that value is created. You can do either, you can do both. So, to create a successful subscription service, you have to do a couple things. First, you have to create or provide value consistently. That's just the point of entry. You have to build a subscriber base, and then constantly attract, more subscribers than you're losing. So, this is an idea called attrition. A certain percentage of your subscribers, are naturally going to cancel or drop off, over a period of time. And so, in order to make the subscription successful, you need to bring in more people, on a consistent basis than you're losing, through attrition, okay? You have to be able to bill customers, on a consistent recurring basis, which is sometimes more complicated, than it than it sounds. You have to retain your subscribers, for as long as possible, right? The longer you retain them, the more profitable that subscriber is.
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