Today’s post was originally here on October 19, 2015.
I have a key belief that affects the way I live. I believe the basic premise of business is to bring real value to the world and then be compensated for that value, usually in the form of money. This is the underlying foundation of business. I provide you value—which I define as “perceived benefits divided by perceived costs”—for an equal value that money can provide. Stick to this premise and you will build a healthy business.
A challenge that comes with this definition is that benefits are assessed in the eye of the beholder. Costs are, too, though many people think costs are only measured in dollars. When a friend asks if I want to go to a Tigers game in Detroit, my first thought isn’t about how much money will it cost, but how much time it will take. If that seems like a reasonable cost then I’ll ask about the price of the tickets and the cost of the gas and meals along the way. All of these are perceived costs.
If you can provide real value to customers you will have a healthy business. It’s that simple. Value wins the day! Value will always win the day. Not brand loyalty, though that’s a good thing. Not relationships, though those are a good thing. Not politics. Not patriotism. In the long run nothing beats value. If you base your business on anything else, you do it to your own peril.
Try to provide less value than the customer is providing you through their dollars and you put your business at risk. Try to provide less value than a competitor provides and you are at risk. This even works in your job—try to provide your company less value than what they are paying you and you will be at risk.
None of you PILOT/LEAD 365 alumni have heard this argument from us before, but this is how we open the teaching on business acumen nowadays. Understanding this basic premise about value is foundational to being a good business person.
After providing good value for some time, a business will almost certainly face a new challenge—competition. At some point another business will arise that will produce roughly the same product or service for less cost, thus making it a better value. This puts a business into a second phase of their story. This is the phase where they need to innovate. They need to find new products or services to replace the old ones that are becoming a commodity due to the competition. Another option is to figure out how to add value to their current products and services. Either way, they need to innovate.
This addition of value can be done in one of two ways:
- Reduce the costs incurred and then pass that reduction along in the price, or
- Add new features for the same price. Both of these will depend on new ideas or innovation.
Innovation helps to separate your business from your competition. Of course at some point some of your competitors will also innovate, thus making the competitive landscape difficult again.
This leads to another phase in the growth of a successful company. This is the phase where systems, processes, structures, and culture make the difference between you and your competitors. These systems lead to regular innovation. Innovation leads to greater value. Greater value leads to a healthy company.
This is the basic premise of business. Value wins the day. The day you provide less value than your competition, that is the day you start to go our of business.
This generation of value is what makes all of our lives richer! This way of producing value—called capitalism—provides more value for people’s lives than any other system. This is why I find great meaning in serving business leaders. Business leaders make the world a better place by providing people with real value.
I mentioned very briefly above that this concept also applies to each of us personally. I once had a mentor ask, “Would you rather be overpaid or underpaid?” Of course my knee-jerk response was, “I’d rather be overpaid… thank you very much.” Thankfully I didn’t say that out loud. The best answer to this question is to be underpaid.
Another way of saying the same thing is that I want to bring more value to my company than they give me. If this is true I will always be wanted. If I bring less value than they are giving me, then I have put myself at risk. It’s the same thing as described above for businesses. Value wins the day!
This is now how we start the Business Acumen day—I thought you might want to know that. Next week I will write about the rest of the session—the stuff from What The CEO Wants You to Know—margins, velocity, return on investment, and so on.
In the meantime, think about the value you bring to the world. Are you bringing your organization more value each year? If your total compensation package goes up a few percent each year and the benefit you bring to your company doesn’t, then you are bringing less value. This puts you at risk.
What could you do in the next week, or month, or year, to bring greater benefit for the compensation your receive? What could your department or company do to bring greater value? This is the game! And value wins!
Thanks for being a leader worth following! I hope your week is a great one!
Image by rachaelvoorhees. Used under CC by 2.0 license.