Create value, capture value
Founders often get this twisted:
"Companies exist to make money. Startups should think about selling. Write business plans. Build excel sheets. Forecast revenues. Focus on extracting money."
Here is the catch:
It is very hard to extract money without creating value.
Customers do business with you because of the value you provide. Any sustainable business needs to create more value than it extracts. Efficient value creation is the hard part. Value extraction is easy.
Your idea
When evaluating a startup idea – don’t focus on market size, VC trends, competition… Don’t just think about making money. Forget margins, revenue forecasts, and customer acquisition channels.
Instead, begin with unique value creation. How can you really be useful? How can you be the only one who is that useful?
To whom will you be most useful? In what context will you be the most useful? Can you be so useful that people would use nothing else and start relying on you only?
- Google brings knowledge in milliseconds
- Facebooks keeps people connected for decades
- AirBnb provides places to stay for a fraction of the usual cost
- Uber provides the fastest and most convenient mode of transportation
If you create great value in a unique way – capturing a fraction of that value is not hard. Making money almost becomes an afterthought. If you are not creating enough value or lack differentiation – you sign up for a hard time.
You need to constantly provide a good deal for people. You need to create more value than what you ask for in return. You have no problem with seeing a text ad in Google – because you get access to the world’s knowledge in milliseconds.
Start your startup idea brainstorming with questions like
- What am I especially good at? What do I enjoy doing?
- What is my outstanding skill? Who would benefit most if that skill is applied? Those people are your target customers. They also typically live in a very different context. They might even live in a different social network and rarely talk to people with your skill.
- How can I present the benefits to my target customers – so it gets understood?
If you have very clear answers to the above, you will likely succeed. Start with charging very little to nothing. Build brand equity and reputation. Get testimonials and referrals. Automate. Productize. Make yourself the only viable option. Over time, you get the ability to capture more of the value you create.