Creating Long Term Value

A devotion to making things easy for your customers

Photo by Riccardo Annandale on Unsplash

In my last article, I talked about the idea of building a masterpiece in our personal lives and how it is fundamental to creating a masterpiece in other parts of your life including in business. Starting a company is an act of madness, solitude, endurance. It's important to get that established before thinking about growth. You have to be devoted to this journey.

The core idea to explore in the context of a business masterpiece is to understand clearly what growth means. A business masterpiece is one that is growing. There is not another definition worthwhile. If you are not growing, you're not doing what you want to do for every part of your company and for whom it serves. There is either growth or death. There is no middle ground. I know because I've experienced both.

Growth can be in the eye of the beholder. To some it means growing revenue, profitability or another financial metric over time. For others it might be some kind of an operational metric. It's an important question to explore carefully and it's one you have to define for yourself.

The best measure of growth is: Creating increasing value for your ideal customer over time.

Nothing happens until you create value for your customer. Period. And a business will absolutely die unless you create more value over time. While there is going to be a timing gap between creating value and financial performance (revenue shows up after you create value), there is no better predictor of long term business success than delivering increasing value over time. The hard part is funding your business and your personal life in the gap in between value creation and getting paid. Sometimes this is a chasm that we sometimes never cross. It's in the chasm that venture capital lives in all its glory.

Another important point to consider is that your personal desire or, more importantly, devotion to creating value. If your driver is to create value so that you can make money, it won't work over time. It's just too hard to create value over time so making money can't be your prime driver. Making money is a hedonic master and it it constantly will ask more from you to meet its ever expanding appetite (and you're the one being eaten).

You have to be devoted to creating value for your customers.

I don't think you can teach it or, frankly, learn it. It just has to be within you. The good news is that it's in all of us but sometimes buried under ambition, insecurity, societal brainwashing or lack of clear vision. Devotion is an inexhaustible, renewable and pure form of energy. You will need this kind of fusion to create value over time. One final note on devotion, it comes after beginning the work not before it. It gets liberated through action.

Of course, a business does have to make money and whatever money the business makes is always a subset of the value you create for someone else. That is, the revenue the business earns is a fraction of how big value creation is and how good it is at pricing (which I'll cover in another article).

How do we define value?

I really like Alex Hormozi's definition of value which he breaks down here: https://www.acquisition.com/training/offers/value-equation

I can summarize it as:

Delivering what the customer is willing to buy while making it easier for the customer to experience the product or service.

Friction might be a better way to describe how easy it is do business with a company. Alex puts this in the form of an equation with the friction concept as the denominator and what the customer gets as the numerator:

What the customer wants/How much friction exists to get it

Some people the fancy term "customer experience" to describe friction.

As any math nerd (like me) knows, reducing the denominator of any function drives the total function to a number approaching infinity.  In layman's terms, there is infinite value creation opportunity by reducing friction.

If you are going to focus on one thing, pick reducing friction for your customers.

It's probably the most controllable thing you can do and it has the added benefit of most likely reducing your operating costs. Imagine that! Reducing costs while driving customer value. That's a killer combination!

This doesn't mean that you don’t have to deliver what the customer wants; after all, a terrible burger delivered seamlessly won't create value over time. However, a good burger (as good as most others) delivered seamlessly has the potential to create value over time. Just ask Uber Eats.

So how can we go about reducing friction over time (assuming your burger isn't total crap)? First, your job as a leader is to allocate as much of your time to this work as you can stand. You can't outsource it to other people. It's your job. It's also your job to assign your best and brightest people to this work. Reducing friction is something that has to be a fundamental part of your product or service roadmap. It won't happen by accident.

Here are some basic steps to consider when building your roadmap to reduce friction. Try not to overthink this:

1. Map out all the steps a customer has to take starting from how they learn about your company to how they pay you. Do your best to write down every detail and don't assume anything.

2. Give each item a score from 1 to 5. 1 is something that would create the most value if you fixed it.

3. Give each item another score from 1 to 5. 1 is the easiest, fastest and least expensive for you to fix.

4. Multiply the two numbers and rank them from smallest to largest. This forced ordering will give you a list of things that create the most value that are easiest, fastest and cheapest for you to fix.

5. Pick the top item and go to work until you've made a significant and lasting improvement to it. Focus on the top item each quarter. If more than one idea is tied for the lowest score, pick one of them randomly. It doesn't really matter.

6. Repeat this exercise once per quarter.

This isn't a fancy process and you don't need to hire an expensive consulting firm to do it. It's very effective if you stick with it.

So there you have it: go to work. Create value and reap the rewards. Have patience as you cross the chasm and it will happen. Your reward will be self evident.