Value Creation Flashcards
Iron Law of the Markets
if you don’t have a large group of people who really want that you have to offer, chances of building a viable business are slim.
Business has five interdependent core processes:
1) Value creation
2) Marketing
3) Sales
4) Value delivery
5) Finance
Economically valuable skills
are those which directly improve one of the core processes of the business.
5 Basic Human Drivers
- Drive to Acquire — Physical objects and immaterial things (status, power, influence)
- Drive to Bond — Desire to feel valued and loved.
- Drive to Learn — Desire to satisfy curiosities.
- Drive to Defend — Desire to feel safe, protect ourselves,
- Drive to feel — Desire for new sensory stimulus, intense emotional experiences,
10 Ways to Evaluate a Market:
- Urgency
- Market Size
- Pricing Potential
- Cost of Customer Acquisition
- Cost of Value Delivery
- Uniqueness of offer
- Speed to market
- Up-front investment
- Upsell potential
- Evergreen potential — how much addtl. work is needed to continue selling after the first sale?
12 Standard Forms of Value
- Product — e.g. toothbrush
- Service —e.g. tax preparation
- Shared Resource — e.g. gyms
- Subscription — e.g. Netflix
- Resale — i.e. Retail stores e.g. Walmart
- Agency — i.e. being an agent to someone e.g. an actor’s agent
- Audience Aggregation — e.g. Facebook
- Loan — e.g. mortgage
- Lease — e.g. car lease
- Option — e.g. movie tickets, licensing rights
- Insurance — e.g. homeowners insurance
- Capital — e.g. angel investing for equity
Hassle Premium
You get to charge to save people “hassle”. This includes projects or tasks that:
- Take too much time
- Take too much effort to ensure a good result
- Involve too much confusion, complexity, or uncertainty
- Distract from other more important priorities
- Require expensive or intimidating prior experience
- Require specialized equipment or resources that are difficult to attain.
→ The more “hassle” you can remove for a customer, the more you can charge in terms of a hassle premium.
Perceived Value
determines how much your customers will be willing to pay for what your offering.
The most valuable offers do one or more of the following:
- Satisfy one or more of a customer’s core human drives
- Have an easy to visualize end-result
- Command the highest hassle premium
- Satisfy the prospect’s status seeking tendency by providing desirable social signals
Modularity (1)
- Rto the individual nature of offerings, like the standard forms of value,
- Which can then be bundled for a premium (higher perceived value)
- Or unbundled to convert prospects who might not have otherwise bought.
Modularity (2)
- Also allows companies to improve and experiment with offerings in isolation and then mix and match them based on customer feedback and response.
Iteration Cycle
- Incremental improvements that prioritize learning and feedback to make decisions on future improvements.
Iteration Cycle (2)
- Watch what’s happening. What’s working and what’s not?
- Come up with ideas of what you can do to improve
- Guess which of your ideas will work best
- Execute on the idea(s) you decide will work best.
- Measure the results of any changes in order to determine effect of changes.
- Decide whether to keep or discard changes.
- Repeat.
Go fast through iteration.
Key is to keep each iteration small, clear and quick, basing each iteration on what you learned from each previous iteration and current data/feedback.
The problem with a direct approach — aka building an end product first —
- you miss all the opportunities to get feedback and find out earlier what is going to work and not in the hands of a consumer. Ends up usually being far more costly and wasteful.
Feedback
Should be received from actual potential customers. It is important to record what people say but also watch what people do (and compare the difference).
A bad response
Is not an emphatic negative critique, but rather total apathy. If people you think should care about it don’t, then that’s a signal of trouble.
The best feedback mechanism
Selling on preorder. Find out what might be holding people back from pre-ordering or purchasing (barriers to purchase)
Trade-offs
Are omnipresent but are only realized when people make decisions. Without the need to make a decision, people will avoid trade-offs (most people are risk-averse after all). When a decision is made it will be the next best alternative.
Patterns
When making decisions about what to include in your offerings look for Patterns: how specific groups of people tend to value some characteristic in a certain context. Try to focus on the patterns of your best customers.
Economic Values that people generally consider when making a purchasing decision:
- Efficacy
- Speed
- Reliability
- Ease of Use
- Flexibility
- Status
- Aesthetic Appeal
- Emotion
- Cost - how much do I have to give up to get this*
Relative Importance Testing
A set of analysis techniques to determine what people actually want by asking them a series of simple questions designed to simulate real-life trade-offs
Field Testing
Literally using the products you intend to sell so you know what to improve or what the experience is like. Aka BE the customer and use that data in all aspects of the business.
