Day 25: Creating Value Is The Only Sustainable Strategy

Creating value is the most basic tenet of any business. Whether your company sells a commodity or some highly specialized product or service, it is the value that you create for your customers that will ultimately define the financial results and hence, the market value of your enterprise. And pay particular attention to the above reference to the word “ultimately.” Much like the stock market, some customers will buy based on “speculation” and the “promise” of value but over time, they will validate their buying decision based on the value that you actually deliver.

And it is not just goods and services that constitute value. In many cases, tremendously successful business models are based on the method and manner in which those goods and services are delivered. To explore this further, consider a retailer such as Lowes Home Improvement Centers. They sell the same products offered by countless other retailers; however Lowes leverages their tremendous scale in order to offer these products at extremely competitive prices. They also create value by allowing busy consumers to shop for thousands of products in one place. These are the value drivers that have helped Lowes become a household name in home improvement. Alternately, Ace Hardware’s value proposition is convenience and helpful associates that can assist you with your home improvement purchases. Ace has leveraged its smaller store size to create a more convenient shopping environment, much like the convenience store approach to grocery retailing. And they staff their stores with people who are extremely knowledgeable about home improvement projects; hence their tag-line “Ace is the place with the helpful hardware man.”

Both Lowes and Ace Hardware have built strong yet very different value propositions while selling the same products. If a broader selection and a lower price are important to me, I am likely to spend the extra time required to shop at Lowes. On the other hand, if I am pressed for time or need the assistance of a home improvement expert, I am much more likely to drop into my local Ace Hardware. I am a fan of both value models. My wife, on the other hand, shops almost exclusively at Ace Hardware because she always values the expert advice and assistance.

So, what is your value proposition and how effectively do you deliver on it? What differentiates your business from others in your industry? And looking beyond your industry, how well does your product or service stack up against other alternatives that provide comparable benefits? These are questions that every business owner should ask himself on a regular basis. And more importantly, you should ask your customers these same questions. Buying habits change faster today than ever before and organizations that fail to reinvent themselves eventually become irrelevant. There are countless examples of this sad fact including Circuit City, A.G. Edwards & Sons, and Eckerd Drugs.

Conclusion:

Whether you sell to consumers or businesses, something must set your business apart in order for you to create value and capture market share. In some cases, that differentiator may be something as simple as your favorable location. This is a common value driver for retailers. In other cases, value is driven by a core set of value drivers including:

1. a)Cost/Price Advantage – Superior pricing relative to your competition (Costco)
2. b)Distribution Advantage – Superior availability relative to your competition (Wal-Mart)
3. c)Selection Advantage – Superior selection relative to your competition (Lowes)
4. d)Quality Advantage – Superior quality relative to your competition (Ritz-Carlton)

For a small business, the first 3 value drivers above are difficult to achieve. How could you possibly expect to compete with large national organizations when it comes to cost, distribution and selection? And while a quality advantage is often achievable for a small business, it is typically not enough to lure customers away from competitors that possess one or more of the remaining core value drivers. This is where value gets much more scientific. This is where a carefully designed business strategy comes into play. The last two decades have validated the fact that small businesses can compete with their larger counterparts. During this period, small businesses have generated almost all of the job growth in the U.S. economy. And they have accomplished this feat by creating value in niches that are difficult if not impossible for larger organizations to replicate.

Much like doctors, some businesses are general practitioners while others are specialists. Small businesses often create tremendous value by being specialists. They often focus on a limited set of products or services and in some cases, serve specific industries or niches. As products and services continue to grow more and more complex, this specialization has the potential to create more and more value. If you have a need that requires the help of an expert, do you want a generalist or a specialist?

Action Items:

1) Ask yourself the following questions:

1. a.What is your value proposition and how effectively do you deliver on it?
2. b.What differentiates your business from others in your industry?
3. c.Looking beyond your industry, how well does your product or service stack up against other alternatives that provide comparable benefits?

2) Ask some of your customers these same questions.

3) Based on the answers to the above questions, are there opportunities to strengthen your value proposition through additional specialization or focus, such as:

1. a.Product or Service Specialization – Developing superior knowledge and expertise by focusing on a more limited number of products or services.
2. b.Industry Specialization – Developing superior knowledge and expertise by focusing on a specific industry or industry segment.

4) Do your Human Resource policies support your goals and objectives?

1. a.If knowledge and expertise through product or service specialization is part of your strategy, do your hiring strategies yield employees that are knowledgeable and/or trainable on these products or services?
2. b.If you are trying to develop knowledge and expertise about a particular industry or industry segment, do you allow your employees to attend trade shows and other functions within the industry that you serve?

5) Always be prepared to compete with alternatives that exist for your product or service. For example, cable TV providers awoke one day to find themselves competing with telecom companies that now deliver the same programming through a different medium. When you see the potential for this kind of market disruption, attempt to leverage your knowledge and expertise in a manner that allows you to be a beneficiary instead of a casualty.

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