Creating Value vs. Creating Something Valuable
In most circumstances, starting off with words and their definitions is a bit cliche.
The times I believe it is necessary to start with a definition is when (1) words have a different common usage than their defined usage or (2) when you are using an obscure word or focusing on a particular meaning of a word.
I am about to define two words, so hopefully I am not violating my own tenants in doing so.
- price, cost, worth; market price, monetary value, face value.
- worth, usefulness, advantage, benefit, gain, profit, good, help, merit, helpfulness, avail; importance, significance.
- precious, costly, pricey, expensive, dear, high-priced, high-cost, high-end, upscale, big-ticket; worth its weight in gold, priceless.
- useful, helpful, beneficial, invaluable, crucial, productive, constructive, effective, advantageous, worthwhile, worthy, important.
Those two words, while sharing a common root and overlapping defining terms, are quite different in the context of a business venture.
The creation of something with value means that it has a price, worth, and face value. Something with value has usefulness, benefit, profit, importance, and significance. And in the case of a business, a thing’s value means it has a price that is definable at the point in time that its useful product or service is delivered.
This is one of the defining factors of the success of a business:
It has created a product or service that is deemed by the consumer to have value.
For an entrepreneur to get to the point where they have something of value can be a long journey of failures and successes. A journey that feels like it has come to its destination. That destination being where the consumer validates that product or service with their hard earned money.
And while creating something with value is a momentous moment that should be celebrated for all that it is worth, it is only one step in the journey to creating something valuable.
When a product or service is valuable it goes beyond a defined price at the time of delivery. If something is valuable it takes on a greater weight. It becomes precious, dear, priceless, crucial, worthwhile, and important. It becomes productive, constructive, and advantageous.
Something that merely has value can lose its value after the point of delivery. Many products immediately lose value upon delivery to the consumer. Both their actual value and their psychological value. As the old saying goes, the wanting is better than the having.
But something that is valuable persists in value, because it is crucial to the consumer.
When I am talking with small business owners who have created something of value, I always want to know that the plan is from there.
And often there is no plan.
Business owners are caught up in the ongoing work of providing the thing of value to their consumers. So much so, that often the business owners fail to see that they are the source of the value of their business. The result is, if you take away the owner the business losses value, and more often than not it dies.
When providing something of value becomes the destination of the business, it will fail to become valuable.
It will always only have as much value as the person creating the value.
Here are two quick stories illustrating that truth:
The first is about a business that was built around a public figure and speaker. His business was creating value and had attracted the attention of buyers. They entered into negotiations and the owner received an attractive offer. What the owner either did not disclose, or the owner and buyers did not realize, was that as soon as the owner was out of the picture the business was worth a fraction of what was shown on the books. The business’s success was so intertwined with the owner’s individual creation of value that once he was gone so was the value.
The second is about a business where a genetic disorder took the owner largely out of the picture. Prior to the onset of his disorder his business was generating value well North of seven figures. It was not a large operation, but it was a very successful shop. Over the course of the years as his disorder took hold he had to become less and less involved. So much so that he now needs to sell the business that he worked so hard on to create value. After the CPAs took a look at the current state of his business they came back with a valuation for the inventory and nothing more. The owner’s absence had reduced the value of his business to the resale value of his stock.
So much of our journey is wrapped up in value creation, that we neglect to create something that is valuable. But the journey to creating something valuable starts where the journey to create value ends. And for a business to truly be valuable it must be able to continue to generate value if the original primary value generator is gone.
This can be a challenging journey for owners to embark on.
There are several businesses local to my home community that succeeded in creating something valuable the survived the the original value generator leaving or passing on. A lumber yard that is three generations old and now moving to install non-family members in its operational leadership to create value apart from the family. A food manufacturer who was able to sell their entire operation to an outside party and receive capital and a stream of revenue that will care for several generations of their family. The owners of these businesses gradually surrounded themselves with people that took over responsibility for value generation, thereby creating something that is valuable.
Whether the end result is creating something valuable to hand off to the next generation, or to sell to a third party, owners have to take their value proposition and journey towards the destination of creating something valuable that generates value apart from them.
The first step on that journey is realizing that the owner has created a value proposition that needs more than they have to offer.