Creating New Value

create value

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Why is it that some products take off while others fall flat? There are many tactical reasons we can point to such as timing, competition, or product-market fit. Fundamentally though, there is one consistent truth regardless of the reason we may determine: some products create value for the market they’re serving, and some simply do not.

Ask yourself whether your product addresses an unmet need or desire. There are two ways to address this problem – outside-in, or inside-out. Lean process has earned a lot of well-deserved accolades in recent years for it emphasis on working with customers and stakeholders to understand their logical needs and how best to solve them. It may not be the best tool for breakthrough visionary products however, as Steve Jobs once suggested at when he said “It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” Howard Schultz from Starbucks also eluded to this when he said “If I went to customers and asked them if I should sell a $4 cup of coffee, what would they have told me?”.

When seeking to develop breakthrough visionary products, the opposite approach (inside-out) can be more effective. By looking at where existing demand (and competition) is and strategically forecasting where opportunity should be if you were to extend the value complex of an existing commodity product. This approach is reminiscent of the Value Innovation approach described in Blue Ocean Strategies.

To provide clarity on this latter (inside-out) approach, I created a conceptual model I call the Value Creation Plane. It can be useful for understanding the types of value creation and can be used for analyzing where value is currently being created in a given market and projecting how to extend that value in a meaningful way.

The Value Creation Plan

The Value Creation Plane starts with 2 spectrums that are juxtaposed on a Cartesian Plane. The X axis represents the Business Function spectrum, with Monetization (yield and asset management) at one pole and Innovation (technology, UX, etc) at the other pole. The Y-axis meanwhile represents the Perceived Value spectrum. At one end of the Perceived Value plane is Entertainment (Emotional Value) and Productivity (Logical Need) is at the other pole.   When we lay these two spectrums perpendicularly across a flat plane, we end up with four quadrants that represent the four positions a brand could take in creating value.

Value Creation Plane

How is this useful? Consider the scenario where you want to enter an established market but you want to innovate the market by taking it to the next level as Apple or Starbucks did.   You’d start by identifying the quadrant where the majority of the competition resides, and then determine how you can transcend to another quadrant, thus providing new value. The Value Creation Plan is a simple planning tool that will make this process easier.

Apple Example

In the case of Apple, they created new value around a boring commodity market for computers that focused entirely on quantifiable metrics of value such as Megabytes and CPU speed. Apple created new value atop this commodity market by taking what had been squarely in the bottom-right quadrant and shifting to the upper-right quadrant by appealing to emotion through design and user experience; something sorely lacking from the computer market until then.

LinkedIn Example

LinkedIn is another intriguing example.   Social networks like Facebook already existed and were thriving in the upper-right quadrant, but LinkedIn applied the concept of social networking to something more logical and productive – business networking. As such they leveraged the effectiveness of social networks but in a way that created new and non-substitutable value for those who needed a more logical and practical application. Consequently they thrived even as Facebook dominated and while other social networks collapsed in Facebook’s shadow.

apple and linkedin

Starbucks Example

Starbucks meanwhile took the coffee commodity market (bottom-left quadrant) and shifted to the right. They created a premium version of the commodity product and then built an entire value complex around it. If you are looking for a remote office to get some work done, you now have a table, WiFi, and an electric outlet. Or, if you’re looking for a place to socialize on a Friday evening, you can buy a Carmel Macchiato in lieu of going to a bakery for a pastry. And because of all of this additional value, the use case fundamentally shifts from simply needing a cheap/quick coffee infusion, to rather satisfying other use cases of productivity and socializing, and as such, they’re able to capitalize on coffee without being anchored to the commodity at its core (coffee).


At the end of the day, the only products that matter are those that introduce additional value to their respective market. The best way to ensure you’re generating such value is to focus on addressing an unmet need or desire. If you’re philosophically aligned with this fundamental truth, then you’re already ½ way there. As for the rest of it, consider the type of opportunity you want to go after and whether the outside-in or inside-out approach is the best for defining your initial product vision. There may even be opportunities to combine these approaches, though pursuing a breakthrough visionary product will probably require strategizing a bit deeper and developing your prototypes to a more production ready state before engaging customers.


Helping Others Is Good Business

Helping Others

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When you decided to become an entrepreneur, what reasons motivated that decision? For some people it is the opportunity to make a lot of money, the freedom to live by their own convictions, or to live a certain lifestyle. While these are great personal goals, too much focus on these things can lead you down the wrong path.

The decisions we make every day build upon our existing goals, values, and beliefs. We call upon these foundational thoughts to inform the decisions we make so that we don’t need to re-evaluate every detail and consequence every time we make a decision. Imagine how your product or service offering might be affected if your decisions are driven primarily by a desire to become wealthy or to set yourself free from mundane work. Do you immediately filter the options by what has the biggest immediate profit margins? Or, do you limit yourself to opportunities that you could do from a laptop while traveling the globe? If this is your focus, then are you actually solving any problems? Are you contributing value or focusing on extracting value?

Contrast this with setting your attention upon helping others. If you start by talking to prospective customers to understand their pain and find a problem they need solved so badly they will pay you for a solution, that’s a customer who not only will be thankful and loyal over time, they’ll likely spread the word and do your best marketing for you. That loyalty and vitality is startup gold, but is rarely accounted for in our early calculus of the best opportunities.

If you’re focused on calculating profit margins, you will likely miss the nuance of what problems truly need solutions. You’re also less likely to connect with a base of customers so deeply that they spread the word on your behalf or stick with you after competition enters the market. You’re less likely to realize the real opportunities, because you are less likely to be solving a real problem.

If you’re focused on high margins and high volume, this will often lead you to a market that is already peaking and nearing consolidation. Volume usually comes from the market having matured and high margins attract competition. One should be wary of this scenario-if it’s too good to be true, there’s a good chance you’re late to the party. This is the classic problem with chasing money: You’re one step too late and end up facing market consolidation before you’re ready to contend with it. Any value you may feel that you are contributing is likely redundant or inferior to others already entrenched in the market.

A similar challenge awaits if you limit yourself to looking for opportunities that fit your lifestyle. If you limit yourself to opportunities that you could pursue in your free time or while trekking the globe, for example, there’s a good chance you’ll land upon a thin business model that’s easy to setup and quick to generate cashflow, but never invests in building your value chain (better sourcing, delivery, customer service, etc). Affiliate marketing, drop-ship e-commerce websites, and “me too” mobile apps that add minimal new value to the market are examples that come to mind.

With these businesses, you are only contributing a thin layer of value over the top of other businesses who have made the necessary investments and own the entire value chain; you are putting a metaphoric cherry on top of someone else’s ice cream sundae and pretending it your own. But this won’t last for long. Businesses that facilitate your profit margins will eventually capture the inefficiency you’re exploiting, particularly if you do not make significant investments to reinforce your long-term value and capability to stand on your own as a business.

Neither chasing money nor chasing a lifestyle gives you the opportunity to build a lasting or meaningful business. They are temporary opportunities that only exist because of a gap between market demand and what suppliers are yet able to provide. Once the inefficiency of the market is corrected and there’s no longer that temporarily gap between supply and demand, the jig is up. And if you are focused on enriching yourself rather than helping others, this is the sort of opportunity you will most naturally align yourself with.

If you are serious about starting a lasting business, stop focusing on your own goals and instead focus your attention on serving others, discovering their needs and how to help them. Think about how to create significant value for a core group of people and how you can help them live a better life or accomplish their goals. This approach will naturally align your efforts with the market and put you a step ahead of competition, rather than always being a step behind. Who knows, you may even sleep better at night, knowing you’re making a difference somehow.