Creating value vs capturing value
This article discusses why you should not only ask the question of how to create value but also how to capture it. The simplest definition of a business model is to create, provide and capture value. Most business books focus on value creation in form of production and value delivery in form of a supply chain. Capturing value is seen as something natural that follows the two other steps consequentially. This belief is unfortunately extremely romantic and misleading. For example, you could argue that airlines create massive value to its customer in form of fast and convenient transportation but they do not capture the value effectively. Instead, they are losing money year over year. In contrast, most software-driven companies capture a high share of the provided value effectively in form of a monthly subscription (SaaS) or advertising. That has made Silicon Valley companies such a success with companies like Uber, Airbnb, and Google. However, some argue that their success is extremely based on how effectively they provide their service and how customer-centric they are:
I want to make clear that I am a true believer in creating value and it is a big part of the equation. Being a contributor has helped me to achieve more in life than I would have ever dreamed of. It has brought me through school, university and work. However, creating value takes time. Therefore, “{w]hen you are young, work to learn, not to earn”, said Robert Kiyosaki. Based on the Pareto principle, 20% of your energy should be spent primarily on work and 80% should be dedicated to learning new things. But be careful don’t learn just for the sake of entertainment but rather try to apply what you have learned. It takes time to determine what is practical to learn and wisdom to choose your path. But sometimes it will just take to follow your passion and your heart. So, listen to yourself. You should always try to find a way to create true value and provide it to your next, because: “[t]he world gives to the givers and takes from the takers” (Joe Polish).
When it comes to capturing value, many people assume that value creation and capturing are correlated when in fact, it can be argued that you can create massive value but capture zero percent of it. There are many talented and gifted people that perform on the streets and capture a fraction of the value. With the introduction of the internet and the ability to create attention for your brand, you can multiple small amounts to generate enough value for yourself. Therefore, any business needs to find sources of revenue and how to monetize certain aspects of the product or service. Currently, WhatsApp is a great example of a product that provides tremendous value to its users by offering free VoIP communication but does not capture any value of its services. As the service is already extremely established globally, it will be just a matter of time until Facebook will start to monetize its app.
Peter Thiel, a famous tech investor, offers a contrarian view on how to capture value effectively. Most companies should strive to become monopolies. This view is not in alignment with the common sense of creating competitive economies. A lot of people will also try to deny this truth. For example, Google has a monopoly for the search engine. However, the company will deny that they have a monopoly and instead donate to Mozilla to keep the competition “alive”. In addition, they will also label themselves as a tech company that is competing with Apple, Microsoft and Amazon. However, competition is not bringing more efficiency. Instead, you are starting to focus on the wrong things and distracting to differentiate yourself. It is pretty clear that the car industry is moving from combustion engines to electric. Peter Thiel suggests instead you should always ask yourself what are some truths that very few people agree with you on. Those contrarian beliefs provide massive opportunity to create and capture value. What are your truths/secrets that very few people would agree with you?
