What do we mean by ‘value’ in business?

In business we talk a lot about creating or adding value. But often we gloss over exactly how this is done and how much value is involved. This is important as it affects the viability and eventual valuation of our company.

This month’s newsletter addresses these questions. We will look how we can Create and Capture value and how this builds the value of our Company too.

Value Creation

A business should create value for its customers. If we don’t succeed, they are unlikely to come back! A few disreputable companies might keep finding new prospects to deceive. But a lasting business needs to consistently create good value for its customers.

Value Capture

Capturing value is about making a margin on your sales. Business models have many flavours from drop shipping others’ products, to manufacturing devices and consumables or even selling a franchise. Whichever strategy we choose, we need to sell our customers a solution for less than it costs us to provide.

If we’re creating enough value for our customers, then we should also be able to capture some for our own business. And if our customers want us to survive and support them in future, they will want us to make money too.

Building Company Value

Growing a profitable business should also    increase its value as an asset. As our revenues increase, hopefully our net margins will too. Eventually we should have a profitable business which is worth something to someone else.

Money in the future is always worth less than it would be now. And in today’s inflationary world, it’s worth even less than it used to be. So time to market matters more, and so do growth rates. And margins also matter, as the later you break even, the less your company will be worth. Ongoing investment rounds can only be justified by increasing revenue expectations which need to be balanced against profitability.

Financial Planning might sound like magic. But the basic principles are pretty simple. If you’re numerate then you should be able to build your own model to help test your assumptions. When you think you’re ready, give it to an accountant to correct and tidy up.

Creating, Capturing and Building value

Understanding how value flows from your customers and through your company is key to growing your business. This in turn will build your company’s valuation.

You will need a narrative which explains how your business creates, captures and builds value. This informs how you communicate with customers, investors and your own team.

The numbers in your financial plan will be just as important for explaining the economics underpinning your value story. These are essential for convincing investors that your business will make eventually money and give them a good return.

If you’d like to discuss how to create, capture and build value with your business, please get in touch!