Value creation 101

The first piece of the business puzzle

Before we dive in, let’s go back in time and see how “money” was created.

In ancient times, we had the barter system for acquiring goods. For example, if I had excess wood and needed food, I would give the wood to someone who needed it, in exchange for their food. It is called a “transaction”, where both parties get what they need.

Photo by Callum Blacoe on Unsplash

But there was a problem with it. Person A had to find person B who had what A needed, and B had to have something that A needed. Transactions cannot happen without this.

The solution was to choose an object that is common to everyone so that it can be used in exchange instead of the goods themselves. And thus, “money” was born. Coins and printed currency were created, the value of which was determined beforehand.

So, what does the origin story of money have to do with value creation?

Value creation is the act of fulfilling an unmet need or a desire.

Without providing what people want or need, you cannot get paid.

More precisely, without giving, we can’t get.

The four forms of value

To earn money as a creator, we need to understand what people will pay for.

I am a banker, and I get paid a monthly salary for my service. You might be earning money by selling a product. A theme park earns money by selling an experience. A gym owner earns money by selling access to the equipment.

In short, people pay for

• a product

• a service

• an experience

• access to something

Now that you know what people pay for, let’s move on to the next variable. Why do people pay some businesses more and some less?

The three levels of value

Depending on the impact, any form of value can be categorized as a candy, a vitamin or a painkiller. You can think of them as the “levels” of the game of business. This framework is popular among business circuits, and let me explain each with an example.

Candies

If you are a provider of experiences, you are selling candy. They are nice to have, but doesn’t hurt if they aren’t available.

Ex: Video games

Vitamins

If you help people prevent a problem or save their resources through efficiency, you are selling them vitamins. They can be necessary in the long run but don’t “excite” people as much.

Ex: An insurance policy

Painkillers

If you help people solve a problem with as little time, money, and effort as possible, you are giving them painkillers. This is probably where the most money is made.

Ex: an app for filing taxes

You can rise through these “levels” to make more money or combine them to make your “transactions” exciting.

The hypothesis

If you aim to make money, start providing value.

If you aim to make a lot of money, start solving problems.