It’s an existential question I asked myself after reading Ben Horowitz’s blog post: Lead bullets.
Fortunately I was reading Ron Baker’s book Implementing Value Pricing at the time.
Ron proposes a simple, yet extremely demanding, 2 part answer:
- The sole reason for a business to exist is to create value for its customer.
- Value, both tangible and intangible, is solely in the eye of the customer.
It’s simple because it can be communicated in 2 sentences.
It’s extremely demanding because of all it implies.
If value is solely in the eyes of the customer, then this answer demands that you understand your customer and their needs and wants, that you help them identify value, that you deliver on the value that you promise and that you continue to help them extract value across the lifetime of your product or service.
The beauty of this is that those who can live up to it will reap the rewards by being able to charge a price commensurate to the value delivered.
“We are committed to delivering value at least 3-10x the price we charge.”
This is our new commitment at Bluewire. It changes the discussion with an existing or prospective customer from adversarial sales to genuine partnering and deeper relationships. It sets a standard of excellence for our delivery and ongoing service. It creates accountability to deliver on that value.
2 elements of the book really clarified this new perspective on value for me:
The first was a graph:
Price reflects a portion of the value created for the customer, so if you grow the value, you can grow the price.
The second element was this:
Poor business is: Service > Cost > Price > Value > Customer
Good business is: Customer > Value > Price > Cost > Service
The customer must always come first.
Then you measure the value to them, decide on a price, and work out the cost to deliver the service required.
So it’s a call to arms to grow value, both tangible and intangible for customers. And with it comes a renewed sense of purpose, a reason to exist.
It’s the reason you pick up the phone with a smile.
It’s the reason you say no when you can’t deliver the value to the customer in the first place.
It’s the reason you have a moral obligation to help your customers continue to extract value from your product or service.
It’s the reason you keep checking on customers in an ongoing relationship.
It’s the reason your customer has to work with you to extract this value from your product or service as soon as possible.
It’s the reason you need to explore as many options as possible.
It’s the reason to stay current with events and trends and best practice, because you might be able to help your customer extract further value from your services.
It’s the reason exactly the same advice can have hugely different value to different customers and hence the reason you can charge different prices.
It’s the reason you must keep improving your business, so you can help your customers improve theirs.
It’s the reason your communication is so important – how do you know what is valuable to the customer without talking to them?
It’s the reason that value is not rational – it is not always absolute dollars, but speed, response times, flexibility, comfort, self-esteem, “cool”, a smile, trust, ease of use, great design, simple, fun, taste, great service, friendly atmosphere, lighting, music, attitude all make a difference.
Ultimately, it’s the reason for everything you do as a business.
So, finally, to blend Ron and Ben:
If you don’t deliver value to your customers, why do you need to exist at all?
I think it’s a question worth revisiting everyday.