What is Value?

In business, there is one word that you will hear no matter what sector you’re in. This term is at the very root of business itself: value. Every field has its own definition of what value means.

In a broad sense, the term value is used to determine what a company, service, or product is worth. If something is valuable, you will pay more money for it. Whereas if it is not valuable, then you will not be willing to pay for it.

If you break it down to its core, business is an exchange of value. You value the product, service, or whatever is being sold so you're willing to part with your hard earned cash. The company values your cash so they're willing to put in work or part with their product in exchange for some cash.

Too often people start businesses without realizing that they exist to provide value. You don't start a business to just do the things you want to do for your own self. If people don't find what you do valuable, you do not have a business.

The very first question you should be asking when starting a business is what value are we providing to the world. This question should guide all your meetings, all your decisions, everything. If you're not providing value, you're wasting your time.

When investors such as the legendary Warren Buffet are looking for a company to buy, they are looking for what they call "intrinsic value." I'm not going to pretend I know what that term means, but my basic understanding of what it means is that investors are trying to determine what they feel the company is worth based on the balance sheet and forward looking vision of the company. If the company is currently trading below what they deem is the company's intrinsic value, they will buy. For example, right now Tesla stock is at above $800. Based on what I know about the company, i think a fair price for tesla stock is $400. So I would not buy this stock because according to my valuation of the company, tesla is overpriced in the market right now.

In operations when we use the term value, it is most often to determine whether steps in a process are "value-add" or "non value-add." You want to clean all your processes up to the point that every single step provides value.

To understand what value add and non value add steps are we can look at an example of a customer ordering a product from amazon. When they order it a picker gets assigned that order and they pick it into a tote and push it down the conveyor. then a packer gets it and packs it out. The step where the picker picked it and put it in the tote, then placed the tote on the conveyor are all value add steps. If we added a step here where we said that someone has to sign off on the tote before pushing it onto the conveyor, that would be a non value add step. It is adding an extra step in the process that does not move the product forward or help in any way.

Understanding that business is an exchange of value, you can really take advantage of this to run a successful business. Gary Vaynerchuck wrote a book called Jab jab jab, right hook. I haven't read the book, but I've consumed enough of his content to feel like I have a good grasp of the thesis of this book. Essentially he lays out the only marketing strategy that works in the digital age. And that is: provide value for free, keep doing it, keep doing it, keep doing it, then ask. Provide so much value up front that when you push a product, you've already developed trust with your audience and they want to support you.

In Gary Vee's boxing analogy, a jab represents providing value and a right hook is you asking for value in return.

So how do you provide value? Write, make videos, create content, document your meetings, coach your clients, etc. You have to get creative with how you do it. For many businesses, the best strategy is going to be giving away all your trade secrets for free so that you can attract like minded clients and they trust you enough to work with you. If you're an accounting firm, put out content about how to do your taxes. Write blog posts about the top mistakes people make when doing their own accounting. Get creative with it.

I think the easiest way to understand value is laid out by Alex Hormozi in his value equation. Here’s how it goes:

(Dream outcome x Perceived Likelihood of Achievement) / (Time Delay x Effort & Sacrifice) = Value

You can either increase what’s on the top or decrease what’s on the bottom. In theory if you can give customers what they want guaranteed without any time delay or effort/sacrifice, then in theory you can produce infinite value with your product/service.

This concept of value does not only apply to businesses. Think about the people that you are most willing to spend your most valuable commodity with- your time that is. We all value certain people in our lives more than others. Whether it is a celebrity that you've seen in movies that inspired you to live your life with happiness or its your mother who always lifts you up when you are feeling down. The people that we give our attention to are the people that we deem as valuable people.