NATION – Successful entrepreneurs think about their business in value terms, and they recognize that they do not themselves determine the value of their offering – the consumer of the final good does.
Entrepreneurship is about treading new ground. It is about taking a step no one has taken before, at least not in that same way or in the same place. So it should not be surprising that much of the scholarly literature on entrepreneurship, since Richard Cantillon in the early 1700s, has focused on entrepreneurship as “uncertainty bearing.”
Although “bearing uncertainty” might be what entrepreneurs do in the economy from a theorist’s point of view, it is not – and should not be – the rationale for starting a business. After all, uncertainty means the outcome is unknown, which in turn means it could end up ugly. In other words, uncertainty is a cost – it is a burden on the entrepreneur’s shoulders. Entrepreneurs are right to attempt to avoid the uncertainty.
The fact is that theorists have it both right and wrong. Yes, entrepreneurs bear uncertainty because they are the ones getting the reward as profit and also the ones suffering the loss if things do not work out. But that uncertainty bearing characterizes entrepreneurship does not make it the point of being an entrepreneur. Rather, it is a “necessary evil.”
Successful entrepreneurs, both in the past and present, understand the actual meaning of uncertainty. Those who already experienced success have often learned it the hard way, through experience. Those who are more likely than others to become successful have understood it in the abstract or have the right gut feeling. Regardless of which it is, past or present, they understand that uncertainty is “worth it.”
What this means is that they don’t focus on uncertainty, but accept it. Entrepreneurs choose to bear uncertainty much like someone putting in the hard work – perhaps 10,000 hours’ worth – knows that hard practice is the means to achieve success. How to endure those endless hours of seemingly never-ending tedious work? Eyes on the prize.
Successful entrepreneurs recognize the prize and what it takes to get there. They realize that the only way their business can convince customers to buy from them and to beat the competition is to provide value. To the extent they are not simply lucky, successful entrepreneurs rely on a value-dominant logic: they place the end value of their efforts first, and direct their efforts to maximize value.
There are three key components to the value-dominant logic that help you apply it in your business:
1.) Value is the entrepreneur’s super power.
Entrepreneurs bear uncertainty because it is the only way of doing something different, something new, and to bring about value greater than everybody else has. After all, doing what someone else is already doing is not a way to set yourself apart. It is also not a way of being truly successful. To be successful, you need to develop your super power: to figure out, focus on and deliver real value.
2.) Value is subjective.
It sounds strange, but it is true: Value is subjective. This does not mean value can be anything or that it is relative or that there is no such thing as real value. It just means value is in the eyes of the beholder. The important lesson here is that you, the entrepreneur, do not determine what value is. Your job is to figure out how what you offer can be of value to others. That is what you should be focusing on, not on what you think would make your offering “better.”
3.) The consumer is the establishes the ultimate value.
Any entrepreneur, whether in B2C or B2B, should recognize that, ultimately, the consumer is king. Or, as scholars put it, the consumer is sovereign. If you are selling directly to consumers, it is obvious enough. You cannot place a sale unless consumers value your offering. But even in B2B you cannot stay in business long unless what you contribute to the economy is of value to the final consumer. Even if your customers like what you are doing, unless the consumer of the final good likes it you’re not going to sustain profitability.
Another way of adopting the value-dominant logic is to adopt the “4 Vs” model developed by Hunter Hastings of the Economics for Business podcast. He summarizes these points for thinking like a successful entrepreneur using four value statements: Value potential, understanding and assessing potential consumer subjective value; Value facilitation, making it possible for them to consume; Value capture, how much the firm realizes of the value facilitated by a value ecosystem that the customer orchestrates; and Value agility, how well does the firm respond to changing consumer-preferences and competitive propositions and how well does the firm sustain a continuous delivery of innovation to the consumer.
The point is not the terminology or model, but the lesson – that value should come first. And when you place value first, and recognize that it is subjective and for the consumer, the burden of uncertainty becomes bearable. It is but a means for attaining the end. It is costly for sure, but it is a necessary cost in order to pioneer production and break new ground.
Importantly, the burden of uncertainty is justifiable because it makes it possible for you to bring about value. This point is key to being successful.
- Economics for Business
