Creating Value for Small Businesses in times of need
COVID-19 has placed a lot of businesses in truly uncharted waters. As businesses struggle to pivot and find ways to survive they inevitably turn towards corporate clients for "help". They seek better payment terms, offer new solutions or in some cases reach out to their contacts to brainstorm on ideas on how to create value to their clients.
I have worn the corporate and the small business owner hat at different points in my career. This duality, in my opinion, has given me the advantage of relatability to the dynamics of the relationship between small businesses and large corporations. Through this lens I want to make a distinction between "helping" versus "creating economic value". I argue that all businesses exist to create value. While attempting to "help" small businesses might be a path to creating value it needs to be thoughtful and directed towards creating sustainable value as opposed to tossing suggestions over the fence to a typically overwhelmed business owner.
Merriam Webster defines help as, "to give assistance or support to". Creating value requires a process of sustained effort towards a defined goal. There is a distinction between the two. You can create economic value with "help" but you do not always need help to create economic value.
Help vs. Economic Value
One of my very good friends owns a staffing company. He creates economic value by placing talent with corporations. Typically, he gets "help" in the form resumes of family members sent his way, invitations to conferences and workshops, offers from sales people for leads or a software that will make or save him money and so on. He also gets free advice about trends in his industry or reminders that there are too many staffing companies and his services are redundant. He gets advice on how to navigate a corporate landscape and guidance on how to distinguish his company from the rest. While all of these are well intended they add no economic value to his company and are inherently useless or inadequate.
Economic value is a measure of benefit in terms of currency exchanged for value created. In the case of the staffing company above, value creation occurs when they place talent with a corporation. When this happens currency is exchanged. Activity that leads to getting a new a new corporate client is the precursor that makes resumes, dinners and optional process improvement software feasible. Landing a new corporate client is THE necessary step in their value creation process. All the other things could be "helpful" but mostly not a need.
The Value Creation Equation
One of my favorite business books is The Mind of the Strategist by Kenichi Ohmae. While profitability is not always the only measure of value creation it should be the goal. In the book Kenichi Ohmae uses a simple and very good value creation equation.
Profit = (P-C)V.
P = Price - what you charge your customers for goods or services provided
C = Cost - the cost of goods you sell or ingredients for the service you provide
V = sales Volume - amount of goods sold (applicable to services provided)
This is a generally applicable concept even though it looks very " widgety" on the surface. It is equally applicable to products as well as services. It is a good lens to evaluate "help" versus "economic value creation". The desire to "help" can be assessed within this value creation framework.
Sharing a resume with a staffing firm could be helpful. Does that fit into any part of the value creation equation above? Does it reduce cost? Will it improve price? Does it increase volume of business? It might in some cases and might not in others but a diligent consideration of these variables makes the process more measured.
Bypassing Help to and Create Value - Process Flow
Distinguishing between Help & Value Creation
Why is the Distinction between Help and Value Creation Important?
The attributes of value creation versus help in the table able point to a certain level of professional tension in the value creation process. Help, on the other hand, is a great human attribute but is difficult to measure and even harder to hold people accountable for. For example, forwarding a "how to" email to a business owner is very kind but there is no inherent promise of value creation in that gesture. Again, they are appreciated, but not always directly aligned to what business owners need.
To create economic value there is a responsibility to be additive, collaborative and persistent. There is also an element of competition inherent in the process to engender choice and the exchange of currency.
This distinction is important because it reduces the noise in interactions and enhances the focus what is important to a business owner.
Do Business Owners have a Responsibility in the process?
Of course they do. Value creation must be validated and this can only be done by the business owner. Validation is necessary step in the process. For example. The staffing firm above acquired a relationship with a major corporation through the diligent efforts of an advocate. For the sake of a number let's say this relationship nets them $100. Recognizing value created and finding a way to share the value created is the fuel the births future opportunities.
In some cases the participants in the value creation process cannot be compensated for their efforts. In their roles for their corporations they are expected to help small businesses create value and grow. A thank you card might work in those cases but in most other cases when value is created value should be shared. How it is shared can fork in many different directions but it must be commensurate and equitable. This is the responsibility of the business owner to complete this loop.
1. Value: you can always find something valuable in a trash can. Why look? Value is better when created not when "found". As Jim Rohn says, " You don't get paid for the hour. You get paid for the value you bring to the hour".
2. Advice: don't be too keen to give free advice, especially to business owners. Business owners suffer through every aspect of their business and most likely forget more things about their business than you know about it.
3. Responsibility: Rights and responsibilities go hand in hand and are shared. If business owners do not appreciate random emails they should not engage in sharing them as well. Some emails are called SPAM for a reason and nobody needs them.
4. Kindness: It is a great human attribute but is not a core ingredient to creating economic value.
Author: Benedict Tubuo, MBA
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