A business is the value it creates

A critical component of a well-laid foundation for a successful business is value-creation.

Although this is the story of two startups currently at different levels of market maturity, their journeys provide an insight for everyone with a passion for business. A venture that turns into a successful business almost always does so by building on a strong foundation. And a critical component of a well-laid foundation is value-creation.

It is the process in which the entrepreneur and his/her team evaluate reasons to execute the business idea. Unfortunately, at times entrepreneurs take this step for granted only to regret it later.

In a recent report by the Economic Times on Team Indus, a seven-year-old Aerospace startup founded by Rahul Narayan, discussed the tortuous path Team Indus has had to take to secure investments for their vision of landing a spacecraft on the moon.

As cited by the article, one major drawback for Team Indus was that they did not have a business strategy in place earlier.

While business strategies are important, they are developed based on the value the business can offer to its customers. And it is imperative for a team to know the value proposition of their product/service offering.

A business creates value by offering a product/service that saves time, effort, resource and/or money for the customers. Evaluating the value proposition of a business requires market study where making assumptions to draw reliable inferences plays a significant role.

While assumptions are woven into most business decisions, it is important for startups to be aware of these assumptions and make notes, for they serve as a repository of lessons learnt when tweaking a future decision or strategy.

Peter Drucker, in his groundbreaking book – The Practice of Management – states that the purpose of business is, “To create a customer and to identify the value customers perceive because that determines what the business is.”

In business, Drucker holds customers sacred. And rightfully so, without customers there is no business. According to Drucker, an entrepreneur must find answers to the following questions to evaluate reasons for the business to exist,

1. What is the business? / What is the end product?
2. Who is the customer? / Who is the investor?

• Why is service/product valuable to them?

An interesting case study for the power of customer involvement is the start-up, Paytm – a digital payment solutions provider in the ecommerce space. The story of Paytm is one that ripples outwards as a success story. However, the success of Paytm is embedded in the value perceived by its customers towards its services.

Despite its soaring success, the current challenge that Paytm faces is the competition from giants such as Facebook, Google, and Amazon among other relatively small competitors who are gearing up with their digital payment solutions to tap into India’s open market.

With big players entering the market, Paytm appears to be anticipating dispersion in its customer base. In an effort to retain and potentially increase their revenues, Paytm recently expanded its services in the financial sector with a new company that will sell digital financial services. It is clear that Paytm’s founder, Vijay Shekhar Sharma has the goal to remain provincially dominant. However, what remains to be seen is whether the digital financial services by Paytm will offer a better value to the customers when compared to what the banks have been offering thus far.

In conclusion, while Team Indus initiated their venture with dreams of outer space exploration, the grounding fact in business is that when the customers and investors do not see a value within close quarters – the idea is starved of the nutrients it needs to grow. And a success story such as Paytm demonstrates that attaining success is one thing, but retaining it is a different game altogether. Of course, the former startup is different from the latter with respect to the industry they cater to. However, they are interestingly comparable when you focus on what value each company is offering to its customers, because the underlying principle of management remains the same regardless of the industry.

Finally, Drucker in stating the significance of evaluating the needs of the customers writes, “Our business is determined by the customer by satisfying their needs and wants.”

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)