I had taken off from my work to attend a course at IIM- A to improve my ability to anticipate, comprehend and respond to the ever changing business scenarios. It was an intense course with some great learnings. I read about the Snap deal layoffs and I asked myself – What is exactly going wrong? Customers want a great deal, they have a great choice of products and logistical support, they have insane marketing budgets. Where is it that they are wrong?
While layoffs are part of any evolution, it is important to examine the why and take a corrective course.
After thinking for a few hours I have a hypothesis about what is the issue. I obviously do not have numbers to back up my hypothesis but it is more of reducing the whole problem to bare basics. I am defining first principles of Business and Investors and in doing so I have indicated or left clues to what is risk, Brand, Marketing,Market Share, Loyalty, Valuation, Idea, Opportunity and Customer Experience.
I request you to please read the following out loud and notice the words I have highlighted, they are highlighted for a reason.
First Principle of Business
Entrepreneur has a hypothesis or a perspective about creating something that adds Value in life of the customer and one takes a risk and initiates and engages in activities that solves a problem in the society and optimizes it in a way that the activity eventually generates profit.
When a business earns profit – the market acknowledges that the value creation process has made a difference to the ecosystem and wants more of you. And then the Business uses the profit, takes more risk to amplify with more conviction & optimizes or scales the value creation process to gain market share.
Focus has to be on value creation and if Customers perceived value of the experience is more then the cost of the value creation process it results in Profit which facilitates increase in Market Share.
Increase in Market Share is endorsement from the society that yes more of us value you now. Market Share is an outcome and secondary goal.
Entrepreneurs: Which Entrepreneur do you think will survive ? One where Focus is on Value Creation Vs Entrepreneur whose Focus is on gaining Market Share?
My take : Focusing on market share so that you make profit some day is breaking the first principle.
First Principle of Investment
Investor is someone who has money, business acumen and strong abilities to evaluate – they engage with the entrepreneurs who have a perspective , evaluate the value generated for the customer, evaluate the value creation process, evaluate the traits of the Entrepreneur and his team and finally evaluates how big is the pie. If the Market Potential is huge they fund the value creation process.
Hypothesis of the investor is if the Entrepreneur continues to focus on value creation, manages to build a team of employees, vendors and value chain committed to the value creation process and customers see consistency in the company adding value in sync with his evolution and changes in environment – the market rewards your value creation process with Loyalty and even more market share.
Loyalty is reward from Market that we trust your analysis and assessment of my changing needs and they look forward to know where else can you add value to me creating an opportunity. Investor in the process has gathered more business acumen, strengthened their evaluation skills ,ability to fund a new perspective or a new opportunity.
New Perspective is an Idea, Opportunity is latent demand generated by other value creation processes.
Market Share is an outcome, a secondary goal of taking a risk to fund Loyalty creation process.
Investor : Which Investor will make greater impact to the society and perhaps get Exponential returns? One that focuses on Loyalty Yield or one that focuses on Market Share?
Making the market share as benchmark for Valuation instead of Loyalty has ruined the entire ecosystem. Employees, Vendor and Customer milk the hell out of the company focused on Market share. Entrepreneurs focused on Value creation suffer with lack of supply of talent that can execute. But you know he will yet win because money is not the only thing required to solve the problem, entrepreneurs focused on value creation will figure out a way to achieve the objective without throwing money at things.