Value is central to any transaction in the marketplace. It's the essence of what a product, service, or offering brings to the table for its consumers. Beyond a monetary price, value encompasses the utility, satisfaction, or benefits that customers derive from what they acquire. Value, however, we each may define it, is what we pay for.
This is why understanding the myriad ways in which businesses create and deliver value to customers is key to successful entrepreneurship.
The concept of "Standard Forms of Value," as articulated in books like "The Personal MBA" by Josh Kaufman, illuminates the diverse spectrum of value creation in the marketplace. These standard forms serve as a comprehensive framework, delineating the various avenues through which businesses generate worth and cater to consumer needs and desires.
From tangible products to intangible services, and shared resources to complex financial instruments, the standard forms of value encompass a broad array of offerings. Each form represents a distinct method by which businesses engage with their audiences, providing solutions, convenience, or experiences that fulfill specific demands or alleviate pain points.
This concept acts as a compass for entrepreneurs, guiding them in conceptualizing and refining their business models. By comprehensively understanding these forms, entrepreneurs can innovate, strategize, and create value propositions that resonate with their target markets. Whether it's through products, services, subscriptions, or even audience aggregation, the standard forms of value offer a structured lens through which to analyze, refine, and elevate businesses in an ever-evolving marketplace.
Here are the 12 standard forms that represent different ways businesses create value for their customers.
A product represents a tangible or intangible offering that is created and distributed to fulfill a specific need. It can range from physical goods like electronics or clothing to intangible items such as software, entertainment, etc.
Products are designed, developed, and tailored to meet consumer demands, providing solutions, benefits, or experiences that cater to a target market.
They undergo various stages of production, including ideation, design, manufacturing, and distribution, aiming to satisfy customer needs while also potentially delivering emotional, functional, or social value.
Successful products often evolve through feedback to stay relevant in an ever-changing market.
A service involves providing assistance, aid, or a specific benefit to individuals or businesses, and in return, charging a fee for the value or assistance rendered. Unlike tangible products, services are intangible and often involve actions, expertise, or solutions provided by individuals or organizations to address a need or fulfill a task. For example, services can range from professional consultations, healthcare, education, maintenance, and repair services, to entertainment experiences like streaming platforms.
The essence of a service lies in the expertise, skills, or resources offered to customers to solve problems, meet needs, or enhance experiences.
The service provider leverages their knowledge, capabilities, and time to deliver a solution or perform a task that the customer finds valuable.
Once the service is rendered, the provider charges a fee for the time, expertise, or resources utilized to deliver that value.
This concept revolves around creating a durable asset, which can be a physical or digital entity, designed to serve multiple users or customers. The key here is to generate value by granting access to this asset in exchange for a fee or payment.
Instead of selling the asset outright, the business model focuses on providing access to it for a certain period or repeatedly.
This model is often seen in various industries, especially in the realm of shared resources or access-based services.
For instance, a company might create a digital platform, such as a software tool, a streaming service, or a membership-based platform that offers valuable resources like co-working spaces or libraries. The company invests in creating and maintaining this asset, making it available to a broader audience.
Customers or users pay a fee to access and utilize the benefits provided by this asset without necessarily owning it outright. The value proposition lies in the convenience, utility, or experience that this access provides to the users. It allows multiple individuals or entities to enjoy the benefits of the asset without the burden of ownership, often making it more cost-effective or practical for consumers.
Subscription provides a continuous benefit, service, or access to a product on an ongoing basis and charges customers a recurring fee for this continued access.
In this model, businesses create a product, service, or platform that offers value continuously over time, ensuring that customers receive benefits regularly or as long as the subscription remains active. This can be seen in various industries, such as streaming services like Netflix, software-as-a-service (SaaS) models like Adobe Creative Cloud, subscription boxes for curated goods, or even memberships for access to exclusive content or communities.
Customers subscribe to these offerings, agreeing to pay a recurring fee at regular intervals, such as monthly or annually. In return, they receive access to the service, product updates, new features, ongoing support, or other benefits that the subscription entails.
The value proposition lies in the convenience, reliability, and continuous access to the offered service without the need for repeated transactions. For customers, it often provides predictability in expenses while ensuring they consistently receive the benefits provided by the subscription.
From the business perspective, this model creates a steady stream of revenue as long as customers maintain their subscriptions. It also fosters a relationship with customers, encouraging loyalty and potentially providing opportunities to upsell or cross-sell additional services or upgrades over time.
It means acquiring an asset, typically from a wholesaler or another source, and then selling that asset to a retail buyer at a markup or higher price.
The process begins with the acquisition of goods or products in bulk or at wholesale prices from manufacturers, distributors, or wholesalers. These goods could be anything from consumer products like electronics, clothing, or household items to industrial supplies or raw materials.
The business then acts as an intermediary, leveraging its resources, marketing, and distribution channels to sell these acquired goods to retail buyers or end consumers at a higher price than the acquisition cost. This higher price often includes factors like operational costs, overheads, and the desired profit margin.
The value proposition lies in the convenience and accessibility offered to retail buyers. They benefit from being able to purchase these goods directly without dealing with wholesalers or buying in large quantities, and they might appreciate the added services or convenience provided by the retail business.
For the business, the resale model can generate profit margins by capitalizing on the price difference between the wholesale purchase cost and the retail selling price. Effective marketing, efficient distribution, and a strong customer base are crucial to successful resale operations.
Lease involves acquiring an asset, which could be tangible property like equipment, vehicles, real estate, or even intangible assets like software licenses or intellectual property rights. The business then allows another party to use or access that asset for a predetermined period in exchange for a fee or regular payments.
The key aspect here is the temporary transfer of the asset's use or rights, usually for a specified duration and under agreed-upon terms and conditions. The lessee (the party using the asset) pays the lessor (the owner of the asset) for the privilege of utilizing it during the lease period.
The value proposition for the lessee lies in gaining access to an asset without the burden of full ownership. It offers flexibility, allowing the lessee to benefit from the asset's use for a specific time without committing to a long-term purchase. This can be particularly advantageous in industries where equipment or resources may be costly to acquire outright.
For the lessor, this model generates revenue through the lease payments while retaining ownership of the asset. It allows for recurring income streams and, depending on the terms, might also provide opportunities to lease the same asset to multiple lessees over time.
Leasing arrangements can vary in complexity, duration, and terms, offering businesses and individuals the opportunity to access assets they might not otherwise afford or use temporarily. The lease standard form of value is prevalent in various sectors, including automotive, real estate, technology, and equipment rental industries.
Acting as an intermediary between a seller (often a third party) and a buyer, marketing and selling a product or service on behalf of the seller without owning the asset or providing the service directly. The intermediary, or agent, facilitates the transaction between the seller and the buyer and earns a commission or fee based on the sale.
The key role of the agent is to promote, market, and facilitate the sale of goods or services on behalf of the seller to potential buyers. This could be in various industries, such as real estate, insurance, retail, or even affiliate marketing in the digital space.
The value proposition for the agent lies in earning a commission or fee for successfully facilitating the sale. The agent invests in marketing, promotion, and sales efforts to connect the seller's offerings with potential buyers, often leveraging their expertise, network, or marketing channels to reach a wider audience.
For the seller, the agency model offers the advantage of outsourcing sales and marketing efforts to an expert or entity with specialized skills, connections, or resources. This allows the seller to focus on their core business activities while the agent handles the sales process.
The buyer benefits from accessing products or services they might not have found independently, while the agent ensures a smoother transaction between the parties involved.
The agency standard form of value is a common business model where intermediaries play a crucial role in facilitating transactions, earning a percentage-based fee or commission based on the value of the sales they generate for the seller.
Capturing the attention of a specific group of people who share certain characteristics or interests and then selling access to this audience to other businesses as a means of advertising or reaching potential customers.
The core of this model revolves around gathering and engaging a particular audience through various means, such as through a platform, community, media channel, or social network. These audiences often possess specific demographics, interests, or behaviors that make them attractive to businesses looking to target a particular market segment.
Once the audience is established and engaged, the entity or platform that has aggregated this audience sells access to businesses seeking to advertise their products or services to that specific demographic or interest group. This could take the form of display ads, sponsored content, partnerships, or other promotional opportunities that allow advertisers to reach the aggregated audience.
The value proposition for businesses seeking to advertise lies in accessing a targeted and engaged audience that aligns with their ideal customer profile. This targeted approach often results in higher conversion rates and better returns on investment for their advertising efforts.
For the entity aggregating the audience, the value is derived from selling access to advertisers and monetizing the attention and engagement they have garnered. This could be a media company, social media platform, content creator, or any entity that has successfully gathered and retained a specific audience.
This model is prevalent in various industries, especially in digital marketing, social media, content creation, and traditional media where the ability to aggregate and monetize audiences through advertising is a fundamental aspect of revenue generation.
Providing a specific amount of money to an individual or entity in the form of a loan and receiving payments over a predetermined period. These payments typically consist of the original loan amount plus an agreed-upon interest rate.
The lender extends financial assistance to the borrower, who receives immediate access to funds for various purposes, such as personal expenses, business investments, or capital requirements. In return, the borrower agrees to repay the borrowed amount along with interest over a specified period, following a predefined repayment schedule.
The value proposition for the borrower lies in gaining access to capital without immediate liquidity and, in return, utilizing the funds for their intended purposes. Loans offer flexibility in managing financial needs, enabling individuals or businesses to address immediate requirements while spreading the repayment over an extended period.
For the lender, the value comes from earning interest income on the funds disbursed as loans. The interest rate compensates the lender for the risk taken in providing the funds and also serves as a profit-generating mechanism.
This model is prevalent in the financial industry, where banks, credit unions, online lenders, and other financial institutions offer various types of loans, such as personal loans, mortgages, business loans, and more. Loans play a fundamental role in providing financial support to individuals and businesses while allowing lenders to generate revenue through interest payments. The structure of the loan terms, including interest rates, repayment schedules, and loan durations, are essential aspects of this standard form of value.
Providing the opportunity for a specified duration, to take a predefined action in exchange for a fee.
An option grants the holder the choice to execute a specific action within a predetermined time frame. This action could involve buying or selling an asset, entering into a contract, or making a decision based on certain conditions.
For instance, in finance, an options contract allows the holder to buy or sell a financial asset at a predetermined price within a specified time frame. The buyer pays a premium to the seller for this right, which provides flexibility and mitigates risk by allowing the buyer to capitalize on market movements without being obligated to act.
The value proposition for the option holder lies in having the flexibility to make a decision or take advantage of favorable conditions within the agreed-upon timeframe. It allows the holder to react to market changes or opportunities without committing to the action unless it proves beneficial.
The seller of the option benefits by receiving the premium payment upfront in exchange for providing this right to the holder. Sellers assume the risk that the option holder may exercise the option, but they profit from the premium regardless of whether the option is exercised.
Options are commonly used in financial markets, but the concept extends to various industries where providing the ability to take a specific action within a defined period in exchange for a fee creates value for both parties involved.
Assuming the risk of a specific adverse event occurring to an individual or entity, known as the policyholder, in exchange for a series of predefined payments, commonly referred to as premiums. The insurer agrees to provide financial protection or compensation to the policyholder in case the insured event occurs.
The essence of insurance lies in risk transfer. The policyholder pays premiums to the insurer to mitigate the potential financial impact of a specific adverse event, such as accidents, illnesses, property damage, or other covered risks. The insurer, in turn, assumes the risk and promises to pay out claims only if and when the insured event occurs, subject to the terms and conditions outlined in the insurance policy.
The value proposition for the policyholder is peace of mind and financial protection against unexpected and potentially significant losses. Insurance allows individuals or businesses to transfer the risk of financial loss to the insurer, providing a safety net in case of adverse events.
For the insurer, the value comes from pooling risks across a large number of policyholders and collecting premiums, which creates a fund to cover potential claims. By carefully assessing risks and pricing premiums based on actuarial calculations, insurers aim to manage the likelihood and potential financial impact of claims while ensuring their ability to meet their obligations to policyholders.
Insurance is a cornerstone of risk management in various aspects of life, including health, property, life, auto, and business insurance. The structure of insurance contracts, the determination of premiums, coverage limits, and the conditions for claim payouts are essential components of this standard form of value.
Capital involves investing funds to acquire an ownership stake or equity in a business, which entitles the investor to a proportionate share of the profits generated by that business.
When an individual or entity purchases an ownership stake in a business, such as buying stocks or shares, it becomes a shareholder or equity holder. As the business generates profits, these profits can be distributed to shareholders in various ways, such as through dividends or as a one-time payout, depending on the business's policies and financial performance.
The value proposition for the investor lies in the potential for returns on their investment in the form of dividends or capital gains. Dividends represent a portion of the profits distributed by the business to its shareholders, providing them with a regular income stream. Capital gains occur when the value of the ownership stake increases, allowing the investor to sell their shares at a higher price than their initial purchase, thereby realizing a profit.
For the business, attracting capital through equity investment allows for expansion, funding of operations, or investment in growth opportunities without incurring debt. It offers an alternative to borrowing funds and provides investors with a stake in the company's success, aligning their interests with the business's performance.
This form of value creation is fundamental in the world of finance and investment markets, where investors seek opportunities to deploy capital in businesses with growth potential, anticipating returns in the form of dividends or increased share value over time. The structure of ownership, dividend policies, and the potential for capital appreciation are crucial aspects of this standard form of value.
From offering tangible products and intangible services to facilitating access, sharing resources, and managing risk, each standard form represents a unique approach to value creation. Whether it's through subscriptions, resale, leasing, agency, audience aggregation, loans, options, insurance, or capital investment, businesses deploy these models to innovate, engage audiences, mitigate risks, and foster financial growth.
Each form of value reflects a distinct way of addressing customer demands, leveraging resources, and facilitating transactions. By recognizing and harnessing these forms, businesses can adapt to market dynamics, innovate their offerings, and build sustainable models that resonate with their target audience.
The interplay of these standard forms underscores the dynamism and adaptability required in modern business practices. It encourages entrepreneurs, businesses, and investors to explore diverse strategies, innovate continuously, and create value propositions that resonate with evolving customer needs and market demands.
Ultimately, comprehending these standard forms of value serves as a compass for businesses, guiding them to forge meaningful relationships with customers, optimize resource utilization, and thrive in a competitive and ever-changing economic landscape.