Twelve Standard Forms of Value

Value is not intrinsic; it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment. – Ludwig von Mises, an Austrian economist.

To successfully provide value to another person, it must take on a form they are willing to pay for. Fortunately, there is no need to reinvent the wheel – Economic Value usually takes on one of twelve standard forms:

  1. Product. Create a single tangible item or entity, then sell and deliver it for more than what it cost to make.
  2. Service. Provide help or assistance, then charge a fee for the benefits rendered.
  3. Shared Resource. Create a durable asset that can be used by many people, then charge for access.
  4. Subscription. Offer a benefit on an ongoing basis, and charge a recurring fee.
  5. Resale. Acquire an asset from a wholesaler, then sell that asset to a retail buyer at a higher price.
  6. Lease. Acquire an asset, then allow another person to use that asset for a predefined amount of time in exchange for a fee.
  7. Agency. Market and sell an asset or service you do not own on behalf of a third party, then collect a percentage of the transaction price as a fee.
  8. Audience Aggregation. Get the attention of a group of people with specific characteristics, then sell access in the form of advertising to another business looking to reach that audience.
  9. Loan. Lend a certain amount of money, then collect payments over a predefined period equal to the original loan plus a preset interest rate.
  10. Option. Offer the ability to take a predefined action for a fixed period, in exchange for a fee.
  11.  Insurance. Take on the risk of some specific bad thing happening to the policyholder in exchange for a predefined series of payments, then pay out claims only when the wrong thing happens.
  12. Capital. Purchase an ownership stake in a business, then collect a corresponding portion of the profit as a one-time payout or ongoing dividend.

We will investigate these Twelve Standard Forms of Value in more detail.

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The Crusader Rule

The zealous display of the strength of their belief, while the judicious show the ground of it. – William Shenstone, eighteen-century poet and landscape designer.

Being a Crusader does not pay either. Every once a while, you will find an idea so fascinating it becomes hard to think about it objectively. The stars align, heavenly trumpets blare, and suddenly you have a distinct impression that you have found your calling.

In all the excitement, it is easy to forget that there is often a considerable difference between an interesting idea and a stable business. In your optimism, do not forget your prudence: changing the world is difficult if you cannot pay the bills.

Some ideas do not have enough of a market behind them to support a business, and that is fine. That does not mean you should ignore them: side projects can help you expand your knowledge, improve your skills, and experiment with new methods and techniques. I am a massive advocate of pursuing side projects as long as you do not count on them to reliably produce income. Once you have your financial bases covered, crusade all you want.

Before attempting to launch a business, take the time to do a thorough evaluation using the Ten Ways to Evaluate a Market. If you are finding it difficult to be objective, see a trusted colleague or adviser, then test it as quickly and as inexpensively as you can before you fully commit. A few hours spent in evaluation can prevent months (or years) of frustration and misplaced effort.

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The Mercenary Rule

Make money your god and it will plague you like the devil. – Henry Fielding, eighteenth-century novelist and satirist.

Becoming a Mercenary does not pay: do not start a business for the money alone. Here is why: starting and running a business always takes more effort than you first expect.

Even if you identify a business that will largely run itself, setting up the Systems (discussed later) necessary to run the business requires persistence and dedication. If the only thing that interests you about an opportunity is the money, you will probably give up well before you find the pot of gold at the bottom of the landfill.

Pay very close attention to the things you find yourself coming back over and over again. Building or finishing anything is mostly a matter of starting over and over again; do not ignore what pulls you. The trick is to find an attractive market that interests you enough to keep you improving your offering every single day. Finding that market is mostly a matter of patience and active exploration.

That said, do not ignore “boring” businesses until you investigate them; if you can find some aspect of the work that interests you and keeps you engaged, mundane markets can be quite attractive. “Dirty” businesses like plumbing and garbage collection certainly are not sexy, but they can be quite lucrative because there is a significant ongoing need combined with relatively few people willing to step up and meet the demand.

If you find a way to make a necessary but dull market interesting enough to pursue, you might have discovered a hidden vein of gold waiting to be mined.

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The Hidden Benefits of Competition

The competitor to be feared is one who never bothers about you at all but goes on making his own business better all the time. – Henry Ford, founder of the Ford motor company and assembly-line pioneer,

One of the most common experiences of a first-time entrepreneur is discovering that your brilliant business idea is not as original as you would think: other businesses are already offering similar products or services. This would shake anyone’s confidence – after all, why bother when someone else is doing what you want to do?

Cheer up: there is The Hidden Benefits of Competition. When any two markets are equally attractive in other respects, you are better off choosing to enter the one with competition. Here is why: it means you know from the start there is a market of paying customers for this idea, eliminating your most significant risk.

The existence of a market means you are already on the right side of the Iron Law of the Market,  so you can spend more time developing your best offer instead of proving a market exists. If there are several successful businesses serving a market, you do not have to worry so much about investing in a dead end, since you already know that people are buying.

The best way to observe what your potential competitors are doing is to become a customer. Buy as much as you can of what they offer. Watching your competition from the inside can teach you an enormous amount about the market: what value the competitor provides, how they attract attention, what they charge, how they close sales, how they make customers happy, how they deal with issues, and what needs they are not yet serving.

As a paying customer, you get to observe what works and what does not before you commit to a particular strategy. Learn everything you can from your competition, and then create something even more valuable.

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