Do You Truly Add Value? Are You Differentiated?
Whether you are an employee or an entrepreneur, you will want to ask yourself this question: Do I truly add value? If you’d rather use more popular terminology, it would be: What’s my value-added? Either way, answer honestly. Also, ask yourself, am I differentiated? Your present and future livelihood depend on the answers to these questions.
What is meant by value-added? Since we’re focused on entrepreneurship and leadership, I will answer from that perspective, but if you are still an employee, the same logic applies. Value-added simply means that in any transaction or activity with which you are involved, what value are you contributing? The funny example I always think of is when there are three people standing around filling a pothole on the road, with two leaning on their shovels and the other one doing all the work. In that case, the one actually filling in the pothole would be adding value by exerting physical force to get the job done. If you were being generous, you’d say the other two may be providing moral support and/or direction. If not, you’d say they were not adding any value and were simply taking up space and “converting oxygen to carbon dioxide”.
Let’s look at an entrepreneurial example. Let’s say that you are a broker or “intermediary”. There are hundreds of different types of intermediaries, but let’s use the example of an M&A advisor. More specifically, in this example, let’s focus on a sell-side M&A advisor – someone who advises people selling their companies. You will hear such a role referred to as everything from “business broker” to “investment banker”. Each label used has different connotations which generally differentiate between the size and sophistication of the deals handled. You’ll often hear the term “business broker” in the context of selling smaller “mom and pop” type businesses, where the term “investment banker” usually is used in the context of larger and more complex deals.
What is the true difference between the value-added of a “business broker” and an “investment banker”? Often, not much, but sometimes the difference can be dramatic. A “business broker”, in many cases, is at least perceived as doing not much more than matching a buyer with a seller. Such value-added certainly is vital in getting any transaction done, but it’s seen as commoditized, as it often does not involve much specialized knowledge. The value-added of an “investment banker,” on the other hand, is often perceived as including match-making PLUS deal structuring, negotiation, usage of an extensive network of other high-level tax, accounting and legal professionals, etc. While in reality, these differences may not always exist, that is usually the perception and for this reason, “investment bankers” are perceived as adding more value and therefore, they typically end up earning significantly more compensation than “business brokers”. In this game of added value and differentiation, often times positioning and perception are just as important as reality.
How does this value-added and differentiation picture look in your product or service business? What is the “special sauce” that you bring to the table that makes prospective customers want to choose you or your company and its offerings? If your answer is “not much,” you need to begin to remedy this right away, because just as in a workplace environment, particularly in lean economic times, those that can’t point to specific, differentiated added value that they are bringing to the table, are typically among the first to be shown the door. The corollary to that is, even if they’re not shown the door, they’ll often have to work for less compensation, just to keep the client or the job. Without demonstrable value-added and the ability to position themselves appropriately, they simply have no leverage in keeping their current clients or finding new ones.
Why do you think it is that the top salesperson at a company often earns more than the CEO? It is for this very “value-added reason”. The value-added of a top salesperson is easy to identify and quantify. It’s how much of the company’s product or service they sold over a certain period of time. And in some companies that are a bit more sophisticated in their measurement of value-added, it’s how much they sold AND the profitability of those sales. In the end analysis, adding value is not just about generating sales, it’s about generating PROFITABLE sales. Keep this in mind as you’re thinking about your own value-added and differentiation scenario and strategy.
Where do you as an individual, and where does your company as an organization, add value in the marketplace? How is that differentiated from what every other “player” in the game is doing to add value? How well have you been able to position yourself and your offerings as adding significant value in the marketplace? The answer to these questions is CRITICAL, because without differentiation, commoditization, which typically yields a scenario of lower prices and profits, will soon be knocking at your door.
I realize that to some extent, these concepts of value-add and differentiation are “strategic thinking 101,” but what I see in my own businesses and advisory work is that too many people, even otherwise excellent CEOs, can fall into the trap of not seeing commoditization creeping in from every angle. Most markets these days are extremely dynamic. You need to make sure that you and your business remain dynamic as well and constantly examine ways to add more value, differentiate, and stay a step ahead of the commoditization reality.
I look forward to your thoughts, comments and questions on the topics of adding value, differentiation and commoditization. Leave a comment below!