There’s a lot of talk about sustainability, without a lot of thought about what it really means.
Yes, at heart, it really means can you keep on doing this forever, or at least as long as you need to. It’s popular to view that solely in the context of the environment, or of society, but before you think of it in those ways, you should think about it from your own perspective and that of your company.
Will your company be sustainable? If it doesn’t capture enough value from its transactions to pay for its next transactions, then no, it won’t be sustainable. It may or may not do damage to the environment, it might even have helped, but if it isn’t making a profit from its value capture, those efforts won’t be sustained.
It also needs to sustain you. You need to capture enough value for yourself to keep you going, keep you interested, motivated, energised and other doing words. Don’t underestimate this. You’d be surprised how many start-up business-people forget to pay themselves, thinking that they’re boot-strapping the business, while what they’re really doing is no capturing enough value.
You are the engine that will create and drive this value capture machine – you need to be sustainable.
There’s more than that too. Your business will need to invest in itself. It doesn’t have to grow, but if it is small it will probably want to grow a bit. It may want to grow a lot, which will require investment. That can come in the form of capital from new shareholders, which will mean you own less of the company, or debt, which will mean your company’s future might be less stable in the event of a downturn.
The best way to grow is from retained profit, from captured value that you invest to create more value, and capture more, and so one, spiralling into a much bigger business.
It’s a truly inspiring part of capturing value. Your business can use the value it captures to create more value for more people, something that even charities, that want to do as much good as they can, can’t emulate, because they will always need more donations.
We already compared businesses to charities in “Why Value Capture Is A Piece Of Cake“, because charities create a lot of value without capturing it. That’s fine. They’re charities it’s what they do.
You’re not a charity. You can’t afford to work for free. It’s not your business model to go looking for new donors at the end of the year to ensure you can keep giving stuff away… which is what you’re doing if you don’t capture enough value. If you’re not making enough profit to keep you doing this, you are, at the very worst, giving away your time if not your money.
If you want your business to be sustainable, you have to capture as much value as you can – sustainably.
That’s where we look at the other end of the spectrum of sustainability, pricing and value capture. At one end we have the charities who create value but don’t capture. At the other we have a business model that captures value without creating any… gangsters.
They will claim to protect you from violence, but it’s only protection from them, so if they didn’t exist there would be no value creation. Unless you do intend to become a gangster (please don’t), this isn’t a proper business model.
You can only capture, as a maximum, as much value as you created, and ideally you should only capture as much as your customers are willing to share with you.
How much is that? That all depends on your pricing strategy…