(Or at least it should be)
If creating value is at the heart of any venture, the reason why we do anything, “capture” is what makes it a business. Capture is at the heart of the value capture machine for a reason.
You can of course create value for other people without capturing any of it for yourself, if you want. People do it all the time. Parents do it. Charities do it.
In fact, if we wanted to write a business plan for charities, we might in fact just call it a “value creation machine”, because that’s what they do: create but don’t capture. They have to get their funding externally, from donations, if they want to continue creating that value.
A business captures some of the value it creates instead so it can continue to create that value into the future. It is one of the ways in which businesses can, in certain circumstances, be so superior to charities, because the value creation becomes self-sustaining.
By capturing some of the value you create, you get to re-invest that part of the value in creating the value again, for another person, or for the same person who needs it again the next day, or for more and more and more people who want that value in the future.
If it helps you to understand it more completely, perhaps think of it as sharing in the value. When we create value for another person, and that person buys the value from us, we should both share in it. They should get some of the value (or they won’t come back) and we should get some (or we won’t do it again!).
That makes it sound incredibly fair, which it obviously won’t always be, but on average, we can aim at sharing the right amount for us. It’s very simple, it’s fundamental to the success of the business, and yet it’s so often overlooked in a typical business case: how much value do we capture, and how do we do that?
We think it’s so important, that out of our three-word business plan, it gets a whole word!
Our favourite analogy for value capture is a piece of cake. That’s because one of our favourite things is cake!
When you take the ingredients for making a cake (not just the eggs, flour and sugar but also the labour, rental and inspiration), you have your costs. You now have to charge enough for your cake to ensure that you cover all of those costs.
If you charge three times the price of your raw materials (the standard in food service industries), that’s one third you can’t capture. When you take out your rent and your labour, there may be just one or two slices left for you.
But you have forgotten the government, who always want a slice. And you’ve forgotten the days when customers don’t come, and you don’t sell every slice… so you need to build a little more into that capture.
Every cost needs to go in… but that’s not value capture. That’s just covering your costs. You have only captured some value when you know there is always at least one piece of cake left over for you.
Yes, it’s a piece of cake, but no, it isn’t easy.
It’s at the heart of every business, it’s the middle word of the value capture machine for a reason, but it’s ignored by far too many start-ups that go wrong.
Answer the quick questions below before reading on to discover the only two ways you can capture value.