Wednesday, January 10, 2007

How do you add value?

Adding value is about giving someone something they do not have and cannot easily acquire without you.

In the economic sense, our society functions due to specialization, technology, and trade [1].

Specialization allows people to spend their time doing what they are best at. Technology allows one to accomplish much more than they would normally. It does this by allowing one person to bottle up their knowledge into a package and give that package to another person to enable them to do that which they would have no idea how to do themselves. Trade allows people to get the things they require by doing what they do best. This is greatly facilitated by currencies, so you can specialize in cows and still buy a carrot without having to sell an entire cow.

I think the key is not to just find and solve problems, many people can do this. Its finding and solving a special kind of problem. The kind of problem that many people have, and are willing to pay to fix (or not have).

What kinds of problems are people willing to pay to fix? One is the kind they encounter frequently. The more we run into something the more it annoys us. Sometimes we become so accustomed to common problems we don't even realize they exist anymore. This can be seen in software packages where little quirks become standards and are "just the way it works".

If solving this everyday problem makes one's life more convenient and it is affordable, then many people will pay for this solution. For example, if you find a simple way that allows people to clean their house or prepare their meals in half the time it currently takes, you would likely have a valuable solution [2].

Another type of problem people pay to fix is one that effects a major aspect of their life. It may not be encountered all that often but when it does, it really hurts (or annoys). Insurance is a good example of this kind of problem. Having a heart attack can cost you upwards of $50,000 here in the US. Having health insurance allows you to handle this problem in a reasonable way.

A third type of solution people are willing to pay for is one that enables them to accomplish more with the same or less resources. The automobile is a good example of this. Time to travel was cut dramatically and opened up many opportunities that simply never existed before. Robotic vacuums, motors, and computers are also excellent archetypes. Most solutions of this kind involve technology, but sometimes are just a different way of doing things.

How do you add value? Solve peoples problems, and optionally provide them with the means to replicate it again and again.

[1] See Adam Smith's Wealth of Nations. This is a very long, but good read. It can be read a chapter or two at a time and is very useful in carefully laying out what I believe to be a very accurate picture of how society actually works.

[2] If you have this solution and it is available for around $19.99 / month please let me know so I can sign up.