Tool 53 · Develop your business
A guided 20 to 24 minutes conversation, here in TAIU. This exercise does not value a business, forecast revenue or give financial advice. It works out where the money actually comes from.
It is rarely the part taking most of the week.
Revenue is not capture. Plenty of money passes through a business without ever stopping.
What you'll look at
A note from Mark
I have spent a lot of time in businesses where the hardest working part of the operation was not the part creating the value. That is not a criticism of anybody. It is just very difficult to see from inside, because effort feels like value and the two are unrelated.
The question I would put to you is where exactly something becomes worth more than it was. Not the process. The step. In most businesses I have looked at, it is smaller and less impressive than the owner expects. It is frequently a piece of judgement or a relationship, rather than a thing.
Then I would follow the money outward, because revenue is not capture. I have seen good businesses with full order books hand almost all of the difference to a platform, a distributor or one very large customer, and only notice when they tried to invest in something.
And I would want the dependency named out loud. Very often it is one person, and usually it is the founder. That is not automatically a fault. It is only a fault if nobody has ever said it.
What you'll get
01
The value step
02
Payer and beneficiary
03
Where economics settle
04
The real constraint
+
Your TAIU handover: a summary of what the conversation found, written so you can take it with you.
When you finish
Your tree is where TAIU keeps a picture of your whole life, in parts like work, money and health.
At the end, the conversation asks how Work and purpose feels for you right now, in your own words. It also asks what, if anything, would feel different. Nothing changes on your tree unless you say it changes.
The conversation writes this summary for you. Keep the sheet, print it or paste it into My Tree. Nothing from the conversation is stored by TAIU.
What now?
01 · Save it
The value step, named specifically.
02 · Test it
Follow one customer payment through to what is actually left.
What I would do
Describe the business without a single category word.
Ask what breaks if the value step is removed.
Follow one pound from the customer to whatever is left.
Name the dependency you would least like to lose.
Ask what somebody else would need in order to do this.
Test it
At which exact step does something become worth more than it was?
Who takes a share before you do?
What would somebody else need in order to do this?
The alternative
The expected answer is that value comes from the product. Often it does not. It comes from access, from a relationship somebody spent nine years building, from being the one who answers the phone on a Friday afternoon or from a piece of judgement exercised in twenty minutes that the customer could not exercise at all. The second common finding is that the model works and captures almost nothing, because a platform, a distributor or a large customer sits between the business and the money and takes the difference. Neither of those is a reason to stop, and both change what the next year should be spent on.
Think about this
Take this to Ask Mark
This looks at what you found and helps you understand it. It is not another exercise to repeat.
Take this to Ask Mark →READ · BOOK
Michael Porter
Still the clearest treatment of where margin actually sits in a chain of activity. Read the chapters on the value chain and ignore the corporate strategy apparatus around them.
READ · ARTICLE
Clayton Christensen and colleagues
The argument that people hire a product to make progress in a particular circumstance. It moves the question from what the thing is to what it is competing against, which is usually doing nothing.
READ · ARTICLE
Joshua Gans, Erin Scott and Scott Stern
Argues that a young venture is choosing between a small number of genuinely different routes to market, rather than executing one obvious plan. The choice is reversible for less time than founders think.
What helped you?
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Finished the exercise?
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Next tool
When the model is clear and the gap is people
Further thinking
Profiting from Technological Innovation
David Teece
Competitive Advantage
Michael Porter
Know Your Customers' Jobs to Be Done
Clayton Christensen and colleagues
Article
David Teece
The classic account of why the inventor often does not capture the value. Complementary assets and control points decide who is paid, which is a different question from who creates the benefit.
Book
Michael Porter
Still the clearest treatment of where margin actually sits in a chain of activity. Read the chapters on the value chain and ignore the corporate strategy apparatus around them.
Article
Clayton Christensen and colleagues
The argument that people hire a product to make progress in a particular circumstance. It moves the question from what the thing is to what it is competing against, which is usually doing nothing.
Article
Joshua Gans, Erin Scott and Scott Stern
Argues that a young venture is choosing between a small number of genuinely different routes to market, rather than executing one obvious plan. The choice is reversible for less time than founders think.
Ask Alto