What value does your company create?

The (financial) value of a company vs. the value that the company creates for its customers.

Companies play a key role in the lives of their customers. More so in the digital sphere.

It seems like a good thing. And maybe it is. But how can we know whether it is a good thing or not? How can we understand whether a company is making things better or worse? And for whom?

My perspective is that the only reason that a company exists to create value for its customers.

That’s it. Everything else is secondary. Everything else is there to enable the company to create this value.

But we do not talk about this value.

Especially when it comes to the current model of capitalism, we put all the focus on the investor and almost zero on the customer.

Is your business investor focussed or customer focussed?

We value businesses by their share price, but that price is the outcome.

A key metric that comes before that is the revenue.

But what creates revenue?

Revenue comes from the value created by the company for the customer.

Now, let’s look at companies through this perspective. Maybe then, we can understand their value system much better.

Let’s consider a few.

McDonalds, KFC, etc.

Revenue model: Increase number of customers. Increase number of trips to the outlet. Increase amount ordered per trip.

Value created for customer:

Short term: Giving into the temptation. Momentary pleasure of taste.

Long term: Gain fat. Feel bad about themselves.

Apple (Steve Jobs model)

Revenue model: Bring the best designed consumer devices in the hands of the public (Air) and the professionals (Pro) enhancing their digital experience.

Value created for customer:

Short term: Pleasure of owning a Apple product.

Long term: Boost to creativity and productivity through better design.

Apple (Tim Cook model)

Revenue model: Create a sense of missing out by creating products that are not so different from the previous version, but the latest version can be identified in the hands of the user.

Value created for customer:

Short term: Status and pleasure of having the ability to purchase the latest and most expensive version.

Long term: Not much over the previous version.

Facebook, Instagram, WhatsApp, Google, YouTube, etc.

Revenue model: Create an ecosystem that hacks the user’s mindset through notifications and the fear of missing out. More users spend more time on the apps, watching more ads, generating more ad revenue. In addition, collate their behaviour to show more personalised ads to increase the price of the ad.

Value created for customer:

Short term: Pleasure of getting a dopamine boost through likes, stories, etc.

Long term: Lose the ability to focus and do deep work which adversely affects professional success and personal relationships.

If this article sounds cynical, it is because we never talk about companies from this perspective. We don’t talk about the value created for customer in the annual reports or the analyst reports.

We only talk about the size of the company and how much the company has grown. An important question is missing: Should this company grow? Is it making the world a better place?

If we can make drugs illegal, because they affect the person psychological, making them an addict, then why are so many companies allowed to use similar mechanisms to hack almost the entire population of the planet. If we talk only in terms of industry size, then the drug industry and the terrorism industry would also be highly priced on the share market.

Yes, Netflix brings high quality entertainment to the people, but it has taken over the life of its subscribers. At a point, entertainment was 2–3 hours a day at max, and sleep was 8 hours minimum. Now, we have reversed the two.

Amazon and Google have brought Alexa and Google Home in our homes, but the revenue model is not the price of the Alexa device. It is the data that they will collect through the recordings in order to manipulate us to buy more from them. How is this creating value for the customer? How is this behaviour different from the drug lord who gives a supply free for a week?

When we focus on the outcome, the share price, the market cap, we stop looking at what we do through our conscience. We can justify anything and everything.

The investor’s and the entrepreneur’s role in the economy is that of service. Their sole role is in providing a product or service for the consumer.

When we value a company only by its market cap, and nothing else, we are creating an ecosystem that would wreak havoc on the most important participant of this puzzle, the customer.

The virtuous cycle of capitalism is customer-focussed. I am proposing here that the vicious one is investor-focussed.

The laws of power distract us from the customer towards the investor. For most businesses, customers are many and there is no clear, powerful representative of the customer.

While, on the other hand, even if the investors are many, they have a very powerful Board of Directors, which has the power to appoint and remove the CEO.

Apple did so well under Steve Jobs because the most powerful person in the company was the representative of the customers. He hated bad design, design that would affect the customer experience adversely.

Same is the case with Elon Musk when it comes to Tesla. He doesn’t want to make a car that he doesn’t himself love to drive.

But what about the others?

How much is Sundar Pichai or Larry Page concerned about the customer experience and value creation for the consumer whether it is about Google Search or Google Meet.

How concerned is Zuckerberg about the University student who is going to flunk or get bad grades because he is stuck in the Instagram story loop?

We have started talking about the environment.

We can start talking about the impact the companies are creating on their customers.

The more successful Swiggy becomes, the more obesity issues will be faced by the Indian upper middle class. Similar to how the success of McDonalds led to the growing obesity in US and also globally.

The PR of these firms would put another angle on the story. For instance, Swiggy would say that it offers healthy options. Netflix would say that it is improving the quality of the entertainment content.

But the ground reality is that their growth is not based on the good that they create rather most of the time, their customers are regretting their interaction with them.

It’s just that they leave them no choice.