This article comes from Entrepreneur.
Consider the distinction between production and consumption when addressing problems in the startup, but from the point of view of the economy as such, and therefore your startup’s role in it. Here are the questions to answer:
This is a no-brainer. If solving the problem or investing in that resource directly contributes to your bottom line, then it should be prioritized. Because addressing it means your business is both creating and capturing more value. Either by increasing sales volume or the price charged. So it is an issue that contributes to production — more consumers are made better off, and so are you.
This should be a no-brainer, but strangely isn’t. A firm’s role in the economy is simple: to produce value for consumers. In doing so, the problem for the entrepreneur is, first, to figure out how to please consumers and, second, to make sure to capture some of this value. But you have to create value to capture it, and the more you create the easier it is to capture part of it. In other words, if an issue would make your customers better off — do it, even if your firm doesn’t directly benefit. It’s still production.
If solving the problem or making a certain investment would make you more efficient, cut costs or improve your flexibility, then it is not about creating value. Yes, you read that right. Value, to economists, is generated through the act of consuming (that is, value is use value). Consumers give up part of that value as payment, but wouldn’t buy your product if the price is higher than the value they get.
These are generally issues that address problems or otherwise improve the conditions within your business. Yes, they’re internal and not directed towards customers. But this doesn’t mean they are not important: solving a brewing conflict between employees does not contribute to the value consumers get from your product, but not doing so could in fact harm consumers if it makes your business unable to deliver.
Consumption can also be such things as buying new office furniture, getting a better benefits package for employees, or moving to a better location. These all benefit us, but do not necessarily create value for our customers. So this is consumption, because it is something you, within your startup, do for yourself.
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