Value creation is not a synonym to value capture

Value creation is independent of value capture. Creating value does not mean that you are able to capture it.

Value creation is independent of value capture. Creating value does not mean that you are able to capture it. This crucial point is often overlooked and assumed that if you can create value you can automatically capture it. This is wrong.

Value creation: You create value by solving a problem that someone has, who are ready to pay to get it solved.

Value capture: This is your ability to make a profit from the value created by you or others through your business transactions.

Few examples, imagine you need to travel to New York from Brussels to close a sales contract valued at 1 million €. You took a return flight that cost 800 €. The airline company you fly with captured only 800 € out of the 1 million € value created. You could argue that they contributed to the creation of 1 million € value but only captured 800 €.

Second example, imagine you are a waiter working in a restaurant with a fixed salary. It does not make any difference to your paycheck (value capture) if on a given day you served 10 tables or 50 tables. However there is a big difference in value creation if you served 10 tables with average spending of 100€ that is 1000 € compared to 5000€ (value creation).

Another example is Airbnb, Airbnb does not host any guest, but instead the host does. The host is the one who creates value for the guest. But Airbnb successfully captured part of the value created by the host. You could argue that Airbnb actually help created the demand. That however is a different point. Similarly Uber is another example and many more.

This is why I created the Value pyramids canvas (VPC) to help future startup founders or entrepreneurs to get their heads around this topic, especially during the ideation and idea validation stage.

VPC walks you through an 8-step framework that map out steps-by-steps the processes that lead to value creation and value capture.

Part 1: Value creation

1. Your solution or idea

• What is the solution to the problem that you want to solve?

• What type of products or services do you want to develop?

2. For who and how

• Who has this problem? How are they solving it today?

• How is your products or services solving this problem for them?

3. Perceived value

• Is the value tangible, intangible or created directly or indirectly?

• How much does your customer value the solution?

4. Measure

• Can you map the value chain? Where is the value created? 

• How can you quantify the created value? How to measure this?

Part 2: Value capture

5. Unique propositions

• Why should customers choose you?

• How do you differentiate?

6. Cost

• How much does it cost to build and serve your solution?

• How can you reach prospective customers?

7. Value capture models

• Which business model can you use?

• What type of relationship do you have with your customers?

8. Pricing power

• How can you price your product?

• What happens if you double your price?

Download the value pyramids canvas for free here: https://www.valuepyramids.com/

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