Adding value versus creating value

We talk a lot about “adding value” but infrequently about “creating value”. For far too many people think of them as interchangeable terms. 

They are not!

If I take a raw material (wood) and make a chair, I have created value, by taking raw materials (wood) and by converting that raw material I create a more valuable product, a chair you can sit on. If I buy a chair from the furniture maker, transport it to my store and sell it to you, I have added value, the value of convenience.

You don’t have to search out different furniture makers to find a chair, you can go to my store when you are ready and select from the chairs I keep on hand. You don’t have to travel as far or wait for the manufacturer to build what you want.

People who refer converting raw materials as “adding” value are blurring the distinction. While that may be convenient on a balance sheet, it does cause loss of focus on what creating value really is.

I built an 18-foot wooden sailboat. I am created something that did not exist before I started, a recreational sailboat. That sailboat has value to a recreational sailor but no value to a building contractor. While the wood may have certain potential values to various users, once it’s been converted from raw materials to a product it has high value to specific users and zero (or very low) value to others.

The only thing I can add to the value someone else created is convenience.

Convenience of

            Time – it’s ready now

            Place – it’s right here

            Finance – you don’t have to pay cash

While each is valuable and may command a higher price than if I didn’t add any of those elements, I can’t add that value until someone else creates the basic product.

What’s my point?

The point is to make sure you remember that you can’t add value unless and until someone else creates the basic value first. The other point is that an economy is in serious trouble when adding value costs more than creating it.

Profit At Any Price

My writing partner, Bryan Neva, is posting his writings at a blog called Profit At Any Price. Here is the link to his latest post, a reprint of a piece we wrote together. Profit at any Price

Self employment

I keep reading about independent workers who are self-employed and don’t have a regular job. One reference many of the authors use is the transition from small farmers and crafters to factory workers, driven by the industrial revolution, and that people who are creating their own work are just returning to those roots.

The part they leave out is why so many people gave up self-employment and went into those factories. They could make more money and live better! The hidden fact that everyone glosses over is that leaving corporate jobs, for most people, means accepting a much, much smaller life style, smaller homes, fewer dinners out and driving older cars.

Cutting you life style is not progress. Most people who try self-employment / free lancing fail because to succeed they must master work skills that, until they left their regular jobs, someone else did for them. It’s called division of labor, but working alone means that you must do all those tasks. Most people fail because they are unable to master those new skills fast enough to keep their business producing income.

I keep reading that if you love sports then learn to write about them. That presumes you are in that very small minority of people who love sports that no only are able to write but enjoy writing enough to keep at it steadily to make a living. It also presumes that you are in the even smaller minority who either already know how to market your writing or are able to learn how and enjoy that part of the process enough to put up with it to sell the output of the part you do enjoy.

The truth is that of all the people who try to develop themselves as an independent only a very small percentage will succeed, not because they aren’t good enough at what they love, but rather because they can’t get good enough at what they don’t love!

We don’t have challenges we have problems

If you’ve ever heard someone say: “We don’t have problems we have challenges” you probably thought what nonsense. Even after they explain that they mean to rephrase the issue into something to be overcome you may still be left feeling as if there is something wrong with the statement.

It seems to me that whoever said this particular piece of miss information had taking lessons from Humpty Dumpty in Lewis Carroll’s Thru the Looking Glass: “When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.”

In the real world, words have accepted meanings and for many of us Webster’s dictionary is the authority.

Challenge (From Webster’s)

1 : to demand as due or deserved : REQUIRE challenges

explanation

2 : to order to halt and prove identity challenged

the stranger

3 : to dispute especially as being unjust, invalid, or outmoded : IMPUGN challenges

old assumptions

4 : to question formally the legality or legal qualifications of

5 a : to confront or defy boldly : DARE b : to call out to duel or combat c : to invite into competition

6 : to arouse or stimulate especially by presenting with difficulties

7 : to administer a physiological and especially an immunologic challenge to (an organism or cell)

Problem (From Webster’s)

1 a : a question raised for inquiry, consideration, or solution b : a proposition in mathematics or physics stating something to be done

2 a : an intricate unsettled question b : a source of perplexity, distress, or vexation c : difficulty in understanding or accepting problem with your saying that

Only the 6^th option for challenge deals with “presenting with difficulties” so using the word in the way that “we don’t have problems we have challenges” implies is a real stretch. In the definition of a problem, Webster’s first definition says “a question raised for inquire, consideration or solution” clearly using the word problem helps describe the issue as something that you and your business need to solve.

This puts the misstatement “we don’t have problems we have challenges” is in the same category as the old Confucian conundrum “If you call a tail a leg, how many legs does a tiger have?” Far to many people answer 5 since we all know that a tiger has four legs plus the tail we called a leg equals 5! The Confucian answer is 4 because “calling a tail a leg doesn’t make it one”.

If you will drop the false statement about challenges and adapt the more accurate description of problems you will help direct you and your workers’ attention to solving the problem. By accepting Webster’s definition of a problem you will state an issue or questions raised for solution rather than one that is demanded as due or deserved.

If this makes you think “I’ve been misusing the word challenge” then it’s time to stop mislabeling the events around you and to clarify you thinking, and that my friend is always the first step in solving a problem.

Sometimes the guy with the worst times is right and everyone else is wrong!

At one point I was getting beat up by the international headquarters for excessive repair times for a military trainer that our company maintained under contract to the US Army.

My times were significantly higher than the other field maintenance sites. My boss took the time to look at parts usage and because he had an intimate familiarity with actually fixing the trainer in question he recognized that I was using a lot more of the tiny set screws that aligned the device.

Those little setscrews tended to corrode between servicing and needed to be drilled out and replaced to realign the trainer. Sometimes you even needed to rebuild the threads for the set screws which added even more time to the process. But, if you didn’t take the time to do the required realignment each time the device was in for any other service you wouldn’t use very many setscrews!

My boss proposed a test to see how well the devices were retaining alignment between servicing and the international headquarters sent out a sheet that required the devices alignment to be noted (by serial number) before and after servicing. After six months all the other field sites maintenance times and parts usage aligned with mine.

The lesson being that the outlier turned out to be the correct time while all the others were below what they should have been! The headquarters’ conclusion that the higher times were wrong turned out to be wishful thinking. Their desire was to do the work in the lowest possible time which translated into lower costs.

The first question to ask whenever you find an outlier is what are they doing that everyone else is not doing and ALWAYS ask it’s converse – what are the group not doing that the outlier is!