Eric Ries is the creator of the Lean Startup methodology and the author of the entrepreneurship blog Startup Lessons Learned. In his most recent post he said about Slideshare:
"Realizing it had taken a wrong turn, SlideShare rethought its approach to premium accounts and ultimately performed what we’d call a "value capture pivot", one where the company changes the way it collects revenue from customers."
If you do not know what a "value capture pivot" is it is a change in "pricing models". As described in my new book, Billion Dollar Company , there are 15 different pricing models. I guess in Ries speak that would mean you could pivot fifteen times.
Having had a little fun, I would now like to discuss "value capture" and its sister concept "value creation". The two concepts are popular in academic discussions of entrepreneurship and competitive advantage and were perhaps first introduced by Bowman and Ambrosini in their 2002 article Value Creation Versus Value Capture: Towards a Coherent Definition of Value in Strategy.
(Note to Colleen: if this is not the first significant article please correct me in the comment section.)
Value creation is the notion that every organization creates social utility. In economic terms, utility is a measure of relative satisfaction. In Hacker speak value creation is "satisfying customer need". Value capture is easier to understand. It is the monetization of value creation or as Ries says "the company... collects revenue from customers". In Hacker speak it is the "pricing strategy".
So far all of this discussion of value looks overly complicated, which is why I translated it into Hacker speak. However, this conceptual framework has an interesting application in understanding where different types of organizations place their emphasis. Let's say that emphasis can be determined at three levels--"ignore", "satisfice" and maximize. In the chart below I show different types of organizations and how much emphasis they place on value creation and value capture. (Click to see full image.)
As shown, a social entrepreneurship organization maximizes value creation (does the most good possible) and satisfices for value capture (a break even cash flow to stay operating). A for-profit company satisfices for value creation and maximizes for value capture. Yes--for-profits create social utility--but maximze cash flow to satisfy shareholders. The example I really like is the criminal organization--ignore value creation and maximze value capture. Of course, the for-profit that forsakes its social responsibilities (ignores) looks just like a criminal enterprise. Note: the shades of gray are where I am not sure. A government with a balanced budget may be satisficing for value capture and without a balanced budget they would be ignoring value capture. ( Note: I would appreciate comments on whether this way of looking at different organizations is helpful. I am thinking of using it in my next book.)
Just to clarify--I like Eric Ries' blog and his way of thinking about start ups very much and recommend it. Sometimes he just talks funny :)
My new book, Billion Dollar Company: An Entrepreneur's guide to business models for high growth companies, is available on Amazon. See the fourth strategy Porter should have added, determine if the market opportunity is large enough to interest venture capital and learn the 5-step process to really develop a business model. Book website.
