Value Delivery: Give Your Customers What You've Promised
We've created something valuable. We've got people's attention, made them interested, and we have closed the deal. We now have a paying customer who is expecting something awesome from us, and we have more money in our wallet or checking account 'cause they actually purchased. But because they purchased, we now have an obligation. We have an obligation to deliver this thing that we promised during the marketing and the sales process. So value delivery, the fourth part of every business involves everything necessary to ensure that every paying customer is a happy, satisfied customer, who is glad that they did business with you. So everything from the logistics of shipping a physical product, all the way through customer service and follow up, that is all part of the value delivery process. And the more happy customers your business has, the more likely they will be to purchase from you again. And the more likely that they will be to refer other people who are in the market for similar s...
ervices to you instead of somebody else. So value delivery is important. Also, particularly if you're offering a risk reversal strategy, you get the money when you make the sale. But value delivery is what allows you to keep that money after you make the sale. Now, one thing that's valuable to understand or to visualize is sometimes it's easier to visualize the value creation process flowing seamlessly into the value delivery process. There's not like you make something valuable, lots of time passes, and then it sometimes goes to the customer. One process can be seen to flow through the other and marketing and sales kinda happen at the same time. So a value stream you can think of is the combination of your value creation and your value delivery process. Now, a couple of definitions, or things that are important to understand. Has anyone heard the term distribution channel? It helps to understand exactly what a distribution channel is, what it means. So a distribution channel describes how your offer will be delivered to the user. And there are two primary types of distribution channels. The first is what's called direct-to-user distribution. So if you are dealing with the customer personally, if you're delivering whatever it is that you have promised personally or as a business directly to the user, that's direct-to-user distribution. Makes sense, right? Intermediary distribution means there are multiple channels. And in most cases it means there's a reseller involved. So when I was working at Procter & Gamble, Procter & Gamble does not deliver bottles of Dawn dish washing detergent directly to customers, never happens. What happens is Procter & Gamble delivers to Walmart. Walmart delivers to the end customer. They're an intermediary, they're a reseller. And what's nice is that if you are working with intermediary distribution, then let's think about P and G is they can sell to lots of different resellers. They can make sure a bottle of Dawn dish washing detergent is on the shelf of every single grocery store all around the world 'cause they make it, they ship it to all the intermediaries, the intermediaries take care of shipping it to the individual consumers. So the benefit is you can reach way more people potentially if you're dealing with a lot of intermediaries. The drawback is those intermediaries introduce some risks. Now the expectation effect is I like to think of it as an equation that guarantees your customers will be happy. How about that? So the expectation effect is the idea that a customer's perception of quality relies on expectations, the expectations they have going into the purchase and the actual performance or the results they get from the purchase. And you can express that as kind of a pseudo equation. Quality equals performance minus expectations. So let's talk about this using an analogy. Remember when the first movie the "Matrix" came out? It's what, 1999? Nobody knew that it really existed. Not a lot of fanfare before it came out. Very low expectations were being set about this movie. And people went to go see it but it was blown away with all of the new and cool stuff that they were able to do with the special effects, all of those things. Expectations were low and the movie delivered a really high quality experience. So everybody was really super excited about it. One of the most successful movies of the year. Couple years later, the second movie in the series came out the, what "Matrix," you don't remember.
Reload, yes. "Matrix Reloaded" came out. Expectations were here because the first one was really amazing. Performance of the movie, much lower than that. Movie got panned both by critics and by viewers because what the movie actually delivered in terms of an emotional experience was way less than what viewers went in expecting. This dynamic, if you outperform expectations, quality is good. If you underperform expectations, quality is bad. That's the expectation effect. Now there's a tricky little trade off here because expectations need to be high enough that people purchase from you to begin with. You have to set expectations that are certain threshold, or you don't get any sales, but if you want to make sure your customers are happy, you have to deliver above and beyond where the expectations are set. So it is in your best interest as a business owner to make really darn sure that you over deliver upon the expectations. And you know the best way to do that, an unexpected bonus. Delivering something that you did not promise, something that's really good, very valuable. Because if you're able to deliver above and beyond what you've committed to, you are almost guaranteeing that this equation is going to be in your favor. And actually that unexpected bonus can compensate for some of the parts of the process that were below initial expectations. The idea of predictability is the best way to think about this process of how do you make sure that you are at a minimum meeting the expectations that you're setting? And the general idea is can your customers predict that they are going to get a really great result from whatever it is that you are offering? If they can predict with a pretty high certainty they're going to get what they want, fantastic, good experience. If they can't or if something is violated, so the predictability does not come true, poor quality experience. And predictability has three primary factors, uniformity, consistency, and reliability. So uniformity means delivering the same characteristics every time. So when they do this thing, can they get this result that they expect? Okay, couple more ideas. So hopefully we can finish the value delivery section before we go to our lunch break. Throughput is the rate at which a system achieves its desired goal. So it's a way of measuring the effectiveness of your entire value stream from creating something valuable to delivering it to an end user. And it's measured in the form of it's a rate, it's units over time. And there are three different ways that you can measure it. The first is dollar throughput. It's a measure of how quickly your business creates a dollar of profit. There's a really wonderful book on the reading list called "The Goal" by Eliyahu Goldratt, which talks about is it's actually presented in novel form, which is kinda weird for a business book, but it works really well. It tells a story of a plant manager that is trying to make this factory run more efficiently. And what they measure is how quickly is that factory creating a dollar of profit for the company. If you can make the factory produce more dollars of profit more quickly, the whole system is working more effectively. So measuring that as a rate help you measure improvements or experiments you make to the entire process. Unit throughput is a measure of how much time it takes to create an extra unit for sale. So continuing with the factory analogy, and Toyota, how much time, how many cars can the Toyota production system produce an hour? That's a throughput measure. How many cans of Coca-Cola run off a production line? That's a unit production measure, throughput measure. Satisfaction throughput is a little bit weird, but it's one of the fun ones in my opinion. It's a measure of how much time it takes to create a happy customer. So from the time somebody becomes a prospect to the time they are deliriously happy because you've delivered so much value to them, how long does that take? Now we talked a little bit yesterday about the benefits of products type businesses and that they can scale. You can serve lots of customers with the same thing. And we're going to talk about the two ideas that really go into this idea of a business that is scalable versus a business that is not. And the first idea is duplication. And duplication is the ability to reliably reproduce something of value. You design it once, you make lots and lots and lots of copies of that thing and sell it to lots and lots and lots of people. That's duplication. So you can think of a Starbucks location as a system that is designed to duplicate shots of espresso. That's what they do. The whole store makes lots and lots and lots of shots of espresso. A McDonald's location is a system designed to duplicate Big Macs. There is a design you make lots and lots and lots of copies of the same thing. That's duplication. Now multiplication is the idea of duplicating a system that can duplicate a product. So for example, if Starbucks is a, or Starbucks location is a system for duplicating shots of espresso, you can duplicate entire Starbucks locations to serve more customers. Which is why sometimes in big cities, you see a Starbucks right across the street from another Starbucks because they wanted to serve more customers in that location. And the easiest way to do it was to just make another one. So you see the really big businesses in the world that are expanding really rapidly, they have a product that they can duplicate, make lots of cop copies to serve lots of people. And then they duplicate the entire system that duplicates and they multiply the number of customers that they can possibly serve.
They duplicate it predictably too.
Exactly. So it's uniform, consistent and reliable. Yes, exactly. So the businesses that you see explode out of nowhere to serving millions and millions of people all over the world, they are multiplying a system that duplicate something so they can serve lots and lots of customers. So we're defining scale here as the ability to both duplicate, reliably duplicate or multiply a process as volume increases. So when more people want this thing that you have made, you either duplicate more or multiply the systems that allow you to duplicate, and as your volume or demand increases, you can ramp up the volume to serve that number of customers. You know what doesn't scale? People. Can't clone yourself. You can't make more of you as volume increases. So if the business is reliant on human input, not a scalable business.
So I've been told.
Yes. It's a big challenge. So the smaller the level of human involvement, the more systems and processes and machines and automation you have involved, typically the more scalable the business. Now, two related ideas about improving scalable business. The first is accumulation. And accumulation is small helpful or harmful inputs or behaviors that produce huge results over time. So imagine, use Starbucks as an example, imagine Starbucks comes up with a way to decrease the amount of time it takes to produce a shot of espresso by five seconds. Small change, it's only five seconds. Not that big of a deal. Until you think of the number of shots of espresso that Starbucks location makes in a day. That's potentially saving hours and hours of effort, which allows that store to serve more people more quickly. Unit throughput increases, satisfaction throughput increases, dollar throughput increases. It's a big improvement with very small change. That's accumulation, those benefits add up over time. Now amplification is what happens when you make accumulating changes and you roll that out across all of the Starbucks locations in the world. You make this five second change that accumulates in a single store, but you multiply that across all of the Starbucks locations that exist all around the world. And all of a sudden Starbucks may be making millions or potentially billions of dollars over the next 10 years by a very small change that saves a little bit of time producing a shot of espresso. So the larger the system, the more scalable the system, the more very small changes produce massive, massive results over time. Couple more ideas and we'll take a break. Barrier to competition. So we've spent some time talking about competition and whether you should worry about it or not. The best way to worry about your competition is to make improvements to your value stream in a way that makes it more difficult for your competitors to compete with you. Every single improvement that you make to your value stream, your ability to create and deliver value to a paying customer, every improvement you make makes it much harder for people to do what you do. So instead of spending a lots of time and energy really worrying about what your competitors are doing, just focus on your business and improve it as much as you possibly can. And if you do that, you'll win. A force multiplier is a tool that helps you amplify your effort to produce more output. So for example, if you need to drive a nail into a board, using a hammer is more efficient than using your hand. Less painful too, right? And the reason that works is because what a hammer does is it's a tool for concentrating the force that you are applying by swinging your arm into a very small point where it's most effective. It's a tool. It's a tool that amplifies your output. So a force multiplier is anything that allows you to get more results for the effort and energy that you're already expending trying to do something. So things like factories are force multipliers, tools that help you get better results, whatever they might be. A force multiplier in a photography business might be a better camera or a better lens. Something that helps you get more bang for the energy that you're already expanding. Now, generally the only good use of debt or outside capital is to obtain access to force multipliers that you otherwise wouldn't be able to afford. So if your business idea requires tooling up a factory production line to produce a product, borrowing money, or getting outside investors to get that line sooner rather than later is probably a good decision because you're getting more result for the effort that you're putting in. Spending a whole bunch of your investors money on fancy air on chairs, on the other hand, don't multiply your output. Therefore it's probably not a good use of those funds. So in general force multipliers free up your time and energy for better and more productive things. So if you have a choice, obtain the very best tools that you possibly can afford, because the scarce resource, when you're running your business is your time. If you use the best tools that you can get your hands on, you get more output for the amount of time and energy you're putting in. One more idea. This is an idea called systemization. And systemization, a system just to define it very quickly, is a process that is made explicit and repeatable. So the primary benefit of creating a system is that you can examine what is necessary to get from point A to point B. What is the process that I am using for example, when a prospect shows up? How do you deal with them and how do you treat them? How do you go through the process? What's the process for me creating something of value? What's the process for me delivering that thing? What is point A, what is point B and what are all of the steps in between? Now most business people, particularly most new business people kinda wing everything. Like, yeah, I'll make it up as you go along. You kinda do it a little bit differently each time. That is not the best thing to do if you want your customers to have a high quality experience, right. 'Cause you need to make sure you're over-delivering on those expectations. You need to make sure your uniform and consistent and repeatable so you're a reliable provider. Defining the process, creating a system and making sure that system is followed is the most important thing you can do to make sure your customers are happy, satisfied every single time. So checklists, which we've already talked about are a very big deal. All it takes is sitting down and writing through the process of what it takes to do something.
Josh Kaufman is the author of the #1 international bestseller The Personal MBA: Master the Art of Business as well as the upcoming book The First 20 Hours: Mastering the Toughest Part of Learning Anything. Josh specializes in teaching professionals