Creating, giving, and receiving value is the goal of every business. To get customers to buy your goods and services, you have to create value. To attract investors, you have to create value in the form of increases in stock price.
Value is created if the revenue earned by a business exceeds the expenses incurred (a financial perspective).
However, value creation goes beyond strict financial measures. It is gaining popularity as a better management goal which can be beneficial in the short-term or long-term. For this article, our focus will be on long-term value creation in your startup.
What Does Long-term Value Creation Mean?
Simply put, long-term value creation is a sustainable strategy created with a distinct purpose in mind, to sustain a business for the long term. This is in contrast to short-term value creation, which like the name implies, is for a short period.
Over the past few years, the changes in many industries and businesses have been on the rise. CEO’s tenures are becoming shorter, businesses and companies are experiencing a reduction in their life spans, and of course, active investors’ increasing demand for short-term plans. All these are reasons why creating value for the long term is an idea several people are not pleased with. However, several studies show that creating value for the long term is more beneficial than building for the short term.
Why is Long-term Value Creation Important to Your Startup?
- Long-term value creation creates a superior and more stable financial performance
It is no secret that companies, businesses, or establishments that focus on long-term goals experience a more stable financial performance. This is because they experience higher revenue earnings and market capitalization growth when compared to those focused on the short term. This fact has been proven by many statistics pulled out from research carried out by different bodies.
Regardless of wherever you are or planning to go in the world of business, you cannot create long-term value by ignoring the needs of all the concerned parties. You have to satisfy the needs of your customers, employees, and suppliers.
Nonetheless, you should know that this investment for sustainable growth most times always results in higher living standards, stronger economies, and more opportunities for individuals. It is a catalyst for progress as it may; significantly increase the rate of literacy, lift millions out of poverty, or even foster innovations that may improve the quality of life and lengthen life expectancy. Best of all, it favors your startup first.
- Long-term value creation is also an effective strategy in an economic breakdown
Establishments, companies, or businesses that focus on creating long-term values will have better financial performances even in the case of economic breakdown. This also applies to your startup.
This immunity is enjoyed because their focus is on the long-term. As such, they would have made a plan that will offer some resistance to the changing economic conditions. This opposes that of establishments with short-term views, which will only respond only when they are impacted.
What Do You Need to Create Long-term Value?
To create long-term value in your startup, you need to develop the ability to create societal and economic value simultaneously. You also have to be willing to keep investing in the long term, even when there is increased pressure for the short term. In simple terms, you need to have the skillset and the mindset to create long-term value.
- Skillset
Skillset refers to knowing social values, financial values, and environmental values coupled with their interactions. This is a skill you must possess or can access. It prevents you from getting stuck in the moment and helps you to focus on the future continually.
You have to be able to identify the financial values (the future societal trends that will affect the development and performance of your plan in the future) that matter. Also, you should be able to identify the social and environmental values (the impact of your plan on nature and society).
- Mindset
The mindset is more like the level of preparedness to invest in the skillset in an integrated way. The success of long-term value creation depends on how “integrated thinking” is applied. So, if you want to create a highly successful long-term value, do a lot of “integrated thinking.”
How to Create Long-term Value In Your Startup
Creating long-term values requires you to satisfy the needs of all the parties involved, such as your customers, investors, employees, and others.
Here are some steps to creating long-term value
- Know what value means to all the parties involved
To create value, you have to know what it means. Value is tricky and can mean different things to different people, thus making it very hard to measure.
This is why it is imperative that you clearly understand what this means to all the parties involved. What are their needs? Which of them are most important? How can you design a plan that will achieve their goals in the long run?
For example, in a catering business, your customers’ definition of long-term may include consistent quality and tasteful pastries, training classes, or more. This will differ from your investors’ definition of long-term value.
By getting to know what value means to all the parties involved, you understand what drives them. And by doing so, you will be able to create a plan that can successfully achieve their goals in the long run.
- Communicate
Since you know what value means to everyone involved and already worked out a plan, the next thing is to communicate to them. The idea of communication is to make the involved see and understand the value of your plan. This is very important.
- Maintain a consistent workflow
You have a plan that you have communicated to the involved parties; the next step is to make the plan work.
To do this, you have to combine processes, methodologies, etc., to ensure your plan is accomplished. You also have to ensure the workflow is consistent and everything is going according to plan.
- Measure progress and report
If everything is going according to plan at this point, then you are making progress. If not, start accessing what could be wrong and find a solution that will get your plan back on track. Then, inform the parties involved of the progress you have made.
Conclusion
Every business needs to earn and create value to thrive. The duration of the value created is just what differs – either for the long-term or short term. However, long-term value creation has proven over the years to be more beneficial to businesses. Incorporating long-term value creation in your startup’s business goal is a strategic way to increase customer retention and loyalty, increase investors’ trust, and succeed at your business.
References
Deloitte: What do we mean with ‘long-term value creation’?
McKinsey: How executives can help sustain value creation for the long term
CFOperspective: How Does Value Creation Lead to Business Success?
Mbopartners: 4 Ways to create long term value for your clients
About AbstractOps
Setting up and running your business operations as a new CEO or first- time entrepreneur can be demanding. We recognize this challenge, that is why we offer these services at AbstractOps. To help you focus on building your business, we also help with new employee orientation and training. To enjoy our service and get more information, email us at hello@abstractops.com.