(…even before you begin to read…a caveat! It will be a post longer than the earlier ones…So read it only if the topic interests you or when you are in a mood to really ‘read’)
Sometime back, an institution invited me to speak on ‘Entrepreneurship’. I have always believed that entrepreneurship is a way-of-living rather than just a way-of-working (more on this concept in some future post). I opine (agreed…prejudiced!) that it is one of the most misunderstood words around. We have made it sound much more idealistic and abstract than it in fact is (although there surely is a conceptual side to it). I tried to disambiguate it in that session…
Let me express my thoughts on its concrete side (in a narrow aspect)…
I define Entrepreneurship as ‘Value-creation for all stakeholders, through innovation’.
As Value = Benefits/Costs (here ‘/’ means ‘upon’)
So the two ways of increasing value are: 1) Increase the benefits (both tangible and intangible) for the same cost or 2) reduce the cost for the same benefit; or do both (ideal!).
Let me try to explain this through an example (I consider myself a mathematically-challenged person, so don’t worry if figures scare you at the outset…just read on, it is simple basic stuff!)
Say, the prevalent practice (original proposition) is:
- A thing costs 13 Rs. to vendors
- People buy it in 15 Rs. (vendors earn 2 Rs.)
- People sell it to the customers at 20 Rs. (people earn 5 Rs.)
Case 1) If you also do it, then it is more or less called trading
Case 2) Say, you pressurize/negotiate with the vendors well. So now:
- A thing costs 13 Rs. to your vendor
- You buy it in 14 Rs. (vendor earns 1 Rs, -1 from the original proposition)
- You sell it to the customers at 20 Rs. (you earn 6 Rs, +1 from the original proposition)
Value-creation for: Owners (not for vendors & customers).
This is called business
Case 3) Say, rather than doing any of the above things, you decide to sacrifice a bit. So now:
- A thing costs 13 Rs. to your vendors
- You buy it in 15 Rs. (vendor earns 2 Rs, same as the original proposition)
- You sell it to the customers at 19 Rs. (you earn 4 Rs. -1 from the original proposition)
Value-creation for: Customers (not for owners & vendors).
This is called ‘Socialistic business’
Case 4) Now, say, through innovation like technology, right-sourcing, cost-cutting, reorganizing, helping optimization on vendor’s side etc., you bring the cost to the vendor down to 10 Rs. (without compromising on quality) And now:
- A thing costs 10 Rs. to your vendors
- You buy it in 13 Rs. (vendor earns 3 Rs. +1 from the original proposition)
- You sell it to the customers at 20 Rs. (you earn 7 Rs. +2 from the original proposition)
Value-creation for: Owners & Vendors (nil for customers).
This is called better business
Case 5) Now, say, through innovation, like technology, right-sourcing, cost-cutting, reorganizing, helping optimization on vendor’s side etc., you bring the cost to the vendor down to 10 Rs. (without compromising on quality) And now:
- A thing costs 10 Rs. to your vendors
- You buy it for 13 Rs. (vendor earns 3 Rs. +1 from the original proposition)
- You sell it to the customers at 19 Rs. (you earn 6 Rs. +1 from the original proposition)
Value-creation for: Owners, Vendors and Customers (as now it costs 1 Rs. less to them)
This is called Entrepreneurship… because if you compare this to the original proposition then you have created value for all the stakeholders.
Case 6) Now, say, through creativity, innovation, observation or vision (and of course technology, reorganizing etc.), you add unprecedented features/qualities/feel-goods to your offering and now:
- A thing costs 14 Rs. to your vendor
- You buy it in 17 Rs. (vendor earns 3 Rs. +1 from the original proposition)
- You sell it to the customers at 24 Rs. (you earn 7 Rs. +2 from the original proposition)
This is also called Entrepreneurship… because although at a higher cost, you fulfilled the higher wants/desires of the customer and thus in the process still created value for all the stakeholders.
Although all the terms/calculations above are used in a narrow context, tweaked to aid simplicity…I still abide by the BIG-picture thought that Entrepreneurship is ‘Value-creation for all stakeholders, through innovation’.
PS:if this post seemed heavy to you then I promise I will write my next post on Romance…but I am on my knees, please please please don’t stop reading the blog!!!!…Just kidding!!
