What adding value looks like

One of the first pieces of startup jargon you’ll hear when creating a company is the importance of focusing on pain points, and adding value.

It’s a simple idea: talk to potential customers, find out what’s not working, create an experiment that addresses that pain point, and see what happens.

In lean startup language this is often called a MVP (minimum viable product) but it’s been around since the scientific method was invented, and maybe even longer.

For the most part, big data sets aren’t necessary at this stage. If you listen to your customers, look at their habits with respect to your product vs. what they do otherwise, you’ll find out quickly if you’re adding value to their life and/or work.

But adding value can work in a lot of ways, not all of them are real and/or sustainable on even a medium range much less long-term. Lyft and Uber used claims of revolutionizing transportation to create artificial growth and “solve” a pain point for consumers. Yet, both companies have heavily subsidized the cost for a majority of riders, and lost billions of dollars each year.

Paying $5 vs. $18 for a ride may look like “adding value” now, but once VC money runs out and/or the public markets correct the actual money in/money out it’s not going to be pretty. Medium and long-term effects also include de-stabilizing public transit, and increased CO2 emissions from cars that were previously shut off 90% of the time but are now constantly running.

Signs of sustainable growth

In a de-jargonized world, adding values looks a bit different.

It is frequently “defensible,” something that successful multiple time founders and VCs often point to as a requirement for long-term growth. This happens when there are multiple competitive advantages, especially in data, design, and technology.

A few signs that you’re adding value in the early stages of a startup…

  • You have a significant number of customers paying you for your product/service, not just some features and exuberant fans

  • You’re solving long-held and complex pain points (rather than winning mostly on price or time spent)

  • Your best customers generate recurring revenue, and are already a significant source of new customers via referrals

  • Your biggest growth mechanisms (free trials, discounts, partnerships) lead to customer segments that generate net positive revenue

Last but not least, companies that add long-term value have founders who recognize early on that they’re building an ecosystem (which requires most of the things mentioned above).

Of course, acknowledging and building ecosystems from the very start comes with a lot of responsibility (as the executives and board at Facebook are currently learning). But it opens a tremendous amount of opportunity, and if you do it well enough you’ll even have to build an internal team that solves the pain points and adds value within your own ecosystem and company.