How you create value
The product or service you plan to deliver to potential customers needs to be valuable to them or else you will not be successful. In general, you create value when you transform some combination of information, materials, energy and action into some new form that makes someone else happy.
As an example, in making and selling beer, which has been happening since ancient times, the entrepreneur takes materials in the form of water, barley and yeast, and puts it into a pot, he or she then applies information they know as a formula or instruction of how beer is made, to go through a set of actions that apply the right amount of energy in the form of heat at the right time and then let the concoction sit for a while to brew, before taking more actions to put the beer into clay pots—which are more materials—to sell in the marketplace, which are more actions.
The point is that most people would not be very happy receiving a pot of water and various ingredients, along with some instructions and then having to get wood to make a fire to then go through all these specialized actions to make their own beer. The value is created by the brewer in doing this transformation, which makes lots of beer drinkers so happy they gladly give the brewer money in return.
The two ways value is created
What is critical to understand is that you can do these value creating transformations in only one of two ways: as a project or as a process. Understanding the difference and when to use one method or the other is what will make you successful and withstand competition.
A project is a set of tasks performed once by a team of people to use materials, information, energy and actions to create something new or to make something better.
A process is a set of tasks that people repetitively perform to transform materials, information, energy and actions into something more valuable.
In our example, one brewer might make each batch of beer differently by varying the ingredients, quantities, times and temperatures to see if he can make his beer taste better and better. This brewer is exclusively using a series of projects to create value, which he hopes will make better and better tasting beer.
Compare that with the brewer on the other side of the village where she uses the same ingredients, mixed in the same quantities, for the same time at the same temperatures each time. And because nothing changes, she can hire and train the teenage boy next door to do the mixing and brewing exactly as she would so she can then have time to sell more beer herself. These are two distinct types of beer businesses that deliver happiness in very different ways.
How projects and processes are different
Projects are something that has never been done before, while processes are doing the same thing over and over again.
You use a project with a goal to create something new or to make a change or improvement. With processes the goal is to create more of the exact same thing.
Projects are less efficient that processes, but processes can only be created with and by a project, so processes require up-front investments. The up-front cost will be partially repaid each time the process is repeated.
You monitor a project by setting up milestones that mark progress and noting when they have been achieved. Processes are monitored by counting the number of products or actions that have been finished in a given time.
With a project you can never be sure about the quality of the output. When produced by a process, the final product is more uniform and likely to satisfy repeat customers.
Projects involve assembling a team of people that work together for a period and then disband once the project is finished. Processes are performed by permanently assigned and specifically trained people.
It is easy to change project objectives and plans even after a project has started. Processes can only be successfully changed with significant planning and investment. A project is required to change a process.
Projects create change and processes resist change.
Projects require someone to lead the effort that has a vision of what the output should be like whereas processes require monitoring by someone who diligently makes sure every step is done properly.
Knowing when and how to pick the right method
By understanding these differences, startup leaders can understand when it is best to use projects to create value and how to monitor, staff and lead them, versus when and how to create and monitor processes. In general, because processes are hard to change, you need to do several projects to determine the best ingredients, formulas, settings, and actions to use repetitively. And then you need another project to create and launch a process.
As we will see in sprint 15, as enterprises form and mature they need different mixes of projects and processes, and therefore different types of leadership. Founders need to be able to do both types of value creation.
How culture impacts value creation
Culture has a direct impact on your productivity and the productivity of everyone that works for you and with you, for better or worse. Many founders are not aware of the importance of culture and therefore let culture develop randomly and inconsistently, resulting in lost profits and higher chances of failure. Savvy founders craft a culture that focuses everyone’s efforts on delivering what the founder feels will be the business’ competitive advantage.
What is culture?
A simple and useful way to think about culture is to realize that it is created directly from how people sense they can be recognized and rewarded by the organization.
Culture is created and propagated far more strongly by the informal ways people are recognized and rewarded than any formal set of rules or written descriptions of culture. The founder often has the most authority and influence, so he or she usually plays the most important role in creating culture. But he or she does not play the only role. As an organization grows, people will start to report to other than the founder and how these people offer recognition and reward becomes important. If new people of authority deliver their recognition and rewards very different in style or content, then the culture can be diluted or become chaotic.
To create consistent and strong cultures, founders need to make sure EVERYONE with responsibility and authority for other employees, contractors and suppliers doles out recognition and reward with similar repercussions.
How does culture align with productivity?
How promotions and bonuses are given shape culture, but often not how founders may think. If the reasons for the promotion or bonus are not clear to everyone, people will make their own guesses or listen to rumors about why that happened. People will then start acting to increase their chances for positive recognition based upon erroneous information.
For example, a common speculation is, “She got the promotion because she is a good friend.” If this reason becomes widely accepted, even if it wasn’t true, the founder and the leadership team lose their ability to motivate employees to want to improve their skill sets, and the culture will move towards being nice and saying “yes” rather than constantly improving competitiveness.
Informal recognitions matter a great deal because they revolve around how much and what type of personal initiative can be exercised in performing one’s responsibilities. Do you get praised, ignored or yelled at for taking initiative? Taking personal initiative to act in the best interest of a customer can be important to a company’s reputation as having great customer service, but if personal initiative can result in public shaming, then initiative will not be taken, and customer service will never be better than mediocre.
Similarly, are unsolicited improvement ideas accepted and acted on, or ignored? If they are ignored, then improvement ideas will dry up and people will only do what they are explicitly asked or expected to do. Although reacting to improvement ideas takes time and slows the instantaneous pace of improvement, rewarding good ideas sometimes offsets that cost. If the founder and leadership team are themselves not creative in their problem identification and solving, then the company will not be viewed as innovative by customers or employees.
Little things matter
How you direct yourself and lead your life will play a big role in shaping the culture of your enterprise. Here are some characteristics we all have that will send a message of what the founder will recognize and reward, for better and worse.
Are you on time? What do you say or do when somebody is late to a meeting?
Do details matter or are founding principles more important to get right? People will learn how to present ideas to you that impress you and in turn structure discussions so that the details or founding principles are even more clearly articulated.
Are you neat; are your clothes and desk always clean and organized? If you are tidy, then some people will become even tidier to get noticed by you.
Do you like meetings? How you run meetings will influence how everyone else runs meetings.
Do you say “hi” to everyone or only people you know or only people that are important to you? If you know everyone’s names, everyone will consider that important.
Everyone around the founder will make adjustments to be more favorably recognized in subtle ways. It is not that culture changes peoples’ personalities and they suddenly are always on time, but people will start being less late and they will start their meetings on time if you do and you say time is important to the success of the enterprise.
What sort of culture is best?
It depends upon both: 1) what you want your competitive advantage to be, and 2) how much time and effort you are willing to invest in creating AND KEEPING ALIGNED the culture you feel is important.
If your business succeeds based upon being the lowest priced alternative in the market, then you need to create a culture where nobody wastes time, especially you. Such a culture makes the entire staff feel good about themselves based upon how much product or service they deliver day in and day out. Even just an offer to share a drink after work whenever a new productivity record helps maintain constant focus on costs.
A business that succeeds based upon influence and glamor will be more successful with a culture focused on supporting efforts to correctly forecast fashion trends, find new influencers, as well as maintaining social relationships with the leaders of critical suppliers. Employees that are not influencers themselves can be recognized and rewarded for their sense of fashion and fashion trends. They could be offered opportunities to meet influencers.
Some businesses succeed based upon team efforts, for example in many service-establishments exemplary service requires highly coordinated efforts of many individuals. It would be important for such a culture to recognize and reward team over individual efforts. The rationale of any individual recognition or reward would have to be carefully explained to everyone or else it could lead to people feeling they should act more independently, at the expense of teamwork.
Loyalty and turnover of key individuals are always impacted by founders’ decisions on how much to emphasize promotion from within, versus hiring people with special skill sets from the outside. Firing individuals whose skill sets are no longer required sends a profound message to all employees to constantly look for other jobs. While promoting from within creates more loyalty and longevity, it requires investing in almost constant training. It also requires the development of new products and services to ensure advanced skills have ample opportunity to contribute to company success.
Startup leaders need to be the masters of projects, processes and culture.