Chapter 9: Part 3 – Reshaping value systems

Another reason is that the types of value creation in the market have changed. The development of productivity driven by technology has generally ensured the production of goods that sustain human life. Today’s global poverty and other social problems are essentially social distribution problems not caused by insufficient production capacity. For example on the one hand children from poor families lack adequate nutrition. But on the other hand people are pouring milk into rivers. This is not a problem of production capacity. Therefore in fact a large number of products and services in the market are not to ensure life but to meet psychological needs.

Social psychologist Abraham Maslow proposed the famous “hierarchy of needs pyramid” and realized that the levels of needs are different. And the lowest level is physiological needs. After meeting the needs of survival humans will gradually generate more needs layer by layer. These needs are all psychological needs.

Therefore value can actually be divided into two types one is “life value” which is important for us to survive. But due to the development of productivity this part of value that can be converted into wealth is not high now. Except for a few medical projects most products in health industries such as agriculture or medicine are relatively cheap. As we have been emphasizing low fees actually reflect low value recognition. Our economy really depends on or creates the second kind of value: “psychological value.” We buy beautiful clothes not just to keep out the cold but to be recognized. We buy houses not just to have a place to sleep but to show our social status. We dine together or even just enjoy food alone we are looking for psychological satisfaction. It should be emphasized that most of these “psychological values” are related to right-brain perception. Therefore for today’s enterprises most of them are engaged in businesses related to “psychological value.”

Here it is necessary to point out a special kind of value which we call “economic value.” It is characterized by increased efficiency and mainly serves enterprises. Therefore you will find that it actually still serves the former two. It is essentially not a separate value but a measurement indicator extended from “life value” and “psychological value.” It’s like using color to represent height on a map there’s no real color on the ground. It just looks like color but it’s actually height.

For example you develop a management system for a catering company. On the surface this system is to improve the management efficiency of their restaurant. But in fact they bought this system to serve their customers. It’s used to create “life value” and “psychological value” for their customers. And in order for this company’s employees to use this system well you also need to give them a good “user experience” which means creating “psychological value.”

But the problem is that this ruler called “money” is relatively poor at judging products or services with “psychological value.” How happy you will be on a trip before you travel it’s hard to measure with money. Unlike tangible goods merchants can’t directly let you “see” the feeling of happiness. The “heart road” for exchanging “psychological value” is rugged and uneven. However more and more products involve “psychological value” today which is both a challenge and an opportunity for enterprises. Because it’s hard to recognize it’s easier to form a moat for “mindset.” But for original financial data this isn’t good news because it’s not its strong field. It’s going to be laid off.

Some innovative companies seem to have discovered secrets. Evernote is a popular note-taking app. They found that “user engagement” was their leading indicator. The company’s CEO Phil Libin discovered a famous “smile curve.” Evernote once revealed that only 1% of users upgraded to the paid version after using it for one month after their first month of use. For a company with a large number of users this may already be enough but Phil found that if users continue to use the product two years later this number will further increase to 12%. That is as long as they make the product well and let users use it every day they will bring far more than expected profits to the company. Obviously they should allocate resources to tasks that can improve “user engagement” and use this as a criterion for judgment.

Product development management experts Alistair Croll and Benjamin Yoskovitz believe that one of the keys to successful entrepreneurship is achieving true focus and forming a set of disciplines to maintain focus. Therefore they proposed the concept of “One Metric That Matters” abbreviated as “OMTM”.” OMTM” is the most important indicator in your current development stage. It should be noted here that the “OMTM” is an indicator that reflects value. It’s not a technical performance indicator.

Their view is actually based on an experience: that judging a single factor at a time makes it easy to determine causality but if complex multiple factors are put together at the same time it’s difficult to read the real causality. This view is consistent with innovative practice. Therefore this method was quickly adopted by many innovative companies around the world and became the core methodology of advanced product development processes such as “Lean Startup.”

But the problem still exists and there is no consensus on which indicator in the business is the “OMTM.” Some people even suggest that there may be differences in the “OMTM” in different life cycles of enterprises or products. I have studied many key indicators used by enterprises and found that many enterprise key indicators are often related to time such as “user activity” “retention rate” “product usage time” “web page stay time” “net recommendation value” and “equipment utilization rate.” They are either time itself or related to user time.

I remember when WeChat was first launched many people told me that they could send WeChat messages to them in the future instead of sending text messages. In fact at that time a text message cost about 1 dime and both parties had to pay for it. Free WeChat can help everyone save a lot of text message fees every month. Therefore some experts wrote articles in newspapers saying that WeChat is a good product but the problem is that it has no “business model” and it can’t make money. Indeed Tencent’s Zhang Xiaolong and Ma Huateng later admitted that they didn’t know how to make money from WeChat at all. That is if according to the traditional enterprise’s “product portfolio management” this kind of product that consumes a lot of resources but cannot make a penny should be cut off immediately and resources should be released to invest in more profitable projects. Fortunately Tencent is not a traditional company. They persisted in doing it. Of course now we all know that free WeChat can not only make money but also make a lot of money.

Obviously when WeChat was first launched you couldn’t judge its value from financial indicators. This confirms our previous judgment that financial indicators are lagging indicators and cannot help us judge its value in the new product stage. But one thing even the earliest WeChat showed was that someone was using it. Users are willing to spend time on this matter. This shows that WeChat has created value.

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