Uncovering hidden value

“Price is what I pay, value is what I get” is how Warren Buffet neatly explains the two sides of a value exchange. The share-price of Berkshire Hathaway is testament to his supreme ability at doing this very well.

The secret of his success is, in part, due to his ability to find businesses with whom customers have strong relationships.  But that’s not just about understanding the service provided and the return it achieves; its about understanding the ultimate value customers derive , as it they who drive the return.

This is an unusual talent most people don’t have. Without this knack, the value derived by customers is largely hidden, either because customers are too distant (eg sell via distributors or resellers) or because they don’t care to find out.  That’s not a problem so long as our backers get the return they want but if they’re not, its an essential thing to know.

Three reasons why: Firstly, if you know what value customers get, your investments in product developments and marketing will engage them far more saliently; secondly, you’ll fend off competitors much easier when customer identify you with things they value; and thirdly, when you get known for this, your business becomes more resilient in the longer term.

All of these are characteristics Buffet values. To become like a firm he might buy,  all you have to do is to take the time to identify what’s the other side of the exchange, what drives the return. It leads to much happier exchanges for everyone.

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