For a while, I thought that looking at Maslow’s hierarchy of needs was a good way to come up with business models. The problem was that solving needs didn’t seem to match very well with profitable industries. Farms and restaurants are filling one of the most basic needs: Food, yet margins and pay for both sectors are low. There is no value in food.
The diagram of Maslow’s hierarchy of needs is accurate, but it doesn’t take into account how we feel about our needs. Ever hear the saying that a wealthy dying person would pay anything for one more day? Pay anything? Now there must be value in there somewhere.
Value
Value can be made in one of three ways: Money, Time, or Emotion. The person on their death bed is asking more more time. Business models should focus on one or more of these ways to produce value. Lets look at food again and look at two companies McDonald’s and Chipotle Mexican Grill.
McDonald’s is providing value in being quick and efficient. While Chipotle Mexican Grill is providing value in the emotion of the food. There is a story behind the food and where it comes from. You feel good eating it. Either of these companies with out the value would not make money. If McDonald’s was not quick or efficient it would not exist. Chipotle Mexican Grill without it’s story would not exist. Both companies without their value would be reduced to a commodity and have lots of competition. Since all commodities are the same the only value that can be offered is price and the people willing to make less money to sell more product.
Needs
The local farms and restaurants are commodities. Most farms in America are growing corn or soybeans. These farms are no more different than each other. The family restaurant in your town is also a commodity. Unless you have a personal connection with the people running the restaurant. The reason why the profit margins are low for businesses that supply our basic needs is because they do not provide value in the form of Time, Money, or Emotion.
Watch this video for more about Value and how Warren Buffett uses it to get rich.
