Jul 9, 20222 min
I really like business guru Alex Hormozi's view on value. His equation is so simple, yet so spot on; and simplicity like this is typically a mark of years of reflection and exploration. He says Value = (Dream Outcome x Perceived Likelihood of Achievement) / (Time Delay & Effort & Sacrifice).
To put this into an example: you own a bungalow on a remote tropical island; we'll call it SHACK 1. Your potential guests' dream outcome is to vacation on a remote tropical island (so remote they get to brag about being the first among their friends to discover it). Straight away, you've created value just by existing. You've increased the likelihood of this dream outcome happening by taking on the risk and capital to build a safe space, and you've made the time delay and sacrifice very small (a guest can just book the trip and fly out without needing to build a structure and all the planning that comes with it). Now let's say you have competition. There is another bungalow owner on a similar remote island, we'll call it SHACK 2. SHACK 2 looks prettier — thus increasing the dream outcome variable. SHACK 2 is much farther away, thus increasing the amount of flight time needed to get there and increasing the sacrifice of PTO time. SHACK 1 has no reviews — thus making guests weary that the perceived likelihood of achievement in having a successful vacation is low. SHACK 1 is in the guest's same country, while SHACK 2 will require guests to have a passport, increasing the effort and sacrifice needed to get there.
It makes it fun to look at business from this perspective because it gives a simplistic framework from which to make decisions. Of course, it's nuanced and there will always be exceptions, but it works very well for 99% of situations.