Life in a startup is fast paced, varied and fun. But it is also a constant and chaotic struggle, a juggling of disparate issues that need attention and decisions to be made at a moment’s notice. There are employees who need directions, tensions that threaten to erupt into personal conflicts, the bank that keeps calling about refinancing the loan, the supplier who suddenly needs the blueprints earlier to be able to deliver on time, and, at the same time, an endless stream of prioritizations that need to be right.How are entrepreneurs to make order of this chaos? They face a seemingly endless stream of decisions that need to be made.There is, of course, no simple solution. But there is a way of thinking about all decisions in a startup that can help entrepreneurs quickly figure out what matters more and what matters less: focus on the forest, not the trees.What I mean by that is not simply to take a holistic approach to decision-making, but to consider the startup’s position in the economy overall. In other words, what a business actually does in the market economy and what function entrepreneurs serve. Sound cryptic? It really isn’t.Economists make a distinction between production and consumption. In simple terms, production is an activity that leads to possible consumption for oneself or for someone else. Consumption, in contrast, is the activity that directly satisfies a want, whatever it is. This distinction, like many of the seemingly simple definitions in economic theory, is actually highly insightful and extremely powerful.What I propose is to consider the distinction between production and consumption when addressing problems in the startup, but from the point of view of the economy as such, and therefore your startup’s role in it. Here are questions to answer:
1. When making a decision, does solving this issue contribute directly to the bottom line?
This is a no-brainer. If solving the problem or investing in that resource directly contributes to your bottom line, then it should be prioritized. Because addressing it means your business is both creating and capturing more value. Either by increasing sales volume or the price charged. So it is an issue that contributes to production more consumers are made better off, and so are you.
2. Does it make my customers better off?
This should be a no-brainer, but strangely isn’t. A firm’s role in the economy is simple: to produce value for consumers. In doing so, the problem for the entrepreneur is, first, to figure out how to please consumers and, second, to make sure to capture some of this value. But you have to create value to capture it, and the more you create the easier it is to capture part of it. In other words, if an issue would make your customers better off do it, even if your firm doesn’t directly benefit. It’s still production.
3. Does it strengthen my firm’s capabilities?
If solving the problem or making a certain investment would make you more efficient, cut costs or improve your flexibility, then it is not about creating value. Yes, you read that right. Value, to economists, is generated through the act of consuming (that is, value is use value). Consumers give up part of that value as payment, but wouldn’t buy your product if the price is higher than the value they get.