Business is people creating something – a pizza, a car, an airline, a car wash, a phone, etc. – and other people then buying or consuming what was created.
Conventional means of thinking encourage the view that the “creators” are the ones that create things of value and that consumers then merely consume those things. But since sellers wouldn’t exist but for buyers, the total value created (for the sellers and the buyers) in each business transaction is an important metric.
This total value is what I call “B minus C”.
So what is B and what is C?
If B represents the value of any item or service to you and you pay P for it, then YOU have captured (B – P) of that item or service’s value (economists call this consumer surplus).
The company offering the item or service is selling it for P. So if you assume that their cost is C, then THEY have captured (P – C) of the value.
So the TOTAL value captured in the transaction
= (B – P) + (P – C) = B – C.
From the day I encountered it in my first strategy class at Kellogg, I thought it was fascinating.
Hence the name.
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