Valuation versus Value creation

One of my friends, who heads HR of a large start up group  suggested that I should write about this topic. At first, I felt that I had no experience of a start up and hence may not be qualified to write. But later realised that life is no different than a start up in its own way. So I agreed to make an attempt.

Many start ups around the world are born out of a great idea and then the promoters convert that idea into reality and try to commercialise it so that they can make money. Most enterpreuners have succeeded in life this way. However, it is important to remember that not every start up succeeds and not every idea fails in the market place.

If we look at the Indian IT and services industry, they all started as service providers and are growing up the value chain. In the services sector, cost of operations is the competitive edge for the organisation. So , we have seen in our life time that many shared services have already moved away from high cost countries to lower cost countries. Similarly, IT services will also transcend to markets, which can provide the same service at a lower cost.

One of the reasons many IT companies have focussed on product development is because products create value to the customer and cannot be replaced by lower cost products unless they can create the same or higher value to the customer. This is possibly the reason why a high quality product always sells at a premium and cannot be easily replaced in the market by competitors.

However, in the start up eco system, the competition today is not to create better value to customers but more value for their own brand to later sell it in the market place. This is the “key difference” between value creation and valuation. Many start ups are vying with each other to create better valuation so that they can make a fast buck when the market is hungry and they can disappear from the competitive landscape. However, the start ups which focus on value creation for their customers are the sustainable ones and will always sell at a premium. In short, “Valuation” could be creating value for self while “Value Creation” could be considered as creating value for others.

I realise that our life is no different. Whether as individuals or as professionals, if we focus on our valuation based on our income or wealth, we are in the race for valuation of ourselves as a commodity. It does not matter if we are selling ourselves as commodities in the marriage market or in the organisation market place. On the other hand, if we evolve as balanced individuals creating value to our family members and society at large by contributing more than what we get from the communities around us, we create value and that becomes sustainable and invaluable.

So, it does not matter if we are a start up or an individual growing up in our respective space. We need to learn to create value to our customers or family or community around us. If we focus only on accumulating wealth without any value addition to others, we may fade as fast as we made an impact. The choice is ours always. It is upto us if we are interested in value creation or not. Either way one can make an impact. One is positive and sustainable when you create value for others and other is negative since wealth does not necessarily create positivity and value for others always.

Just as in the photo above, the time we spend with our friends is value creation as long as we do not evaluate it in terms of return on time spent with them. As otherwise, it would become valuation.

Life is like a start up. Let us focus on value creation and not be swayed away by the ephemeral cycle of valuation.

S Ramesh Shankar

27th July 2022

5 thoughts on “Valuation versus Value creation

  1. Extremely insightful views…great.

    A choice we make as individuals in the organization, market, family and society.

    Difference lies in selecting between Status (Valuation) and Stature (Value Creation).

    Businessmen look at Valuation whereas Industrialists aim at Value Creation.

    One may start aiming at Valuation but need to focus on augmenting it further, to transcend into Value Creation.


  2. It’s a nice thought on pursuing value over valuation. Extrapolating the same more on a philosophical or spiritual realm.. One must be operating at a higher lever consciousness to really choose the path of value when the Society operates at the level of valuation. One must have the calling to sustain value over societal pressure of valuation. How many of us can really sustain it?


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