Creating capital value

BY MATTHEW D. MOHR

The basic objective of any sustainable business must be to deliver value to their customers. Sometimes value comes through innovation, other times by competitive force. Capital decisions are made to enhance business, hopefully to create more profits, and profits come only by creating value for the customer.

A Fargo business owner once invested over $1 million in a new production machine. He looked to banks to finance the machine, which were initially skeptical of the investment. He explained the machine would allow him to produce new products which were superior to his current offering, and through sales efforts and new business gained, his profits would be magnified. The old machines did an adequate job, but the new version was faster, better, and produced a higher-quality product. He was absolutely right and was wildly successful for a number of years. The business owner was able to finance the machine, but only because of his reputation and skills.

This new machine allowed the entrepreneur to sig- nificantly add value to his sales proposition. Unfortunately, over time, the business was attacked by others offering similar products at cheaper prices. The entrepreneur fought off the competitive pressure through innovation and personal service, but after health issues prevented him from taking care of his customers, competitors gained ground. Eventually, the people who replaced the entrepreneur bowed to competitive pressure and cut prices and sacrificed quality. Over time his value proposition was lost and his business failed. His product buyers saw their businesses decline right along with the cheaper items they were using.

A commitment to expending capital to add value is smart business, but it takes directed effort to continually add value and not fall victim to competitive pressures and lose the value you create. PB

Matthew D. Mohr CEO, Dacotah Paper Co. mmohr@dacotahpaper.com