The Value Stick Framework
Strategy becomes clearer when viewed through the lens of value creation, measured by the gap between customer willingness-to-pay (WTP) and employee/supplier willingness-to-sell (WTS). This “value stick” represents the total value a company delivers. By focusing on extending this gap—raising WTP and/or lowering WTS—companies naturally improve performance. This framework simplifies decision-making: assess every initiative by its potential impact on these two fundamental metrics rather than getting lost in complex strategic models.

Three Levers for Increasing Customer Value
Companies can increase customer willingness-to-pay through three primary mechanisms: improving core product quality, developing valuable complements, and creating network effects. Understanding which lever works best in your specific market context is critical. For example, while product improvements might yield incremental gains, complementary products (like apps for smartphones) or network effects (like more users on a social platform) might multiply value exponentially. Successful companies systematically identify which levers will create the most customer value in their specific context.

Value Creation vs. Value Capture
Exceptional companies prioritize expanding the total value created (the length of the value stick) before worrying about how much of that value they capture as profit. An excessive focus on business models and value capture mechanisms can lead to short-term thinking, zero-sum approaches, and customer/employee alienation. Companies like Amazon demonstrate how prioritizing customer value creation over immediate profit extraction builds stronger competitive positions over time. This principle challenges conventional approaches that emphasize maximizing margins over maximizing value.

Near Customer Opportunities
Significant growth often comes from converting “near customers”—potential customers who aren’t currently in your market but could be persuaded to enter it. Traditional market research focuses on existing customers while ignoring this valuable segment. Understanding barriers preventing near customers from entering your market can reveal untapped opportunities for product adaptation or education. Companies often overlook these opportunities because they assume people not currently buying have no interest, when in reality they face specific obstacles that could be addressed.

Complements as Strategic Assets
Complementary products often drive more customer value than improvements to the core product itself. Strategic decisions about whether complements should be proprietary (exclusive to your product) or open (compatible with multiple products) significantly impact competitive position. This choice depends on whether your goal is to grow the overall category or secure advantage for your specific product. The relationship between core products and complements follows predictable economic patterns: when the price of one falls, demand for the other typically rises.

Beyond Commoditization
Product commoditization is often accepted as inevitable market evolution, but this perspective reflects a lack of strategic imagination rather than reality. Companies that view their offerings as commodities have stopped seeking ways to meaningfully differentiate. Successful companies continually find new dimensions of value even in seemingly mature markets. This mindset shift from “competing in a commodity market” to “creating unique value” opens new strategic possibilities that competitors miss.

Network Effects Mechanics
Network effects create value through specific mechanisms that vary by context, not just through generic “more users = more value” dynamics. Understanding whether your product benefits from direct effects (same-side value increases), indirect effects (cross-side platform value), or data network effects (improvement through usage data) helps assess competitive dynamics. Each type creates different barriers to entry and competitive advantages. Companies succeed by designing specifically for the network effect type most relevant to their market.

Q: How is the “value stick” framework different from traditional strategic approaches?

A: Traditional strategic frameworks often focus on competitive positioning, resource allocation, or business model innovation. The value stick simplifies strategy by focusing on just two fundamental metrics: increasing what customers will pay (WTP) and decreasing what employees and suppliers require (WTS). This creates a practical decision filter that any manager can apply: “Will this initiative increase customer value or decrease supplier/employee costs?” Unlike complex frameworks that require extensive analysis, the value stick provides an intuitive lens that connects directly to financial performance.

Q: Doesn’t focusing on value creation instead of profit hurt financial performance?
A: Counterintuitively, focusing on value creation typically leads to better financial outcomes than focusing directly on profit. When companies obsess over short-term profit extraction, they often make decisions that undermine customer and employee value, eventually hurting long-term performance. By extending the “value stick” (increasing WTP and decreasing WTS), companies naturally create more value that can be captured as profit. The key insight is that profit follows from value creation rather than from profit-focused initiatives that might actually destroy value.

Q: Why do companies fall into the trap of seeing their products as commodities?
A: Companies often accept commoditization as an inevitable market reality when it’s frequently a failure of strategic imagination. Three factors typically drive this mindset: First, companies focus too narrowly on product features rather than broader customer value. Second, they benchmark against direct competitors rather than customer alternatives. Third, they become trapped in industry conventions about what’s possible or important. Breaking free requires systematically exploring new dimensions of value beyond traditional product attributes and questioning assumptions about what customers truly value.

Q: How do you decide whether complements should be proprietary or open?
A: This decision hinges on whether your strategic goal is to grow the overall category or increase your specific product’s value. Proprietary complements (like Apple’s exclusive apps) increase WTP only for your product, creating competitive advantage but potentially limiting category growth. Open complements (like Android apps working across manufacturers) help grow the overall market but provide less product-specific advantage. Consider your competitive position: market leaders often benefit more from proprietary approaches, while challengers might benefit from open systems that expand the overall market.

Q: How can I identify and convert “near customers” into actual customers?
A: Start by researching why non-customers don’t currently use your product rather than focusing exclusively on existing customers. Look for patterns in the barriers they face: knowledge gaps, feature limitations, price constraints, or contextual obstacles. Then develop targeted strategies: educational marketing to address knowledge gaps, product adaptations to overcome feature limitations, or strategic pricing to address affordability concerns. The key is recognizing that non-customers aren’t permanently uninterested—they face specific barriers that can be systematically addressed.

Q: If my company competes in a market with strong network effects, is it inevitably a “winner-take-all” situation?
A: Not necessarily. While network effects create competitive advantages, several factors can prevent winner-take-all outcomes: First, network effects may be geographically constrained (Uber in different cities) rather than global. Second, multi-homing (users using multiple competing platforms) can reduce lock-in effects. Third, differentiation can create sustainable niches where specific customer segments receive superior value from specialized offerings. Understanding the specific mechanics of network effects in your market helps assess whether winner-take-all dynamics are likely or if multiple competitors can coexist.

Q: How does the value-based approach apply to employee retention and satisfaction?
A: Just as you can increase customer value (WTP), you can decrease employee willingness-to-sell (WTS) by creating more value for them. Rather than focusing exclusively on compensation, identify what makes work more attractive: meaningful assignments, professional development, autonomy, or positive cultural elements. These non-monetary factors often have greater impact on employee satisfaction than simple pay increases, and they create sustainable advantage rather than compensation spirals. This approach transforms HR from a cost center to a value creation function by systematically improving the employee experience.

Q: Why do companies overinvest in operational effectiveness compared to strategic value creation?
A: Operational improvements provide clear, measurable short-term benefits and follow established best practices, making them comfortable and predictable investments. Strategic value creation requires more imagination, involves uncertainty, and often challenges industry conventions. Additionally, many leaders confuse operational excellence with strategy, believing that perfect execution of industry best practices constitutes strategy. In reality, operational effectiveness creates similarities between competitors, while true strategy creates meaningful differences in customer and employee value that competitors can’t easily replicate.

• When developing or refreshing your product strategy: The value stick framework provides a simple but powerful lens to evaluate strategic options and prioritize initiatives that will create the most customer and employee value.
• During commoditization pressure in your market: When competitors and customers treat your products as interchangeable, this book offers fresh perspectives on differentiation and value creation beyond traditional approaches.
• When preparing for strategic planning sessions: The book’s straightforward approach cuts through complexity and helps teams focus on the value creation levers that actually drive exceptional performance.
• During organizational scaling challenges: As companies grow, they often drift toward complexity in strategy and execution. This book helps realign teams around fundamental value principles that drive sustainable growth.