Small-to-Medium Business Owners & Leaders, What Business Are You Really In? How Do You Create Value, and How Do You Capture It? Do you know? (Business Strategy Perth)

When I first engage with a new client, there are three deceptively simple questions I almost always ask:

What business are you really in?

How do you create value?

How do you capture value?

Throughout almost four decades of big corporate, being a start-up entrepreneur, and advising businesses across Australia and internationally, I continue to be surprised by how few owners and leadership teams can answer these questions clearly and convincingly.

That matters.

Because these are not academic questions. They sit at the heart of Business Strategy Perth, competitive advantage, business-model design, profitability and sustainable growth.

A business may be extremely busy, employ dozens of people, own millions of dollars of assets and generate substantial revenue, yet still lack a shared understanding of why it exists commercially, precisely what customers value, and how enough of that value ultimately finds its way back to the business as sustainable profit and cash flow.

If leadership cannot answer those questions, strategy becomes guesswork.

And being busy can easily be mistaken for creating value.

Table of Contents

• Why “What Business Are You In?” Is Harder Than It Sounds
• Business Strategy Perth: Start with the Customer’s Problem, Not Your Product
• What Does It Really Mean to Create Value?
• Business Strategy Perth: Creating Value Is Not the Same as Capturing It
• Why Revenue Does Not Necessarily Mean You Are Capturing Value
• Your Business Model Connects Value Creation and Value Capture
• What I Have Learnt About Value Through Different Business Models
• The Danger of Defining Your Business Too Narrowly
• Understand Who Actually Receives the Value You Create
• Business Strategy Perth: The Value Creation–Capture Test
• Where Value Leaks Out of SMEs
• How Governance Helps Protect Value
• Practical Recommendations for SME Owners and Leaders
• Key Takeaways
• Frequently Asked Questions
• Conclusion

Why “What Business Are You In?” Is Harder Than It Sounds (Business Strategy Perth)

Ask a transport operator:

“What business are you in?”

The answer may be:

“Transport.”

Ask an accounting firm:

“Accounting.”

A builder:

“Construction.”

An investment manager:

“Investments.”

Technically, these answers may be correct.

Strategically, they may be almost useless.

A transport company might really be in the business of providing:

certainty of supply, reliability, safety and logistics continuity.

An accountant may really be helping business owners:

make better financial decisions, remain compliant and protect or grow wealth.

A removal company may think it moves furniture.

The customer may believe they are buying:

certainty, reassurance and a reduction in stress during one of life’s most disruptive events.

A mining-services company may think it supplies equipment.

The customer may actually be paying for:

uptime, productivity and risk reduction.

This distinction is profound.

Customers do not usually buy products merely because businesses make them.

They buy outcomes.

Solutions.

Convenience.

Confidence.

Time.

Reduced risk.

Better economics.

Status.

Experience.

Peace of mind.

The question, therefore, is not simply:

“What do we sell?”

It is:

“What valuable outcome are customers actually hiring us to deliver?”

That question can completely change how you think about strategy.

Start with the Customer’s Problem, Not Your Product (Business Strategy Perth)

One of the greatest strategic traps is defining your business by its existing products.

Products change.

Technology changes.

Customer expectations change.

Competitors change.

Markets change.

The underlying customer need may remain far more enduring.

This is why the principle behind Theodore Levitt’s famous concept of marketing myopia remains relevant: organisations can become dangerously focused on what they currently produce rather than the underlying customer need they exist to satisfy.

Consider a hypothetical transport business.

It may define itself as:

“We own trucks and transport freight.”

But customers may value:

• reliability;
• product arriving intact;
• regulatory compliance;
• real-time visibility;
• flexible scheduling;
• emergency response;
• accurate documentation;
• lower total logistics costs.

Suddenly, the strategic conversation changes.

Technology becomes more important.

Data becomes more important.

Customer communication matters.

Scheduling capability matters.

Network design matters.

The company may discover that its competitive advantage does not lie in owning trucks.

It lies in its capability to reliably solve complex logistics problems.

This links directly to another distinction I regularly make:

Strategic assets are what you own, control or access.

Critical capabilities are what you can reliably do.

Neither tells the whole story until you ask:

How do those assets and capabilities create value for a customer?

What Does It Really Mean to Create Value?

Business-model research commonly describes a business model as the way an organisation creates, delivers and captures value. Academic literature similarly distinguishes value creation from the mechanisms through which the organisation ultimately captures sufficient economic value for itself.

But what is value?

For an SME, I would make it practical.

Value is the difference you create in the customer’s position.

Before buying from you, the customer has:

a problem;

an unmet need;

a cost;

a risk;

an inconvenience;

an aspiration.

After buying from you, something improves.

You have created value.

Value might come from saving money

Examples:

• reduced labour costs;
• lower fuel consumption;
• reduced wastage;
• better procurement;
• fewer breakdowns.

Value might come from making money

For example:

• generating leads;
• increasing sales conversion;
• improving pricing;
• accessing new markets;
• improving asset utilisation.

Value might come from saving time

Time saved can be enormously valuable.

Automation, logistics efficiency, outsourcing and professional advice may all create value through time.

Value might come from reducing risk

Insurance is an obvious example.

But so are:

• legal advice;
• governance;
• cybersecurity;
• preventive maintenance;
• compliance;
• quality assurance.

Value may be emotional

Trust.

Confidence.

Convenience.

Status.

Peace of mind.

The best value propositions frequently combine several of these.

Strategyzer’s work on value propositions similarly emphasises that innovation or technology alone does not guarantee success; it must translate into real, recognisable value for customers.

Creating Value Is Not the Same as Capturing It (Business Strategy Perth)

This is where the second critical question enters.

How do you capture value?

A business can create enormous value for customers and still fail.

Why?

Because it may capture too little of the value it creates.

Suppose your service saves a customer:

$500,000 per year.

You charge:

$50,000.

Perhaps that is excellent.

But suppose delivering the service costs you:

$55,000.

You have created substantial customer value.

You have destroyed value for yourself.

This distinction is fundamental.

Value creation asks:

How are we making the customer better off?

Value capture asks:

How does enough of that value flow back to us?

That might occur through:

• pricing;
• margins;
• recurring subscriptions;
• licensing;
• retainers;
• transaction fees;
• commissions;
• usage charges;
• asset ownership;
• intellectual property;
• economies of scale;
• long-term contracts.

David Teece’s influential business-model work similarly links business-model design to delivering customer value, inducing customers to pay, and converting revenues into profit.

That final part is frequently overlooked.

Creating value without capturing sufficient value is not a sustainable business model.

Why Revenue Does Not Necessarily Mean You Are Capturing Value

One of the most dangerous misconceptions in SMEs is:

“Revenue is growing, therefore the business is doing well.”

Not necessarily.

You can increase revenue and destroy value simultaneously.

Imagine revenue grows:

$10 million.

$15 million.

$20 million.

Everyone celebrates.

But meanwhile:

gross margins fall;

labour increases faster than revenue;

working capital balloons;

debt rises;

capital expenditure increases;

customer concentration worsens;

free cash flow disappears.

The business is bigger.

But is it better?

This is why value capture must eventually show up economically through measures such as:

• healthy gross margins;
• sustainable EBIT;
• cash generation;
• appropriate return on capital;
• manageable working capital;
• pricing power;
• recurring revenue;
• increasing enterprise value.

I often ask clients:

“Which customers create the most value for us?”

Surprisingly few know.

The biggest customer may not be the best customer.

It may demand:

special pricing;

extra service;

long payment terms;

dedicated assets;

high management attention;

frequent exceptions.

Revenue can create an illusion.

Profitability reveals more.

Cash flow reveals even more.

Your Business Model Connects Value Creation and Value Capture

A business model is not simply a financial model.

Nor is it merely a description of products.

It explains the logic connecting:

Customer → Value Proposition → Resources & Capabilities → Delivery → Revenue → Profit

Contemporary research generally describes a business model in terms of how the organisation creates, delivers and captures value, while other formulations focus on the customer job, the asset/resource configuration required to satisfy it and the monetisation mechanism.

For practical SME purposes, ask:

Who is the customer?

Not everyone.

Precisely who?

What problem are we solving?

What job needs doing?

Why should they choose us?

What is meaningfully different?

How do we create the outcome?

What people, assets, capabilities and processes are required?

How is value delivered?

Direct?

Digital?

Through distributors?

Partners?

Branches?

Platforms?

How do we get paid?

Once-off?

Recurring?

Subscription?

Usage?

Performance-based?

What does it cost us?

Direct costs.

People.

Capital.

Technology.

Working capital.

Can we capture enough value?

After all costs and capital requirements, does this business model generate sustainable returns?

Those questions collectively expose whether you genuinely have a business, or merely activity.

What I Have Learnt About Value Through Different Business Models

Throughout my career, I have experienced very different approaches to value creation and capture.

Organic Growth at the Bank

At Standard Bank Retail Collective Investments, value creation required understanding what investors and financial advisers needed.

Not merely more investment products.

They needed:

choice;

performance;

access;

administrative efficiency;

strong distribution;

confidence;

brand credibility.

We expanded the product range substantially, strengthened distribution, improved strategic positioning and created new offerings.

The lesson was not simply:

“Sell more investment products.”

It was:

Understand what different participants value, then organise the business to create and capture that value at scale.

Strategic Alliances at Blue Horizon

When we established Blue Horizon Global Asset Management, we entered a market dominated by much larger organisations.

We could not economically replicate every strategic asset they possessed.

Instead, we developed alliances.

Different partners contributed:

brands;

investment expertise;

distribution;

systems;

products;

financial strength.

We combined complementary assets and capabilities to create propositions no party could have delivered as effectively alone.

This helped us secure substantial investment capital and establish a credible market position.

The broader lesson:

You do not necessarily have to own every component of the value-creation system.

Sometimes the business model is stronger because you partner.

Acquisition-Led Growth

At the most recent business I co-founded, acquisition-led growth required another approach.

We were not simply acquiring revenue.

Potential value arose from combining:

client relationships;

accounting;

financial planning;

wealth management;

corporate finance;

cross-referral opportunities.

The challenge was not buying businesses.

It was creating more value from the combined organisation than the individual components could create independently.

We completed four acquisitions and expanded the organisation substantially.

Again:

Value creation and value capture depended upon the business model, not merely the transaction.

The Danger of Defining Your Business Too Narrowly

Ask:

“What business are we in?”

Then challenge your first answer.

Kodak was not really in photographic film.

It was in preserving memories.

Taxi companies are not merely in taxis.

They are in personal mobility.

Hotels are not merely in buildings and beds.

They compete partly in accommodation, convenience and experience.

The danger arises when businesses define themselves through:

what they currently make

instead of:

what customers actually need.

That creates strategic blindness.

A Western Australian SME might say:

“We supply mining equipment.”

Ask deeper:

Why does the mine buy it?

Perhaps the answer is:

To maximise uptime.

Now ask:

Could you create more value through:

maintenance;

telemetry;

predictive analytics;

parts availability;

operator training;

performance contracts?

Suddenly the business model expands.

Sometimes your greatest growth opportunity lies not in acquiring more customers.

It lies in understanding your existing customer’s problem more deeply.

Understand Who Actually Receives the Value You Create

Another mistake is assuming the buyer and beneficiary are always the same person.

They may not be.

Consider aged care.

The user may be:

the resident.

The payer may be:

government;

family;

the resident.

The decision-maker may be:

an adult child.

The referrer may be:

a hospital or healthcare professional.

Each values something different.

In B2B:

Procurement wants price.

Operations wants reliability.

Finance wants measurable return.

The CEO wants strategic impact.

Users want simplicity.

Risk wants compliance.

Successful value propositions often address this broader value ecosystem.

Research into business models similarly recognises firms as systems of interdependent activities that can extend beyond organisational boundaries and involve multiple stakeholders.

Ask:

Who receives value?

Who pays?

Who decides?

Who influences?

Confusing these people can destroy an otherwise excellent proposition.

The Value Creation – Capture Test (Business Strategy Perth)

When working with an SME leadership team, I would encourage asking these questions systematically.

1. What business are we really in?

Describe the customer outcome, not simply the product.

2. Who precisely is our ideal customer?

Not:

“Anyone who needs our service.”

Be specific.

3. What problem are we solving?

How significant is it?

4. What value do we create?

Quantify where possible.

Does the customer:

save money;

make money;

save time;

reduce risk;

gain convenience;

improve quality?

5. Why us?

What makes the value proposition meaningfully different?

6. What strategic assets support it?

People.

Brand.

Technology.

Capital.

Relationships.

Distribution.

7. What critical capabilities are required?

Strategy.

Finance.

Operations.

Marketing.

Leadership.

Sales.

Technology.

8. How do we capture value?

Pricing.

Margins.

Revenue model.

Contract structure.

Recurring income.

9. Where does value leak?

Discounting?

Rework?

Bad debts?

Poor utilisation?

Unprofitable customers?

10. Is the model sustainable?

Can you continue creating value while earning an adequate return?

Where Value Leaks Out of SMEs

Many SMEs create more value than they capture because value leaks out unnoticed.

Underpricing

Owners frequently price by:

competitor rates;

historical prices;

cost-plus.

Instead ask:

What is the value of the outcome to the customer?

Scope creep

A $20,000 job becomes $30,000 worth of work.

But the invoice remains $20,000.

Poor customer selection

Some customers consume disproportionate management time.

Weak contract structures

Risk sits with the supplier while reward accrues to the customer.

Poor working capital

You may be profitable on paper while financing customers for 90 days.

Excess complexity

Too many products.

Too many exceptions.

Too many low-volume customers.

Complexity destroys margin invisibly.

Failure to monetise intellectual property

Businesses may create knowledge but never turn it into:

products;

licences;

subscriptions;

training;

repeatable services.

This is why understanding how you capture value should be part of strategy, not an afterthought.

How Governance Helps Protect Value

Governance plays an important role.

A capable board or leadership team should continually ask:

Are we creating the value customers actually want?

Are margins adequate?

Are we allocating capital intelligently?

Are we measuring customer profitability?

Are our strategic initiatives creating economic returns?

Where are we destroying value?

Are risks properly priced?

Are we investing in capabilities that matter?

Independent governance becomes particularly valuable because owner-managers can become emotionally attached to:

customers;

products;

projects;

acquisitions;

legacy activities.

Sometimes the most valuable question an independent Chairman or advisor can ask is:

“Why are we still doing this?”

A business should not continue an activity merely because it always has.

Practical Recommendations for SME Owners and Leaders

1. Ask the three questions at your next leadership meeting

Write down each person’s answer separately:

What business are we in?

How do we create value?

How do we capture value?

Compare answers.

The differences will be revealing.

2. Rewrite your business definition around customer outcomes

Move from:

“We manufacture X.”

To:

“We help customers achieve Y.”

3. Map your value-creation system

Identify:

customers;

problems;

value propositions;

assets;

capabilities;

processes;

partners.

4. Quantify customer value

Where possible, calculate:

cost savings;

revenue gains;

time saved;

risk reduced.

5. Analyse value capture

Review:

pricing;

gross margins;

EBIT;

cash;

customer profitability;

return on capital.

6. Identify value leakage

Look for:

discounting;

unbilled work;

poor utilisation;

unprofitable contracts;

working-capital inefficiency.

7. Revisit your business model annually

Business models should evolve.

Digital transformation, AI, platforms and changing customer behaviour continue to alter where value can be created and how it can be captured.

8. Challenge legacy assumptions

Ask:

Would we launch this product today?

Would we take this customer today?

Would we structure pricing this way today?

9. Build capabilities around value

Do not simply accumulate assets.

Develop the capabilities that allow you to exploit them.

10. Make value creation a leadership discipline

Every strategic initiative should answer:

What value does this create?

For whom?

How do we capture enough of it?

Key Takeaways

• Asking “What business are we really in?” should focus on the customer outcome, not merely the product you sell.
• Value creation means materially improving the customer’s position.
• Value capture means retaining sufficient economic value through pricing, margins, revenue design and returns.
• A company can create enormous customer value and still operate an unsustainable business model.
• Revenue growth does not automatically mean value creation for shareholders or owners.
• Strategic assets matter only when capabilities can deploy them to create customer value.
• Your business model connects customer needs, value propositions, capabilities, delivery and monetisation.
• SMEs should actively identify where value leaks through pricing, complexity, poor contracts, working capital or unprofitable customers.
• Governance should continually test whether strategy is creating and capturing sustainable value.
• The most important strategic questions are often deceptively simple.

Frequently Asked Questions

What does “What business are you in?” really mean?

It asks what underlying customer need or outcome your organisation exists to fulfil—not merely what product or service you currently sell.

What is value creation?

Value creation occurs when your product, service or business model improves the customer’s position through financial, functional, emotional or risk-related benefits.

What is value capture?

Value capture is how the organisation retains sufficient economic benefit from the value it creates, through revenue, pricing, margins, cash flow and return on capital.

Can a business create value but fail to capture it?

Yes. Many businesses provide valuable products or services but underprice them or operate with excessive costs, poor contracts or inadequate margins.

Is revenue the same as value capture?

No. Revenue is only one component. A business must also consider margins, operating profit, cash flow, working capital and return on capital.

What is a business model?

A business model explains how an organisation creates, delivers and captures value.

How do I know what customers truly value?

Speak directly with them, analyse buying behaviour, lost sales, complaints, retention and referrals, and ask what outcome they were really seeking when they chose you.

How can an SME improve value capture?

Review pricing, customer profitability, contract terms, scope management, recurring-revenue opportunities, working capital and operational efficiency.

Should price be based solely on cost?

No. Costs matter, but pricing should also consider customer-perceived value, competition, differentiation, risk and the economics of delivering the service.

What causes value leakage?

Common causes include discounting, scope creep, rework, poor utilisation, unprofitable customers, weak contracts, excessive complexity and poor working-capital management.

How often should a business review its business model?

At least annually as part of strategic planning, and whenever significant changes occur in technology, customer behaviour, regulation or competition.

What is the role of strategy in value creation?

Strategy determines which customers to serve, which value propositions to offer, how to differentiate and which capabilities and resources to develop.

Can partnerships help create value?

Yes. Strategic alliances can combine complementary capabilities, market access, technology, distribution or brands without each organisation owning everything itself.

Why is governance relevant to value creation?

Governance provides discipline, challenge and accountability around strategy, capital allocation, risk, financial performance and whether strategic initiatives are actually producing returns.

Conclusion: If You Cannot Explain How You Create and Capture Value, You May Not Fully Understand Your Own Business

I have asked the same three questions repeatedly over many years:

What business are you really in?

How do you create value?

How do you capture value?

The answers often reveal far more than lengthy presentations or sophisticated business plans.

Sometimes leadership teams give three completely different answers.

Sometimes the owner describes products.

The sales manager describes customers.

The CFO describes margins.

Operations describes processes.

All may be partly correct.

But if the organisation cannot bring those perspectives together into one coherent commercial logic, there is a strategic problem.

A business is not simply:

what it owns;

what it sells;

how many people it employs;

or how much revenue it generates.

A sustainable business is a system.

It identifies a sufficiently important customer problem.

It develops a compelling way to solve that problem.

It assembles the strategic assets and critical capabilities required.

It delivers the solution reliably.

The customer recognises enough value to pay.

And the business retains sufficient value to generate sustainable profit, cash flow and returns.

That is the essence of business-model logic.

Research increasingly treats business models as interconnected systems through which firms create, deliver and capture value rather than simply as descriptions of products or industries.

But for SME owners, I believe it can be made much simpler.

Ask yourself:

If my product disappeared tomorrow, what underlying customer problem would still exist?

That helps reveal what business you are really in.

Then:

What do we do that materially improves the customer’s position?

That reveals how you create value.

Finally:

How much of that value do we retain after every cost, risk and dollar of capital required to deliver it?

That reveals whether you capture value.

These questions become particularly important when an SME is:

growing rapidly;

experiencing margin pressure;

considering acquisitions;

introducing new technology;

expanding geographically;

seeking capital;

reviewing strategy;

or preparing for succession or sale.

Because growth magnifies whatever business model already exists.

A strong model becomes more powerful.

A weak one becomes more dangerous.

More sales of underpriced work creates bigger losses.

More assets without utilisation destroy more capital.

More customers without service capability damage reputation faster.

More acquisitions without integration capability create more complexity.

That is why my strategic work with owners and leadership teams regularly comes back to first principles.

Before we ask:

How do we grow?

I want to know:

What exactly should we grow?

Before we ask:

How do we sell more?

I want to understand:

What value are customers actually buying?

Before we invest more capital, hire more people or pursue another acquisition:

How will this create value—and how will we capture it?

These questions are not merely useful for start-ups.

They may become even more important for established SMEs.

Success can disguise strategic weaknesses for years.

A strong market.

A dominant founder.

Long-standing customers.

Favourable industry conditions.

These can allow a business to continue operating without ever clearly articulating its underlying commercial logic.

Then conditions change.

A competitor innovates.

Technology disrupts.

A major customer leaves.

Margins tighten.

The founder retires.

Suddenly, questions that once seemed theoretical become urgent.

My experience across investment management, banking, strategic alliances, property development, financial services, acquisitions and advising SMEs has taught me that the most resilient organisations understand not merely what they do, but why that activity creates value and why customers will continue paying for it.

They also understand something equally important:

Creating value for customers is essential, but unless the organisation can capture an appropriate share of that value, it cannot continue creating it indefinitely.

So take these three questions into your next board or leadership meeting.

Do not allow vague answers.

Do not settle for:

“We provide excellent service.”

“We’re in transport.”

“We’re accountants.”

“We’re builders.”

Go deeper.

For whom do we create value?

What problem are we solving?

Why does it matter?

Why are we uniquely equipped to solve it?

What assets and capabilities make that possible?

Why would customers choose us rather than an alternative?

How do we get paid?

Where does profit really come from?

Where does value leak out?

Can competitors easily replicate what we do?

And perhaps most importantly:

If we were designing this business from scratch today, knowing everything we now know, would we build the same business model?

That final question can be uncomfortable.

It can also be transformational.

Because great strategy is not simply about doing more.

It is about becoming extraordinarily clear about:

what business you are really in;

how you create meaningful value;

and

how you capture enough of that value to build a stronger, more resilient and sustainably profitable organisation.

For small-to-medium businesses in Perth and across Western Australia, an experienced Business Advisor, Fractional CEO or Non-Executive Chairman can help leadership teams step back from daily operations, challenge assumptions and critically examine their strategy, value proposition, business model and sources of sustainable competitive advantage.

Sometimes the most valuable strategic breakthrough does not begin with a complicated answer.

It begins with three very simple questions.