Understanding the Creation of Value – Part 4

Here at The Motley Fool Singapore, we’re being highly encouraged to read – it’s one of the greatest perks of my job.

One of the books I am currently reading now is “The Personal MBA” by Josh Kaufman, a blogger tuned best-selling author.

At the beginning of his book, Kaufman talked about the different types of value a business can provide which can define it as a sustainable business. According to Kaufman, there are twelve types of value that a business can bring to the table for its customers.

Kaufman’s book triggered my mind and led me to the opinion that thinking about the value that a company can provide is a very good starting point for investors who are analysing a new firm.

In the first part of this series, I looked into companies that provide value through their products and services. In the second part, I dug into companies that brought value to their customers by sharing resources and providing subscriptions.

Then, in the third leg of the stool, I glanced at business models involving resale and leasing.

For this article, let’s look at the agency business model and businesses that deal with audience aggregation.

Providing value with the agency model

An agency business is one that focuses only on linking the buyer and seller of a product or asset. The agency itself does not hold any asset but merely seeks to connect supply and demand.

A buyer looking for an asset, product, or service might have no knowledge of where to source for the sellers and vice versa. An agency business is thus valuable because it helps provide the connection and network between both buyers and sellers which would otherwise not be present.

A classic example of an agency business is a stock brokerage firm like the Singapore-based UOB-Kay Hian Holdings Limited (SGX: U10). Stock brokerage firms generally do not own the shares that they are buying and selling on behalf of their customers. Instead, they help buyers of shares to source for sellers (and vice versa) and earn a commission for their efforts.

Providing value through the audience aggregation model

The auidence aggregation business model is one that aims to gather the attention of a large group of people and then selling access to the successfully-captured audience to other companies (usually in the form of advertising space). Many tech companies work on this premise with Facebook and Google being good examples of great audience aggregators.

There are also successful audience aggregators in Singapore’s stock market and that’s none other than newspaper publisher Singapore Press Holdings Limited (SGX: T39). The traditional newspaper business, which is still a large portion of the company’s business, utilizes the audience aggregation model to produce engaging and meaningful content for its readers while displaying adverts alongside the content.

Foolish Summary

Businesses that can create sustainable value for their customers are the ones that likely will have longevity. They are also the types of businesses that we as investors would ideally like to own as they can help compound value for the long-term.

Learning about how a business can create value for its customers would thus give us investors a better understanding of the advantages and disadvantages of the business and help us to make better-informed investing decisions.

There are 12 types of value that a company can provide and as you may have noticed, I’ve only ran through eight so far. Stay tuned for more!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.