Recognizing progress—

Direct network effects increase WTP whenever additional customers purchase a product (figure 8-2a). Any communication device is a good example. Think of the very first person who bought a fax machine.

An obsession with business models—how you capture value—is particularly risky, because value capture is a zero-sum game: from the very beginning, you accept that your success makes customers worse off.

Making value creation the center of a buyer-supplier relationship is hard work, and you want to be careful in the selection of the suppliers with whom you build this type of relationship. In selecting the most promising partners, you need to consider their value potential (how much you can move WTS), the specificity of the investments (how unusual

Share creatively—Consider various ways to share value with your workforce. Reducing compensation is only one of many ways to capture value from improved working conditions. For example, companies that provide tuition assistance reap the benefits of that policy by attracting more-skilled employees.

Does the work arrangement create value other than financial compensation?

“Focus on a limited set of customers” is not the most intuitive advice if you are trying to build a business that will benefit from network effects. It is nevertheless good advice. By serving a select group of users who benefit most from being

The most sophisticated businesses use three approaches to get closer to the truth: pattern recognition, trend analysis, and experiments.

Because the stores are relatively close to one another, delivery trucks can supply them quickly, creating economies of density, a special type of scale economy. For every mile that a store is closer to a distribution center, Walmart’s profit increases $3,500 annually.