As a small business owner, you're constantly making strategic decisions about pricing, costs, suppliers, and customer satisfaction. While it's easy to get lost in the complexity, Harvard Business School Professor Felix Oberholzer-Gee has created a remarkably simple framework that can transform how you think about strategy: the value stick.

The value stick isn't just another business theory. Rather, it's a practical tool that shows you exactly where to focus your efforts to build a sustainable competitive advantage.

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Understanding the Value Stick

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Think of the value stick as a vertical line with four critical points that define your business ecosystem. At the top, you have your customers' willingness to pay, which represents the maximum price they would pay for your product or service. Below that sits your actual price, followed by your cost to produce the offering, and finally your suppliers' willingness to sell, which represents the minimum amount they'll accept for their inputs.

These four points create three distinct "wedges" of value. Customer delight represents the gap between what customers are willing to pay and what they actually pay. Your firm margin is the difference between your price andyour costs. And supplier surplus captures the value your suppliers earn above their minimum acceptable price.

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Why This Matters for Small Business Strategy

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Most small business owners focus primarily on their profit margin, thinking about raising prices or cutting costs. But this approach misses the bigger strategic picture and often creates a zero-sum game where your gain comes at someone else's expense.

The real power lies in understanding that you have four strategic levers, and two of them actually expand the total value created. When you simply raise prices, you're taking value from customers. When you cut costs aggressively, you're often taking value from suppliers. But when you increase customers' willingness to pay or decrease suppliers' willingness to sell, you're lengthening the value stick and creating more total value that benefits everyone.

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Maximizing Willingness to Pay

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Increasing willingness to pay means making customers value your offering so much they'd be willing to pay more, even if you don't raise prices. The key is going beyond the basic product or service to add convenience, personalization, or exceptional service that makes customers feel they're getting extraordinary value.

Building emotional connections with customers is equally powerful. When you share your story and values and create a community around your business, customers will pay more for brands they feel connected to. They're not just buying a product—they're buying into an identity and experience.

Focus on solving bigger, more meaningful problems rather than just selling a product. A bookkeeper who processes transactions has low willingness to pay, but one who provides strategic financial insights can command premium pricing. The more significant the problem you solve, the higher customers' willingness to pay becomes.

Creating unique value that competitors can't easily replicate naturally increases what customers are willing to pay. For B2B businesses, demonstrating clear return on investment by showing exactly how your solution saves time, reduces costs, or generates revenue dramatically increases willingness to pay.

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Decreasing Willingness to Sell

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The other side of value creation involves making your business so attractive to work with that suppliers are willing to accept lower margins or provide better terms. Start by becoming a preferred customer. Pay on time, communicate clearly, and be easy to work with. Suppliers will often accept lower margins for reliable, hassle-free customers.

Offering long-term partnerships provides suppliers with predictable, steady business rather than sporadic orders. This security often translates to betterpricing because a guaranteed stream of work is worth more than higher margins on uncertain projects.

Help your suppliers grow by connecting them with other customers, providing testimonials, or helping them improve their processes. When you help suppliers succeed, they'll be more willing to work with you on pricing. You can also reduce their costs of doing business with you through streamlined processes, and they'll often pass some of those savings along.

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The Strategic Advantage

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Instead of fighting over a fixed pie, you're working to make the pie bigger. When you successfully create value rather than just shift it, you gain more pricing flexibility without losing customers, your margins improve without squeezing suppliers, customer loyalty increases, supplier relationships strengthen, and your competitive position improves because you're creating real value rather than just competing on price.

This approach creates sustainable competitive advantages that are much harder to replicate. Anyone can cut prices or squeeze suppliers temporarily, but building genuine value that increases willingness to pay and creates supplier loyalty requires time, effort, and strategic thinking.

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Final Thoughts

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Start by mapping your current value stick and ask yourself what customers would actually be willing to pay if price weren't an object, and what's the minimum your suppliers would accept to work with you. These gaps represent your strategic opportunities. Then focus on one initiative in each area: pick the highest-impact opportunity to increase willingness to pay and identify one concrete way to decrease willingness to sell. Strategy isn't about being the cheapest or charging the most—it's about creating value that benefits everyone in your business ecosystem. Every strategic decision either lengthens or shortens your value stick, so focus on the moves that lengthen it. When you master this framework, you'll build a business that customers love, suppliers want to work with, and competitors struggle to match.

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