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First Principles · 02

Completed case walkthrough

Same scenario as the lesson, with the numbers filled in and a decision made. Nothing here saves to your account.

Approval Burden

A tool automates expense reports so employees save real time entering them. But it also adds a new step: every expense now needs a manager’s approval before it’s processed, which didn’t exist before. Employees gain time; managers lose time approving things they never used to approve. If you only count the employee side, you’d call this $100 of value. Once you subtract the new approval hassle, the real value to the whole company might be much smaller.

Value for the customer$100 claimed for the customer
Value you may capture$20 paid to you
Cost to serve−$8
Contribution (price − cost)$12
The pitch says $100 of value for the customer. Your first job is to verify that number — for the customer, not your margin — before you debate price.

Example · same lesson case

What they concluded

Customer value$35
Price$20
Cost to serve$8

Contribution after cost: $12. The customer keeps more value than the price in this scenario.

What would you investigate first?

Whether value created for the customer is real once managers spend time approving

Right — managers absorbing $65 of new work leaves $35 of value for the customer. Verify that before you sell.

The lesson

Before price or pitch: ask what value you are creating for the customer — net of anything the tool newly requires. If that number is wrong, you are selling the wrong thing.

Assumption they noted

The $100 value claim is gross, not net — manager approval time may erase most of the employee-side savings before price even matters.

What they would check next

Interview three managers who would inherit the approval step. Ask what they do today and whether the new step is net-positive for the company.