The most important work of the startup entrepreneur is to discover the value proposition that connects your company to your customers. Without this understanding, the startup will struggle to generate revenue and, if not corrected, will fail as it burns through its available cash.
Value proposition is difficult for many startup entrepreneurs for a simple reason: It does not matter what the entrepreneur thinks the value proposition is. Founders are typically enthusiastic about their business idea and confident that they know what customers need and want. Sometimes they are right; more often, the founder misses the mark and suffers the consequences.
There is a straightforward, although challenging, solution.
Intensive customer discovery can create a fact-based understanding of key components of success: value proposition, target customer segments and business models that are scalable and repeatable.
Let’s begin with the concept of a business model introduced in our previous installment. A tool for launching a successful venture is the business model canvas (thoroughly described in “Business Model Generation” by Alexander Osterwalder & Yves Pigneur). The canvas helps the entrepreneur organize key learnings in the nine areas that new ventures must address.
Our favorite graphic illustrating the business model canvas shows value proposition as a beautifully wrapped gift at the center of the nine elements. Think about a successful gift. It is pleasing because it is meaningful, useful or valuable to the recipient. Your startup’s value proposition needs to accomplish something similar for your customer. And, it needs to do that within a business model that works financially for your venture.
Founders often think of their product (or service) features as synonymous with value proposition. Customers do not value features; they value what your product can do for them. What pain does your product remove? What gain does your product enable?
Think about your first cell phone camera. It boasted many features such as megapixel resolution and optical zoom. Although of interest to the geeks among us, most consumers do not care. For the typical consumer, these features enable a value proposition that is a removed pain: “I can eliminate the annoyance of carrying a camera.” Alternatively, it might be a gain: “I can preserve and share important moments whenever I want.”
The value proposition is always about what your product accomplishes for your customer. It is not about a list of features.
The lean startup uses customer discovery to learn which jobs, pains or gains are compelling for customers. As these topics are explored with enough people, a value proposition hypothesis develops and can be tested. Ultimately, a value proposition is identified that is attractive to similar customers known as a customer segment.
How do you know that your value proposition is the basis for a successful startup? Here are a few answers from the top 10 offered by Alexander Osterwalder and his colleagues at Strategyzer:
- Focus on the jobs, pains and gains that matter most to customers;
- Focus on jobs, pains and gains that a lot of people have or that some will pay a lot of money for;
- Outperform competition substantially on at least one dimension.
As a startup entrepreneur, you must align your idea and, ultimately, your product with the jobs, pains and gains that matter to enough customers to launch your venture. It is unlikely that you’ll know these answers until you listen to enough people and systematically test your understanding.
Remember, a good value proposition is like a gift-wrapped package. It satisfies (or delights) your customer and your company’s business model. Next time, we explore how entrepreneurs use customer interviewing and hypotheses testing to develop compelling value propositions.
Recommended reading: “Value Proposition Design” by Alexander Osterwalder, Yves Pigneur, Greg Bernarda, & Alan Smith.
Paul Wetenhall is the executive director of Ventureprise, UNC Charlotte’s innovation and entrepreneurship center serving the UNC Charlotte campus and Charlotte region.
For more stories like this, subscribe to StartCharlotte’s free weekly startup newsletter.