Value proposition, post #9 of “Startup Briefs”

As the school year gets underway, and I prep for practical, outside the classroom entrepreneurial education, I am reminded of the importance of value proposition. Sometimes that term gets bandied about as part of MBA-entrepreneurial speak, but it’s a very important concept. As the late Don Jones (Pittsburgh entrepreneur who passed away a few years ago) said, “To understand the customer you have to walk a mile in their moccasins.”

An entrepreneur must focus on the customer and understand their needs, wants, desires. To do that you have to talk to them, interview them, interact with them. You have to know them, deeply to understand if what you have has value to them. Value such that they will pay for your solution. How can you do that in a vacuum? How can you presume to know if you do not really know?
Steve Blank, acclaimed Silicon Valley entrepreneur, author of books, and teacher at notable places like Stanford and for the NSF I-Corps program, calls it “Get out of the building.” There’s nothing better than doing that for entrepreneurs seeking to validate their ideas about needs, customers, markets, and solutions. But before many are ready to do that, you can do a lot to prepare nascent entrepreneurs via education. This happens to jive nicely with my mission at the Innovation Institute at Pitt. Our initiative is focused around encouraging, supporting and educating our university students (and faculty and staff) on how to develop and grow new technology ventures. From the lab, from a class, from their heads – from an idea to a reality; from benchtop to bedside; from the lab to the market – it’s what I do.
You CAN teach entrepreneurship. I know because I have done it for 15+ years. Of course you can’t make someone into an entrepreneur if he/she doesn’t have what it takes in the first place. But, as I tell my students and faculty, I can unleash the entrepreneur within.

That said, a willing, bright and energetic entrepreneur does not a viable venture make. For that, he/she needs to identify a business opportunity – which means a need that can be fulfilled. And to circle back to where I started from, you have to validate the need deeply by walking in the moccasins of your customer. How do we do start that process from the classroom?
A couple of ideas based on my experiences:

• Before you know your customers, you have to understand your market(s). You can’t identify customers until you know your markets. However, in the round robin of startup development, you might use some customer interaction to help you identify your prime market!
• You have to identify the customer. And you have to distinguish the customer – the one who pays – from the end-user – who may or may not pay.
• Map that out so that you understand the whole chain from the product to the last person using it. This is the “value chain.”
• How many sets of people does your value chain represent? Each set is a level of customer or user. You might have several sets of actual customers and more than one set of users. And you have to provide value all along that chain.
• Is your model business to business (B2B)? Business to consumer (B2C)? Both? Business to business to consumer (B2B2C)? To be able to articulate the value proposition for each set of customers/users, you need to understand the basic premise of whether your business is focused on selling to businesses or consumers – and the complete path to get from one to the other. The value proposition varies greatly, depending on your model.
  • For B2B you can do one or a combination of the following: a) increase revenues; b) decrease costs; and/or compliance (with regulations, stopping something bad from happening, etc.). Basically, every benefit for a business can be categorized by one or more of the above.
  • For B2C, your value proposition(s) are very different. You can provide consumers with: convenience; time saved; time saved; enhancements (make them look good, feel good, smell good, etc.); lower costs (for something that they want or need); increase quality (for something that they want or need); establish status (through cars, clothing, positioning, etc.).
  • For B2B2C, you have to provide benefits to customers at every step along the path. Think about distributers to hospitals. Are they your customers or merely a mechanism to get to your customers? Think carefully here as those distributors will not get your to your customers unless there is something in it for them!
• Once you know your market and your sets of customers/users, you need to profile a typical person within each set. Who are they? What do they need/want? What is important to them? Where do you find them?
• To understand them better you employ tactics like:
  • Shadow actual people to find out people’s habits, needs, processes, procedures.
  • Survey potential customers or conduct a focus group or several.
  • Interview individuals (or companies).
  • Show a prototype to potential users and get feedback.
  • Even better, you can do more than one or all of the above.

Your aim is to KNOW the customer (and all the sets of customers/users). THEN you can start to articulate your value to each set. If you are doing this right, you might have different value propositions to each set of customers/users.

No matter how great YOU think that your product is, the business is about finding customers, selling to customers, servicing customers, and reaching breakeven/sustainability/profitability! Good luck!