Define build and evaluate for YOU
In Part 1 of my Harvard iLab lecture series, Startup Secrets: An insiders guide to unfair competitive advantage, I layout one of the first stages of creating a company: defining the value proposition. See the Slides and Video below, followed by a brief synopsis.
(Note the synopsis needs the slides as illustration for key concepts such as qualifying with BLAC and white and Gain/Pain ratios etc.)
As an entrepreneur turned venture capitalist, I enjoy collaborating with innovators on their planned ventures and helping them explore their value propositions. However, many entrepreneurs lose out, due to never truly articulating a compelling value proposition. Establishing a substantive value proposition is critical if you want to start the journey from your “idea” to building a successful company.
In one of its simplest forms, a value proposition can be like a positioning statement that explains what benefit you provide for who and how you do it uniquely well. It describes your target buyer, the problem you solve, and why you’re distinctly better than the alternatives.
DEFINE the problem set to help vet whether it’s a problem worth solving
A fellow inventor, Charles Kettering, once said,
"A problem well stated is a problem half solved"
And yet many entrepreneurs make the mistake of diving headlong into the solution before really understanding the problem they’re looking to solve.
A significant part of defining a value proposition involves what I like to call the 4Us. If you find yourself answering a definitive yes to the majority of these questions, then you are on the right path toward a compelling value proposition. If not, consider re-evaluating and revising your new venture.
- Is the problem Unworkable? Does your solution fix a broken business process where there are real, measureable consequences to inaction? Will someone get fired if the issue is not addressed? *If the answer is yes – then that person will likely be your internal champion.
- Is fixing the problem Unavoidable? Is it driven by a mandate with implications associated with governance or regulatory control? For example, is it driven by a fundamental requirement for accounting or compliance? *If the answer is yes – then that group will likely be a champion.
- Is the problem Urgent? Is it one of the top few priorities for a company? In selling to enterprises, you’ll find it hard to command the attention and resources to get a deal done if you fall below this line. *If the answer is yes – then you know you’ll have the attention of the c-suite.
- Is the problem Underserved? Is there a conspicuous absence of valid solutions to the problem you’re looking to solve? Focus on the whitespace in a market or segment. *If the answer is yes – then you know the market is primed for the solution.
Qualify the Problem: Is it “Blac and White”?
Is it BLAC (Blatant, Latent, Aspirational, Critical) and does it address a WHITE space in the market, allowing you to capitalize on an open area of opportunity?
[see slides for illustration of this]
In B2B technology markets, you want to be in the position of addressing problems that are blatant and critical, as they are far more acute than those that are latent and aspirational. Blatant and critical problems stand in the way of business. They put careers and reputations at risk. Latent problems are unacknowledged, which means they often require costly missionary selling.
Aspirational problems are optional, which is the hardest of places for a B2B startup to sell. Though in B2C, they can be drivers as people look for things like status or to meet basic needs like communication. That need alone had driven billions of dollars of value in companies like Twitter and WhatsApp.
So it should be noted that many successful B2C products are based on exposing latent aspirational needs. Facebook is a great example. When we discuss this topic in my classes, we discuss consumer needs through frameworks like Maslow’s hierarchy of needs where one can think about what might have driven Facebook’s success and of course it exposes our obvious social needs.
Or consider more obviously Evernote and its value proposition. The company set out to “help the world remember everything, communicate effectively and get things done”. From saving thoughts and ideas to preserving experiences to working efficiently with others, Evernote’s unique collection of apps makes it easy for users to stay organized and productive.
EVALUATE whether your breakthrough is unique and compelling
After you determined the problem you’re solving and validated its criticality, ask yourself: What is unique and compelling about your breakthrough?
A useful approach is to think of your breakthrough in the context of the 3Ds: What unique combination of (D)iscontinuous innovation, (D)efensible technology, and (D)isruptive business model are you bringing to bear and what makes it truly compelling — not just to you and your colleagues, but to your most skeptical customer?
- Discontinuous innovations – offer transformative benefits over the status quo by looking at a problem differently.
- Defensible technology – offers intellectual property that can be protected to create a barrier to entry and an unfair competitive advantage.
- Disruptive business models – yield value and cost rewards that help catalyze the growth of a business.
Simply having a product or service that is faster, cheaper and better is not enough to make it compelling, but evaluate it in 3D and you can really open up the potential for a breakout.
MEASURE potential customer adoption using the Gain/Pain Ratio
Most entrepreneurs are so focused on the features they deliver they forget to examine how hard it will be for customers to learn to use their product. So the Gain/Pain ratio involves measuring the gain you deliver the customer vs. the pain and cost for the customer to adopt. As an investor, I look for non-disruptive disruptions: technologies that offer game-changing benefits with minimal modifications to existing processes or environments. Simply put: disruptive innovation would ideally be non-disruptive to adopt. [see slides for illustration of this]
Non-disruptive is critical to startups since the gain you deliver will also be discounted by the risk associated with betting on you as a young company. A successful venture delivers an order of magnitude improvement over the status quo. If you can’t deliver a 10x gain/pain promise, customers will typically default to “do nothing” rather than bearing the risk of working with you.
BUILD the Value Proposition
Once you have gone through the defining, evaluating and measuring steps, you are ready to BUILD your value proposition, for which I recommend the following kind of framework. (Note – this is not original. It is intentionally typical[i] of positioning statements to be consistent and reusable as such):
- For (target customers)
- Who are dissatisfied with (the current alternative)
- Our product is a (new product)
- That provides (key problem-solving capability)
- Unlike (the product alternative).
Well those are the four steps. But I lied, there’s one more thing and it may be the most important of all. It’s YOU!
Do not lose site of the fact that you are core to your venture’s value proposition.
- What problems do you understand uniquely well?
- What solution can you therefore bring to bear with your unique perspective, knowledge or experience?
Everyone of us is different in terms of our makeup and our background and the combination of these things sets us up to find our own path to a uniquely compelling value proposition. This approach will apply as you investigate further Startup Secrets workshops (linked here). For example consider reviewing the Game Changing Business Models workshop (linked here) and based on your perspective and understanding, explore what kind of disruptive business model you can think of based on what you really value.
Regardless be true to yourself, trust in your potential and be fearless in exploring it and remember there is no failure, only learning.
[i] With thanks to Geoffrey Moore
(At this point I need to also give one key disclaimer: I am biased based on my background to think mostly about B2B+C technology businesses. But I am keen to learn how to expand these frameworks to apply beyond that. And indeed I have been getting great feedback over the years from people on Social Causes, Not For Profit Missions, and even artists and musicians about how they might use these frameworks. Please share your thoughts in the comments below)