Good Value Propositions Mean Knowing Your Customers

As Maverick (2020) argues, a value proposition is a statement that describes the value that a company provides through its goods or services and how the company differentiates itself from the competition.

The key to a good value proposition is in its understanding of the company’s customers. Without fully knowing who the customer is and what he or she wants, it is impossible to provide anything of value to him. One of the chic new concepts in the business world, design thinking, underscores this principle. Design thinking is a framework for how to approach a business concept.

As Banfield (2014) explains, the first step in the design thinking process is to empathize, to immerse yourself in the customer’s world, to get a feel for what his or her experience is like. If you can interview, do that, but at the very least go to the customer’s environment and observe, take notes, and summarize. Only once you have accomplished thorough demography can you move on to the next stages of the design thinking process: define by constructing a point of view based on the customer’s needs; ideate to identify potential solutions; prototype rudimentary versions of the solution; test the prototype to measure success.

Too often entrepreneurs overlook the fundamental step of establishing a solid value proposition. As Skok et al (2014) argue, it is common in new business ventures to see entrepreneurs focus on their idea without giving much thought or conducting much research into the problem that the idea is intended to solve. When entrepreneurs get wrapped up in their ideas, it can be difficult for them to alter their product or service if needed or change course altogether. This typically results in the straining of resources or outright failure. That is why Skok et al. recommend starting with a problem rather than the solution.

How do you know you have a good problem to solve? Skok et al. (2014) use a framework of four “U”s: unworkable, unavoidable, urgent, and underserved. Something is unworkable if it is impossible to build given the current state of technology. Something is unavoidable if it is necessary by law or by custom. Something is urgent if its absence creates a sense of urgency. Something is underserved if there is not enough attention being paid to it to adequately service it. Skok et al. argue that the ideal problem to solve scores high on each one of these conditions. One such difficulty that is unworkable, unavoidable, urgent, and underserved is the case of Actifio, a data storage company. Their problem was that companies’ data storage strategy, run by unworkable systems, was getting unwieldy and creating unavoidable compliance concerns, which created a sense of urgency to find a replacement, despite being neglected and otherwise underserved. Actifio’s cloud-based storage solved all aspects of these problems, and the IT firm has a success story to prove it.

To draft a successful value proposition is also a matter of frameworks (Skok et al., 2014). The best way to frame a value proposition is to identify six elements: target, focused on the actionable buyers; segment, which distinguishes the market; brand, which is the company’s name; category, which is the competitive framing that the buyer can use to understand the landscape; a distinction, which makes the company unique; and proof; seen as the evidence that the product or service works. We can bring together these elements into one statement that reads: For [target] who are [segment], [brand] provides the [category] with [distinction] because of [proof]. As an example, Skok et al. (2014) arrived at the following for the value proposition of Actifio: For enterprises managing lots of production data, Actifio copy data management provides access to anything instantly because it’s radically simple.

References

Banfield, R. (2014, July 1). Harvard i-lab | You have a great idea but nobody cares. [Video lecture]. YouTube. https://www.investopedia.com/ask/answers/032715/what-are-elements-effective-value-proposition.asp

Maverick, J.B. (2020, February 22). What are the elements of an effective value proposition? Investopedia. https://www.investopedia.com/ask/answers/032715/what-are-elements-effective-value-proposition.asp

Skok, M., Troiano, M., Ashutosh, A. (2014, February 1). Harvard i-lab | Startup secrets: Value proposition. [Video lecture]. YouTube. https://www.youtube.com/watch?v=6pKW-ehL7dU&feature=youtu.be