This course will explore the earlier stages of the entrepreneurial venture process across four modules. The modules will examine the nature of growth and error in entrepreneurial settings and how to manage resources in those settings. In addition, the modules will explore the emergence and existence of entrepreneurial opportunities, the formulation of ideas in relation to those opportunities, and how those opportunities and ideas influence entrepreneurial phenomena. Finally, the course modules will focus on how business concepts underlie compelling entrepreneurial missions that provide guidance to the evolution of a venture’s business model and future strategic planning.
Value Propositions
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Из курса от партнера University of Illinois at Urbana-Champaign
Entrepreneurship I: Laying the Foundation
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University of Illinois at Urbana-Champaign
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Курс 5 из 7 — Specialization Innovation: From Creativity to Entrepreneurship
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Module 2: Understanding the Market
This module will focus on how entrepreneurs can distill a new venture opportunity into a value proposition that resonates with customers.
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Thomas E. ParkinsonVisiting Professor
University of Illinois College of Business
In this lesson, we're going to focus on what's at the heart of every new venture
opportunity, the value proposition.
As you can see from our word cloud for this lesson, nothing is more important
in developing a strong value proposition, than understanding the customer.
A good value proposition is one that directly links the most important features
of the product or service to the customer's pain.
I'm going to borrow pretty heavily from Alex Osterwalder's value proposition
canvas in this lesson.
This is what it looks like.
On the right side, you have the customer profile.
What is the customer trying to do? What benefit is the customer trying to achieve?
And what obstacles does the customer need to overcome?
On the left side you have the value map.
The value map identifies the key features of the solution and
how they help the customer achieve those benefits or overcome those obstacles.
Customers don't buy products.
They don't buy brands and they don't buy technologies.
Fundamentally, customers buy solutions.
Solutions allow customers to get something done.
When your product's features and functionality line up with the customer's
real need for a solution, then you have what is called a Product Market Fit.
The solution has to help them get their job done, while maximizing the benefits
and minimizing the problems that they would otherwise experience.
Let's zoom in now on the customer.
The customer profile should identify the specific task or
job that the customer is trying to accomplish.
In a business-to-business setting, the customer's job may be to make a sale.
It could be to manufacture a product or comply with a government regulation.
The job might be to obtain information.
Given time, I'm sure that you can think of dozens, if not hundreds, of customer jobs.
In a business to consumer setting,
the customer's job may be something less tangible.
The customer may be looking for entertainment or
perhaps just trying to impress his or her friends.
The customer profile should also identify the problems or
pains that the customer experiences in accomplishing his or her job.
These are the frustrations they experience and the obstacles that are in their way.
Perhaps the job is too expensive or too time consuming.
Maybe there's some physical danger or business risk that's involved.
Perhaps the job is just unpleasant.
I had a summer job many years ago helping to build hog barns.
Now there's an unpleasant job.
Or maybe the job involves some sort of stigma or social embarrassment,
like seeking help for a problem that you don't have want to admit that you have.
As before, I'm sure that given enough time, you can identify plenty of pains that
customers experience in their jobs.
Before we move on, let me just highlight a couple of key points.
Customer pains can be either chronic or acute.
A chronic pain, as the word implies, is one that is always present.
It may be something that the customer has learned to live with.
After a while, they may not even realize it is there.
An acute pain is immediate and pressing.
It creates an urgent need for a solution.
Why is this important?
Because customers are likely to be willing to pay a lot more for
a solution to an urgent and immediate problem.
It's the difference between a solution that would be nice to have
versus one that they need to have right now.
There are also varying degrees of pain, even when the pain is immediate.
Think of the difference between a dog bite and a shark bite.
If the pain is immediate, that's one thing.
If it's life threatening, that's another.
It's also important to recognize when they have the problem.
Is it something that's predictable?
Does it happen at certain times during the year?
Does it happen only when certain other events are occurring?
If you can be in the right place at the right time with your solution,
that's when you can expect your customers to be willing to pay the most.
The last piece of the customer profile is the list of the benefits that he or
she is seeking.
If the job is to make a sale, the benefit may be to earn a profit.
The benefit of a simpler solution to an existing problem
may be more free time to spend on other things.
Again, the benefits that business customers are seeking
may be very different from the benefits that consumers are seeking.
Consumers may be looking for a solution that provides more comfort or
one that enhances their status in some way.
I don't mean to imply that businesses never seek these benefits, after all,
business customers are people too.
You'll recognize this from one of my previous lessons.
Business to business value propositions are typically ones that help the customer
make more money, save money, save time, or
reduce some risk that threatens their business model.
Business to consumer value propositions are typically ones that help the customer
save money, save time, enhance their status in some way, or
achieve some sort of personal fulfillment.
On the left side of the value proposition canvas,
we have the value map which describes the solution.
Remember that we're talking about a solution here,
something that helps the customer accomplish his or her job.
The solution could be physical, or it could be digital, or
it could be a combination of both.
This section of the value map that's highlighted here should list the key
attributes of the product or service, the ones that are necessary
in order to help the customer accomplish the job, and the ones that differentiate
it from other solutions in a way that addresses the customer's pains and gains.
Pain relievers are features that solve the problems that customers experience in
their jobs.
Here are a couple of examples.
It could be something as simple as a lower price.
Or, it could be something that's faster or safer than comparable solutions.
It might even be something that is more private than other solutions,
saving the customer from embarrassment.
It's important to identify and focus on the features that are really necessary to
address the customer's pains here.
Features that are need-to-have are mission critical as opposed to features
that are nice to have.
Another way to think of this is that pain killing attributes
are ones that allow the customer to accomplish a job while reducing or
eliminating something negative.
They could help the customer reduce the amount of time spent or
the expense of the job.
They could eliminate or at least reduce some risk that's inherent in the job.
They could make the job less unpleasant or uncomfortable.
I could have used some odor-reducing technology while building those hog barns.
Or, there could be attributes that reduce the negative emotions or
reactions that customers experience.
On the other side of the value map are the features or
attributes of the solution that allow the customer to achieve certain benefits.
They could stem from the simplicity of the solution or its comprehensiveness,
depending on the job.
They could include the credibility or prestige that they bestow on the customer.
An example of this last feature might be a brand name.
I'm often asked by students whether a brand name is a value
proposition by itself.
In my opinion,
a brand name is important because of the benefit that it provides to the customer.
It could just be something that suggests that the customer has good taste or
fashion sense.
Or, it could be the credibility that comes from having a respected brand name
attached to the customer's project.
You've probably heard the phrase, "nobody ever got fired for choosing IBM."
I'll let you be the judge of whether the brand name provides a gain or
reduces a pain, in that example.
As we did with the painkillers, we can broadly categorize the gain creating
attributes of a solution as ones that help the customer increase or
maximize something they want more of.
A more efficient solution could help the customer enjoy more free time.
The solution could help the customer generate more revenue or increase his or
her bottom line profits.
It may be a feature that helps the customer be more comfortable or
more healthy.
Or, it may be something that just makes the customer happy or
feel better about himself or herself.
Are you selling a painkiller or a vitamin?
This has a lot to do with the chronic versus acute pains I described earlier.
A painkiller is a solution that addresses an urgent need to solve
an immediate problem.
The customer's willingness to pay for a solution is high.
It may be something that happens only occasionally, though.
A vitamin is something that addresses a less urgent need, and
the benefit is often uncertain.
Who can say whether those daily vitamins that you're taking
are really making you healthier?
For these reasons, customers are usually willing to pay less for a vitamin.
However, they might be willing to sign on to be a long-term customer.
Think of a night out at the movies for your family,
which can easily cost $50 or more.
It provides an immediate benefit, something fun to do tonight.
Now compare that to a Netflix subscription at $10.99 a month.
The benefit is less immediate, but customers are willing to sign up for
a monthly subscription so that they have it available whenever they want it.
Now let's zoom back out to the full value proposition canvas.
When you've identified the customer's jobs, pains and gains, and
designed a solution that's lined up with them, you've achieved product-market fit.
This is the price of admission for a startup.
The lean startup model encourages you to be very judicious about your product or
service attributes.
Features should be directly tied to the customers pains and gains.
If they're not, you don't need them.
You don't necessarily have to solve every customer problem or
provide every possible benefit in your solution.
Trying to do everything could mean that you never get off the runway.
Focus on the highest priority features and attributes for the customer and
the ones that help you differentiate yourself from your competitors.
Hopefully, those are the same attributes.
Let me wrap this up by describing how you should draft your value proposition
statement.
Steve Blank's template is the simplest.
"We help X do Y by doing Z," where X is the customer,
Y is the customer's job, and Z is the solution that you're providing.
If you can boil your entire value proposition down into
one sentence like this, you're doing well.
Here's how Jeffery Moore presented the same concept back in Crossing the Chasm
in 1991.
A valued proposition is something that you can sell.
His value triad is made up of the customer, which is X in Steve Blank's
statement, the application, that's Y, and the product, which is Z.
Here are some tips on how to draft a strong value proposition statement.
Ask yourselves these questions.
Do your customers understand it?
Is it something that they would say themselves to describe your solution?
Is it something that only you can deliver?
Better yet, ask your customers these same questions.
The benefit to the customer should be clear.
It should be specific and measurable, and it should be clear and concise.
Finally, here are some mistakes to avoid when designing your value proposition.
Don't confuse your products features with the value that it provides to your
customers.
Don't be vague about it.
Make sure that you're focusing on a solution that is a need-to-have
instead of a nice to have if you want to create real value quickly.
And, make sure that you are targeting a customer segment that's large enough and
cares enough about your solution so that you can build a viable business.
We'll talk more about determining the size of your target market in our next lesson.
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