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WHAT IS YOUR
BUSINESS’ VALUE
PROPOSITION?
what investors want to know
if you are an entrepreneur,
you’ve almost certainly
heard the term, “value
proposition”
but what does it actually
mean?
take a moment to define it
for yourself
come on….don’t
cheat…define it before
you skip to the next slide!
if you’re like most
entrepreneurs, you
probably came up with
something along the lines
of…
a value proposition is, “the
value your product/service
has for the customer”
this is a perfectly fine
answer
it would get you an “A” in
most marketing classes
however
that definition is not
sufficient
actually, it is only 1/5 of
what an entrepreneur
needs to know
instead
think of a value
proposition as built from
5 parts
1. valued
2. valuable
3. valunique
4. value chain
5. valuation
let’s review them all….
PART ONE
a value proposition is
valued
before anything else
your product or service
must solve a problem
some people say, “address
a customer pain point”
the first mistake that many
entrepreneurs make
(especially the engineers)
is to build a cool product
because it can be built
and only then, as an after
thought, look for
customers
this is obviously
backwards
instead, every business
must start by identifying a
customer pain point
how do you identify one?
well you need to go and
listen to customers in the
wild
(notice that I did not say ‘talk to customers’)
a bunch of them
(In B-School, we call this Market Research because we need to sound fancy. It’s
not. Grab any book on surv...
and ask them why, why,
why, why, why
(5 times if you are from 6-sigma)
and then you need to
watch them
so that you understand
what, why, when, and how
they buy
but
not all customer pain
points are born equal
you’ll be looking for
between 1-4 interrelated
pain points that create a
sense of motivation &
urgency
in the mind of the
customer
(If you are a nerd, check out Maslow’s Hierarchy of Needs on wikipedia)
pains that are so dire that
the need to solve them
will provide enough
motivation that the
customers will get off their
fa...
and search for a solution
and then fork over money
(that they earned in that job they totally hate)
remember
your biggest competitor is
not another firm
it is your customer’s
biological and
psychological preference
to do nothing
your biggest competitor is
the status-quo
if you do not find the right
set of pain points
you’ve got no hope of
motivating the customer
to buy
(of course, there is always brainwashing, blackmail, monopolies, or v...
in other words, you need a
product that will be
valued by a customer
PART TWO
a value proposition is
valuable
unfortunately, we’re
running a business here
so, while solving one
person’s pain points is
noble
it does not make for a
sustainable business
(Well unless the 1 customer is the US government….of course these days, their ...
what you need to do is
find a set of interrelated
pain points
that are shared by a large
group of customers
who, as a group
have loads and loads of
cash
that needs to be in your
pocket
in fact, better yet
that large group should
be growing over time
(faster than the economy at large)
and the pain points
should be something
they’ll need solving for
many years to come
typically, when you are
talking to someone else
about the valuableness of
your value proposition
you’ll explain valuable in
steps that narrow your
valuableness down to
executable chunks
STEP ONE: TOTAL
ADDRESSABLE MARKET
“Our Total Addressable Market
(everyone who could ever buy)
is made up of 100 million
p...
STEP TWO: TARGET
SEGMENT
“we’re targeting customers in
SE Asia first. This segment
includes 40 million
customers and is an...
STEP THREE: MARKET
SHARE
“in SE Asia, we’ll capture 5%, 15%, &
30% market share in years 1, 2, & 3.
our expected revenue i...
whatever the case,
however you express it, a
value proposition must
show that you will be
valuable over time
PART THREE
a value proposition makes
you valunique
(Give me some vocabulary latitude in the name of alliteration, please!)
more often than not,
entrepreneurs come to me
and claim that they have
no competitors
my response is to
immediately file their plan
in the circular file cabinet*
* AKA, “trash bin”
it is a law of nature
Within 48 hours of the
discovery of money in any
nook or cranny of a
market place
18 competitors will
emerge
if no competitors emerge,
it doesn’t mean you’re a
visionary
it means that there’s really
no money there
(the best way to identify competitors is to simply ask potential customers dur...
so your fundamental
assumption should be that
you’ll need to ready your
self for battle
and the battle will be
fought on two fronts
first, the entrenched
incumbents will put up
entry barriers to try to
stop you from entering
they’ll do that with
intellectual property, lock-
ins at one, more, or all of
the points in the value
chain, government or...
so you’ll need a battle
plan as to how you’ll get
past the barriers
second, once you get
some traction, followers
will try to pull you down
from behind
and that will happen from
now until the end of time
so you’ll need to put up
your own entry barriers to
slow them down
you’ll do that with
intellectual property, lock-
ins at one, more, or all of
the points in the value
chain, government or
...
finally, you’ll need to
differentiate yourself from
the competitors relative to
the customer pain points
and then defend that
differentiation sustainably
to do this, you’ll need to
design a solution that is
different from the other
options
but
it is not just about being
different, or even being
better
you must be
different/better vis-à-vis
the customer pain points
that are valued and
valuable
it is the customer pain
points that determine
your product/service
features
and not your engineers, or
their technical prowess
the most basic & urgent
of those pain points
define your Minimum
Viable Product (MVP)
and the rest of the pain
points create the
milestones in your R&D
plan.
whatever the case, at the
end of the day, you’ll need
to be sustainably, and
defensibly valunique
PART FOUR
a value proposition must
deliver through your value
chain
of course, all of this is just
a bunch of hot air
until you execute
so a value proposition
needs to be executable
you need to know what
capabilities are required to
deliver the plan
and how you’ll organize
and manage them
porter would call these
core competencies
some refer to them as
your value chain
it starts with the supply of
raw materials into the
system
goes through
manufacturing where you
transform supply into
product
outputs through
distribution where you sell
and deliver finished goods
and ultimately ends with
ongoing after-sales
customer support
linking all these together
are logistics, technology,
processes, and your
people
usually, all this is
expressed as three
separate, but linked, plans
1. The Organizational Plan
(people & company)
2. The Marketing & Sales Plan
3. The Operations Plan
at the end of the day,
your value proposition
must be supported by a
value chain that is setup
to deliver all your
strateg...
PART FIVE
a value proposition must
address valuation
finally, we need to talk
cash
a value proposition must
address cash in three ways
first, you’ll need money to
make money
bringing together all the
other aspects of the value
proposition costs money
up front
and you’ll need to
convince an investor to
give that to you
for that, you’ll need to
clearly explain how much
you need (and why), and
how much equity the
investor will get in return
second, you need a
financial plan that allows
you to build your firm
so you’ll need to
understand pro-forma
P&L, Balance Sheet, Cash
Flow Statement and
accounts payable &
receivable management
third, you and any
investors that help fund
the build-out, will want to
take cash out – ideally,
lot’s more than you put in
and that means you need
a clear and achievable exit
plan (IPO, Trade Sale,
Liquidation)
with a Return on
Investment that justifies
the original investment
and one final note about
valuation
nobody goes to an
investor
and brags, “I’ve got a loss-
making plan!!!!”
every plan an investor
sees claims ROI
which means that it is not
enough just to have a Net
Present Value >0
you actually need an NPV
higher than all other NPV-
making competing
investments
whatever the case, a good
value proposition must
include valuation
PART SIX
afterword
so remember
a good value proposition
should cover
valued
valuable
valunique
value chain
valuation
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