Intro to value propositions for entrepreneurs

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Information about Intro to value propositions for entrepreneurs
Business & Mgmt

Published on October 20, 2013

Author: selenasol



What is your business'value proposition - what investors want to know.

This is a primer for entrepreneurs and, frankly, intrapreneurs on working out a solid value proposition and business model. Follow this structure for writing elevator pitches, business plans, or explaining what the heck you are doing to your grandma.

Selena Sol presents….. 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


that definition is not sufficient

actually, it is only 1/5 of what an entrepreneur needs to know


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 surveys, focus groups, or anything that IDEO puts out for free on the web about Design Thinking)

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


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 fat butts

and search for a solution

and then fork over money (that they earned in that job they totally hate)


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 violent force . Yay military-industrial complex!)

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 accounts payable is sketchy)

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 people, and annually worth $10

STEP TWO: TARGET SEGMENT “we‟re targeting customers in SE Asia first. This segment includes 40 million customers and is annually worth $1 billion”

STEP THREE: MARKET SHARE “in SE Asia, we‟ll capture 5%, 15%, & 30% market share in years 1, 2, & 3. our expected revenue is $300 million by year 3 & 12 million customers using us” (including market growth over time)

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 during market research who they think your competitors are)

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, lockins at one, more, or all of the points in the value chain, government or industry partnerships, etc

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, lockins at one, more, or all of the points in the value chain, government or industry partnerships, etc

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


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 strategic promises

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 lossmaking 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 NPVmaking 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

Selena Sol asks….. SHARE THIS DECK & FOLLOW ME (please-oh-please-oh-please-oh-please) stay up to date with my future slideshare posts

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