intro to value propositions for entrepreneurs

Download Intro to value propositions for entrepreneurs

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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.

TRANSCRIPT

  • WHAT IS YOUR BUSINESS VALUE PROPOSITION? what investors want to know
  • if you are an entrepreneur, youve almost certainly heard the term, value proposition
  • but what does it actually mean?
  • take a moment to define it for yourself
  • come on.dont cheatdefine it before you skip to the next slide!
  • if youre 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
  • lets 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. Its 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
  • but
  • not all customer pain points are born equal
  • youll 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 Maslows 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)
  • remember
  • your biggest competitor is not another firm
  • it is your customers 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
  • youve 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, were running a business here
  • so, while solving one persons 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 theyll need solving for many years to come
  • typically, when you are talking to someone else about the valuableness of your value proposition
  • youll 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 billion
  • STEP TWO: TARGET SEGMENT were 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, well 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 doesnt mean youre a visionary
  • it means that theres 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 youll 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
  • theyll do that with intellectual property, lock- ins at one, more, or all of the points in the value chain, government or industry partnerships, etc
  • so youll need a battle plan as to how youll 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 youll need to put up your own entry barriers to slow them down
  • youll do that with intellectual property, lock- ins at one, more, or all of the points in the value chain, government or industry partnerships, etc
  • finally, youll need to differentiate yourself from the competitors relative to the customer pain points
  • and then defend that differentiation sustainably
  • to do this, youll 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--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, youll 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 youll 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, youll need money to make money
  • bringing together all the other aspects of the value proposition costs money up front
  • and youll need to convince an investor to give that to you
  • for that, youll 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 youll 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, lots 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, Ive 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