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Is there value in your value proposition?

A customer-credible effort to claim competitive advantage.

 
 
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By Stelios Kavadias, Margaret Thatcher Professor of Enterprise Studies in Innovation and Growth, Co-Director of Cambridge Judge Entrepreneurship Centre.

Key takeaways:

  • Value proposition is not about what we think we can do better, but about what the customer thinks we can do better

  • A value proposition must be dimensional and measurable to succeed beyond a marketing gimmick

  • Defining the value proposition can be a process; a process that involves the stakeholder that reaps this value: the customer

If as a company founder you have not been told yet about the value of your value proposition, then this means you have not founded a start-up! Crafting a convincing value proposition has been almost synonymous to success for any new venture. Numerous books are written, several TED-like videos and podcasts are recorded, and hundreds of hours of coaching and mentoring are dedicated to uncovering the top features of the best value propositions.

So why try and offer one more blog post on the subject?  Do we need another “top 10 features of the best value proposition” perspective? I will try to differ on this short article, and to bring on board a Cambridge perspective, that is a slightly deeper way of looking at things; call it the benefit of a few hundred years of scholarship.  

Let’s reflect on the basic premise of a value proposition: do people understand what it is that you try to offer them? There are possibly three answers to this. Yes, most of the time; no, it is rarely happening (it is really difficult); or, a few times people understand. All three give you some information. Yet, they also raise questions as to what this information really tells you. Take the first one, for example: sounds great that almost everyone understands what your technology, or product, or service offering is supposed to do for them. But maybe they understand because what you offer them is the same as another hundred businesses out there! So, your offering’s proposition might be clear, but questionably attractive (“competitive” in the lingo of a business school). A “no” implies multiple things as well. It may very well be that indeed your product does not offer any meaningful value to the intended customer segment, group or type. But, it could also well be that the value of the offering is not perceived (see understood) from the customer in discussion. These last two things, that is the absence of value versus the lack of understanding of the value are significantly different; yet the customer will not spend time telling you which one is which... Finally, the last option becomes even more complex as any combination of the previous possibilities can be the driving force behind the “some like it some don’t” outcome. 

The reflection above points directly into something essential here: the value proposition cannot be viewed as a mere exercise in communication. It has to represent in the credible way how and why the technology, product or service adds value to the customer. Which effectively means that it must express in the customer’s terms (as seen through the customer’s eyes) the ways the venture’s offering provides value. This simple premise is often missed; particularly amongst deep tech and science-based start-up companies. The technology (or science) dazzles, takes over the discussion and oftentimes leads to what I would call a supply-side description of a venture’s technology, product, or service, that is the technical or scientific descriptions about the inner workings of the venture’s output that make little sense to the recipient’s ear.

Maybe in B2C this is true, but it is not true for business-to-business (B2B) ventures, some may proclaim. Would avoid jumping to conclusions quickly. I have come across many ventures over the years that specialise and target business customers. There, as they claim, technicality and scientific lingo matters because it raises the trust and the perception that the venture’s output is indeed of high quality. Whose trust, and whose perception? Important detail: of the technical division and experts in the other side. But oftentimes these experts are not the decision makers that sign off the sales agreements or determine whether a buy-out may happen. It is the senior executives of the customer organisation; who, again, might not speak the technical lingo but the language of business, i.e., how does your technology, component, or software affects my cost, my speed of delivery, myproduct quality, or my delivery capability. Thus, even in these cases, the value proposition needs to map to what these (business) customers’ value. If we buy this basic observation, then the next question emerges naturally: how is it possible to craft such a customer-credible value proposition?  

Here are a few useful thoughts that aim to structure an approach to define a customer’s view of our possible offering. 

First, it is important to try and describe succinctly what a customer cares about in a few concrete, measurable, and hopefully verifiable dimensions. Is it the delivery speed, the ambience of the experience - or specific dimensions of it - the after sales support, the integration risk (in case of a component technology), the supply availability etc.? In other words, what are those 5-6 key dimensions that describe the customer’s value? Obviously, someone may identify that it is hard to know what those dimensions are. Then, there is an obvious action item: finding those out from the customer! This sounds obvious; actually, it is not. Startup companies and large corporations alike suffer from the same challenge. They often get stuck with the perspectives of limited numbers of customers, and/or they rely too much on large, generic market surveys and macroeconomic data, which may rarely serve the purpose of uncovering the full spectrum of market factors. 

Second, the founding team should use these factors to assess and evaluate how much their offering satisfies these customer criteria. No need for detailed scoring models here. A traditional 3-tier system can achieve a good enough assessment. Does it fulfil them in a highly effective (H), moderately effective (M) or limited (L) manner? Moreover, how do competitors fulfil those same factors? Better or worse than the venture offering? Where does the venture offer superior value and where does it lag behind competition? Admittedly, these initial assessments may be ad-hoc, and imperfect. They will depend on the perceptions of the founding team and perhaps a few customers. Still, the upfront assessment and comparisons will shape an initial hypothesis that the team will have to confirm (negate?) with respect to how their value differentiation addresses customer preferences and differs from competition. How to confirm this? Once more a natural action item: through engagement with the customer. 

This structured evaluation proposed here offers the basis (a benchmark) to achieve two key things: (i) compare a venture’s offering along the same dimensions with a competitor’s one; (ii) identify whether the founding teams perceptions are correct, or wrong both regarding customer value, but also vis-a-vis the competition. Obviously, these comparisons will prompt the team to ask difficult but essential questions regarding their value proposition. But most likely they will help the team develop a value proposition that is credible in the eyes of the customer. Because in the end of the day, it is the customer that makes the choice.         

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