Startup Lithuania pre-acceleration course: Startup Guide

1.1. The Essence: problem-solving and value proposition

The very first step of what you should do is to define what value you will deliver to your customers. If you can’t describe what problem you solve, what real value you provide to your customers, you shouldn’t plan anything else, and you shouldn’t build any products. This is a vital and most important step. The value proposition is a critical element for startup success. If you can create real value to potential customers, it will be much easier for you to:

• attract investments (which might be necessary for creating and delivering the value proposition)
• earn consistent revenue and profit
• get viral word of mouth recommendations to help grow your business fast.

A company’s value proposition is what distinguishes it from its competitors. It is the collection of products and services a company offers to meet the needs of its customers. The value proposition provides value through various elements such as newness, performance, customization, design, brand, status, price, cost reduction, risk reduction, accessibility, and convenience, etc. In other words, a value proposition is a promise of what a customer will get from your business. Generally, it is the main reason why a customer would choose to engage with your company instead of your competitors. It is a concise statement that highlights the relevance of a product offering by explaining how it solves a problem or improves the customer’s situation. The value proposition should be seen from a wider perspective than just a listing of what benefits the company can offer the customer. Usually, there are three levels of value emphasized in value proposition:

1. List of features. Though it’s not very effective, a list of features is the easiest way to construct a customer value proposition. You simply list all the features the offering might deliver to target customers. Some people mistakenly think that the more features can be listed, the better, but that is not always the case. This approach requires the least knowledge about customers and competitors and, thus, it is the least effective.
2. Points of difference. Regardless of the product or solution, customers always have the option to buy a similar product at a competitor or solve the need in another way. Therefore, companies should focus on how to differentiate one product or service from another in the market by citing their points of difference. Listing the points of difference is a more efficient method to create a value proposition rather than a list of benefits. However, there can be a problem when a product or service has several points of difference from the rest of the market: it becomes difficult for a customer to understand which ones deliver the greatest value. Therefore without knowing the customers’ preferences and what it is worth to fulfill them, companies (especially startups) may stress points of differentiation that deliver relatively little value to the target customer.
3. Customer-oriented value. This approach is well suited to the B2B (business-to-business) market but could be adopted in most B2C (business-to-customer) market cases as well. Customers are more likely to buy from those providers who fully grasp critical issues and deliver a simple but powerful value proposition that is most appealing to customers’ current needs. The company can create a customer-oriented value proposition by making the offering superior on the few attributes that are most important to target customers. They must also demonstrate the value of this superior offering and communicate it in a way that resonates with their customers‘ priorities. In other words, the company must show the exact value this offer can deliver to the customer.

The best way to understand the value you deliver is to put yourself in your customer’s shoes and to involve the customer in the creation of your value proposition. As Steve Blank and Bob Dorf (2014) noted: [su_quote]”in a startup, the founders define the product vision and then use customer discovery to find customers and a market for that vision.”[/su_quote] Authors in their Startup owners manual also suggested four startup development stages which are very important in crafting the value proposition:

1. Customer discovery captures the founders’ vision and turns it into a series of business model hypotheses, which have to be tested and turned into facts
2. Customer validation tests whether the defined business model is repeatable and scalable (if not, you should get back and repeat customer discovery)
3. Customer creation is the start of execution, which builds end-user demand and drives sales to scale the business
4. Company–building transforms an early-stage startup into a company focused on executing a validated business model.

You should craft your value proposition in the very first stage and then test if it is meaningful and appealing for your customers. If it’s confirmed, you can build your business model around it. If not, you should go one step back and redo your value proposition. To make the process easier, use the value proposition canvas introduced by Alex Osterwalder, Eves Pigneur, and Greg Bernarda in Value Proposition Design (2014). This tool helps startup founders design, build, test, and manage their customer value propositions. For a better understanding of this concept, spend a few hours reading the book Value Proposition Design. You are free to choose any methodology for creating your value proposition, but if you want it to be effective, the value that you intend to deliver must be:

• important to the customer
• unique and hard to copy
• strong enough to initiate word of mouth

Your customer should be able to read and understand your value proposition in about five seconds. It has to communicate the concrete results a customer will get from purchasing and using your products or services, and it must differentiate your product from your competitors. Creating your value proposition means that you have one vision of what you are providing for your customers. This is like the master blueprint from which all sales stories, marketing messages, and individual offers are developed. This saves huge amounts of effort, time, and resources on the part of the sales and marketing staff, internal communications, and product development people, who otherwise might have totally different perspectives on the value they are creating.

Following templates will help you work on this chapter

1. Problems-Jobs-Gains
2. Cheat Sheet
3. Value Proposition Design