I spent a long and fascinating day this week talking about a string of early stage companies. I watched pitches from four interesting companies. I listened to reports from a portfolio of startup investments. Including one that has failed in the recent past. Then I had an intense meeting with two friends about the plans for a new business. All the lessons from the day would amount to a good snapshot of the whole Scottish startup ecosystem.
In this post I want to focus on just one. Many of the conversations turned on sales. How could these companies generate their first revenue? Or grow fast enough to reach scale? No surprise. At two separate moments this discussion went deeper. The real problem emerged. How to focus on and clarify the right value proposition?
Why is Startup value proposition so important?
Value proposition is one of those buzzword bingo phrases business people use. It appears on the business model canvas. And it used by McKinsey partners and Harvard Business School graduates. What do the fancy words mean?
Wikipedia says: A value proposition is a promise of value to be delivered and acknowledged and a belief from the customer that value will be delivered and experienced.
This seems a neat summary so lets work with it for a minute. At the stage of proposition value is a promise from the seller and belief by the buyer. It matters because without that promise, your business has nothing to sell. If belief is absent, no customer will ever buy.
That is why is precedes actual selling. There is no point in rushing out to hire sales people if you don’t have a clear statement of the value you will deliver.
In fact your value proposition is fundamental to the whole customer lifecycle:
Once you add up these three principles it is obvious that value proposition is about more than sales. It is about what you offer and deliver to your customer. To get it right you need to know what your product does. What benefits it offers? Which customer will gain those benefits? How the value of those benefits compares to the price? (i.e. can you make money!) Value proposition is the heart of your strategy. As well as your sales.
This value proposition stuff is simple?
All the above sounds obvious. Even without the theory any sensible founder would take this approach. Yet I meet many business that are struggling in this exact area. More often than not they don’t even realise. Some are head down convinced they are on track and confident of success. Others are finding it tough. But can find almost any other reason for their troubles. Not able to raise enough money to compete. Customers are not yet ready for their solution. Shortage of senior talent to do the selling. There is an endless list.
So what makes a good value proposition? Let me illustrate first with a negative example.
Digital health is a bit of a passion of mine. I am CEO of an early stage health startup called Triscribe. In the UK health is a common source of poor value propositions. Digital and more traditional life sciences alike. The usual story runs like this.
This all sounds great. Yet in practice it is no use to anyone. It has at least 4 fatal flaws:
What does great look like?
I could wallpaper the Forth Bridge with more examples. There is no single solution to what a great value proposition looks like. Nor is there a template or model which always works. Or even works some of the time. I love listening to Guy Kawasaki, chief evangelist of Canva and tech marketing legend. He gives some great examples like:
“Our business will take off when kids film the effect of putting a pack of Mentos into a bottle of Diet Coke.” - YouTube value proposition.
“The secret sauce is going to be photos of cats scratching themselves.” Twitter value proposition.
I guess some people are just visionary. I am not. And I still don’t have a formula. The answers I look for/ hope for/ cry over include:
The last question is often revealing. For example, think about the Kenyan mobile money system M-Pesa. One key to its success is ultra low rates for money transfer. Even with 20 million users it is far from obvious that Safaricom makes money from this product. However, the mobile operator has a dominant 60% share of the fast growing Kenyan market. Kenyan citizens get the value of low cost and extreme convenience. Safaricom has a loyal and valuable customer base.
Where does this fit in your business?
I hope its clear why value proposition is so important. Your whole business strategy depends on it. You need it for everything you sell. It will change with time and as your markets needs and expectations evolve. I don’t think there is a template or a method which answers the question. I am suspicious of anyone who says there is.
I would offer two pieces of advice. Always think and reflect on the two key questions: What promise of value are you offering? Do your customers recognise and believe in that value?
These are not easy questions. If you are not sure of the answers, get out and talk to people. Best talk to some customers and potential customers. Otherwise talk to advisors, mentors, non-execs or anyone who will listen. There is no more important question on which to seek advice. By all means avoid the business jargon of the words value proposition. But keep the concept at the heart of your strategy.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.