Welcome everyone to Module 2 of entrepreneurship, laying the foundation. This is lesson 1 in which I'm going to focus on what's at the heart of every new venture opportunity, the value proposition. Take a look at the word cloud for this lesson. As you can see, the customer has to be central to your value proposition. Let's be clear, customers don't buy technologies, they don't buy innovations, and they don't even buy products or services. They buy solutions and benefits. Your customer has to understand the benefit that they'll receive by purchasing your product or your service. A good value proposition is one that directly connects your product and its features to the solution that the customer needs or the benefits that the customer will receive. When you've made that connection and your customers recognize it, you're on your way to achieving what's known as product-market fit. Some of you may be familiar with the business model canvas popularized by Alex Osterwalder and Yves Pigneur in their book, Business Model Generation. The business model canvas is a tool for creating a business model on a single page, describing the way that the business creates and captures value for its customers and its stakeholders. At the heart of the business model canvas is the company's value proposition, which is the solution that the company offers to solve problems or create benefits for the customer. In this lesson, I'm going to focus on Osterwalder and Pigneur's value proposition canvas, which is a companion to the business model canvas. The value proposition canvas is designed to connect the features of the company's product or service directly to the job or function that the customer is trying to complete and the problems that the customer experiences in the process. This is what it looks like. On the right side of the canvas, you have the customer profile. What is the customer trying to do? What benefit is the customer trying to achieve, and what obstacles does the customer need to overcome? On the left side you have the value map. The value map identifies the key features of the product or service and how they help the customer achieve these benefits or overcome these obstacles. Once again, customers don't buy products, they don't buy brands and they don't buy technologies, customers buy solutions. Solutions allow customers to get something done. When your products, features, and functions lineup with the customers real need for a solution, then you have what's called product-market fit. They can recognize that the solution is something that will help them accomplish their job or task while maximizing the benefits they'll receive from completing the job, and minimizing the problems that they would otherwise experience while trying to complete the job. I've used the word job a lot. What does that mean exactly? On the customer profile side of the value proposition canvas, your goal is to describe the task or job that the customer is trying to accomplish in the section that's highlighted in red here. The job is something that they need or want to do, and that your product or service can help them with. Hopefully, it's something that's important to the customer, and your product or service will help them with it in a big way. Here are some examples. In a business-to-business setting, the customer's job may be to make a sale, it could be to manufacture a product or comply with a government regulation. The job might be to obtain information. It could be one of dozens or hundreds of additional jobs, like write a report or impress the boss. In a business-to-consumer setting, the customer's job may be something tangible like cooking a healthy dinner, getting in shape, or communicating with distant family members. It could also be something less tangible, like being entertained or impressing one's friends. The customers jobs are not always easy. They frequently involve problems or pains. If they didn't, the customer wouldn't be willing to pay much of anything for a solution. In the part of the customer profile that's highlighted in red here, you should list the customer pains that are related to the job. Pains can be frustrations they experience or obstacles that they need to overcome. Perhaps the job is too expensive or too time-consuming, maybe it involves physical danger or business risk. Perhaps it's just unpleasant. Many years ago when I was in college, I had a summer job helping build hog barns in Nebraska. There were a lot of things that were unpleasant about that job, not the least of which was the smell. There might even be some sort of stigma or social embarrassment that's related to the job, like seeking help for a problem that you don't want to admit that you have. As before, I'm sure that given enough time, you can identify plenty of pains that customers experience in their jobs. Let me just highlight a couple of key points while we're on the subject of customer pains. First, they can be either chronic or acute. A chronic pain, as the word implies, is one that's always there. It may be something the customer is used to and has learned to live with. After a while, the customer may not even realize it's there, or that a solution is really necessary. An acute pain, on the other hand, is something that's immediate and pressing, it creates an urgent need for a solution. Why is this important? Because customers are likely to be willing to pay a lot more for a solution to an acute pain. Another way to think of it is that a solution to a chronic pain is something that it would be nice to have. But in acute pain means they need to have a solution, and they need it right now. There are also varying degrees even for an acute pain. Think of the difference between a dog bite and a shark bite. If the pain is immediate, that's one thing. If it's life-threatening, that's another thing entirely. Finally, it's important to recognize when the customer has the problem. It may or not be at the same time that they're performing the job or the task. I once had some students who were developing a vodka drink mixed with coconut water, which could supposedly reduce hangover symptoms. Their catchphrase for the product was, "Win the night, but don't lose the morning" Can you predict when the customer will have the pain? Does it happen at certain times during the month or the year? Does it happen only when other things are happening? All of these things, nice to have versus need to have, dog bite versus shark bite, and being in the right place at the right time are going to be important when you decide on the price you want to charge for your solution. The last piece of the customer profile, highlighted in red on this slide, is a list of the benefits that he or she is seeking. You may think of a benefit as being the absence or the opposite of a pain. That's not actually true. You should try to identify and describe the benefits separately. For example, if the pain for a business customer is that existing solutions are expensive, the benefit is not simply that the new solution is cheaper. The true benefit may be increased profits. If the job is to close a sale and the problem is that customers take a long time to make a purchase decision, the benefit from your solution may be faster revenue growth or improved cash flow. The benefit of a simple solution to a problem may be more free time for the customer to spend on other things. As always, business customers are often seeking benefits that are different from what consumers may be seeking. Consumers may be looking for a solution that provides more comfort or one that enhances their status in some way. I don't mean to imply that businesses never seek these benefits, after all, business customers are people too. You'll recognize this from one of my previous lessons, business-to-business value propositions typically help the customer make or save more money, save time, or reduce some risk that threatens their business model. Business to consumer value propositions typically help the customers save money, save time, enhance their status in some way, or achieve some personal fulfillment. If you're struggling to define the customer's pains and gains, think about how they might fit into these categories. Moving over to the left side of the value proposition, we have the value map, which describes the solution and how it addresses the customer job, the pains, and the gains. Remember that the job is what's important to the customer. If the solution does not help the customer complete the job, there's no need to worry about reducing pain or increasing gains. The solution is embodied in the product or the service. It could be physical or digital, or a combination of both. The section of the value map that's highlighted in red here is where you should list the key attributes or features of the product or service, the ones that are necessary in order to help the customer accomplish the job, and the ones that differentiate it from other solutions in a way that addresses the customer's pains and gains. Don't confuse the product with its features. That would be like confusing a car with its seat belts. The car enables the customer to get from point A to point B. The seat belts make it more likely that they'll get from point A to point B safely. Pain relievers, which should be listed in the area that's highlighted in red on this slide, are features that solve the problem that customers experience in their jobs. A low price is a feature that addresses the pain of existing solutions being too expensive. A faster sandwich-making process is a feature that allows a fast food restaurant to address the customer's problem of lunch taking too much time. An improved seat belt is a feature that makes cars less dangerous. A private space for prescription ordering in a pharmacy is a feature that could make it less likely that a customer would be embarrassed. It's important to identify and focus on the features that are really necessary to address the customer's pains here. I talked about nice to have and need to have solutions on the other side of the value proposition canvas. Similarly, features that are mission-critical, the product is of not much use without them or need to have while features that are less important could be considered nice to have. Another way to think of this is that pain-relieving attributes will allow the customer to accomplish the job while reducing or eliminating customer pains. They could help the customer reduce the amount of time, money, risk, or discomfort that's involved in the job. I could have used some odor-reducing technology while building those hog barns. Ideally, you'd like to be able to directly connect the pain-relieving features of the product or service with the specific customer pains that they reduce or eliminate. On the other side of the value map, are the features or attributes of the solution that allow the customer to achieve certain benefits. Again, a gain is not exactly the same as the elimination of a pain. You can think of a benefit or gain as the reason the customer is doing the job in the first place. They could stem from the simplicity of the solution or its comprehensiveness depending on the job, saving time or money are not really benefits in this sense, the customer could always save money or time by just not doing the job at all. Getting the job done while having more money and time to spend on other things is a better way to describe the benefit if that's what it is. Simplicity is an example of a feature that makes it possible for a customer to complete a job quickly with less chance of making an error. Compatibility is a feature that makes it possible for the customer to use a software product with all of their existing hardware and software. A brand name is a feature that helps the customer show that he or she has good taste or fashion sense, or it may provide reassurance that the customer has made a responsible purchase decision. You've probably heard the phrase, "Nobody ever got fired for choosing IBM." As we did with the pain relievers, we can broadly say that the gain creating features of a solution help the customer increase or maximize something they want more of. A more efficient solution could help the customer enjoy more free time. An improved database structure on a CRM system could help the customer generate more revenue and increase profits. Organic might be thought of as a feature of a food product that will help the customer be healthier, or it could be a feature that just makes the customer happy or feel better. I remember once when I bought a hat at a clothing store and when I looked at the label inside it said, "Joy and health to you who wear this." Now the product was the hat and not the label. The label was a nice feature that made me feel good whenever I wear the hat in order to keep my head warm and dry. Are you selling a painkiller or a vitamin? This has a lot to do with the chronic versus acute pains I described earlier. A painkiller is a solution that addresses an urgent need to solve an immediate problem. The customer's willingness to pay for a pain-killing solution is high. It may be something that only happens occasionally, though. I don't know too many people who get dog bites or shark bites every day. Dog bites probably happen more often than shark bites, though. A vitamin is something that addresses a less urgent need and the benefit might even be uncertain. Who can say whether those daily multivitamins that you're taking are really making you healthier? Because of this, customers are usually not willing to pay as much for a vitamin. However, just like you might be doing with your multivitamin, they might sign on to be a long-term customer and take the product frequently. Over time, they might even end up paying as much for the vitamin as someone else does for a painkiller. Think of a night out at the movies for your family, which can easily cost $50 or more. Do you remember when we used to be able to do that? It provided immediate benefit, something fun to do that night. Now compare that to a basic Netflix subscription at 8.99 a month. The benefit is less immediate and it may not be as much fun as going out, but customers are willing to sign up for a monthly subscription so that they have it available whenever they need it. If you're like me, you probably spend more each year on Netflix, Hulu, and so on than you do on going out to the movies. Now let's zoom back out to the full value proposition canvas. When you've identified the customer's jobs, pains, and gains, and designed a solution that's lined up with them, you've achieved product-market fit. That is so long as the customer agrees with you about this. Product-market fit is the price of admission for a startup. The lean startup model encourages you to be very judicious about your product or service attributes, especially when you're designing your minimum viable product. Its features should be directly tied to the customer's pains and gains. Don't waste time and money adding features that aren't completely necessary. You don't necessarily have to solve every customer problem or provide every imaginable benefit. Trying to have your product do everything that a customer might want could mean that you'd never get it off the ground when you're designing your product or service focused on the highest priority features and attributes for the customer and the ones that help you differentiate yourself from your competitors. Hopefully, those are one and the same. Let's wrap this up by describing how you should draft your value proposition statement. Steve Blank's template is the simplest. "We help X do Y by doing Z." Where X is the customer, Y is the customer's job, and Z is the solution that you're providing. If you can boil your entire value proposition down into one sentence like this, you're doing well. But that's not the only way to describe your value proposition. Here's how Geoffrey Moore presented the same concept in his famous book Crossing the Chasm, all the way back in 1991. A value proposition is something you can sell. His value triad is made up of the customer, that's X in Steve Blank's statement, the application, that's Y the customer job and the product Z, the solution. There are other formats you can find and use to craft a value proposition statement. Here are some tips on how to draft a strong one. Ask yourself these questions; do your customers understand it? Is it something that they would say themselves to describe your solution? Is it something that only you can deliver? On second thought, ask your customers these questions; whatever format you use the benefit to the customer should be clear, specific, and measurable, and concise. As I've said before, if you can't describe your value proposition in 30 seconds or less, you probably don't fully understand it yourself. Finally, here are some mistakes to avoid when designing your value proposition; don't confuse your product's features with the value that it provides to your customers, don't be vague about it, hone right in on the gains it provides and the pains it reduces for customers, make sure that you're focusing on a solution that is a need to have instead of a nice to have if you want to create real value quickly, and make sure that you're targeting a customer segment that's large enough and cares enough about your solution so that you can build a viable and by that I mean profitable business.
