The Value Proposition
When teaching “Entrepreneurship” in Asia, I found that many students had good ideas but could not articulate a good value proposition. Developing a value proposition is the first step to getting customers for their startup. Many students often jump into developing the solution before they understand the problem or finding whether there are other solutions already in the market. And that is often the first mistake, many students made.
A value proposition is a statement that explains what benefit they provide to customers. It describes all customers, the problem they have and how student can solve, and why their solution is better than other competitors. To develop a good value proposition students in my class must follow the three steps process.
In the first step, students must define a problem that they want to solve. If they can find a problem that many people have but cannot solve, or the current solutions are not good enough, then they have a good chance to continue. This step requires students to research the market thoroughly to identify opportunities and understand the problem at a broader level.
The second step requires students to answer four fundamental questions.
1. Can they solve the problem using current technology and their skills (i.e., Do they have the skills to do it?)
2. Is the problem worth solving? How many people need to fix this problem (i.e., How big is the potential market?)
3. Is the problem important? How desperate customers want to have it solved? (i.e., Will customers pay a lot of money for it now?)
4. Are there other solutions in the market? How many competitors are there? (If it is an important problem and has big market why there is no solution exist yet? Or why only a few solutions exist in the market?
I always remind them: “If you are going to spend your efforts, your money, and your time to start a company, you need to be in the best position possible by solving a big problem that is needed with a lot of potential customers who are willing to pay for it. There is no reason to do something trivial with only a few customers because you will not be able to justify the startup. A startup is a serious business, and you must be a business person first.”
The third step is to look closely at the problem to identify things that they can do uniquely that others cannot. (i.e., Using better or newer technology that others may not use or have not been developed yet.) They also determine what they can do to prevent others from competing with them (i.e., file a patent or create a barrier so others cannot overcome.) This is a defensive strategy, but it is essential because, without the protection of a patent, other competitors could copy what they have and build it faster, or cheaper.
By the time students complete these steps, they know who their customers are; how big is the market; what their solution is, how they solve the problem; and how their solution is better than others. From this information, they can articulate their value proposition to convince customers to buy their product.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
