Fundamentals of Entrepreneurial Management Series (1/6)
Whether you are thinking of starting a business or already have a business, it is essential to develop a sustainable business strategy. A well thought strategy provides long term business direction to meet goals, and is focused on addressing internal and external changes of the business environment it is in. Depending on the business model chosen (Porter's 5 Forces, Mckinsey's 7S, Ansoff, SWOT, PESTEL etc) a good understanding of industry trends and competitive advantage determines the eventual acceleration of business growth. A value proportion plays a significant role as you create your business model.
Describe Your Idea
To initiate or craft an effective value proposition, you first have to consider a few important aspects with regards to your business idea:
· Who is your target audience?
· How will the benefit from your product?
· What kind of problem are you solving for them?
· How do you plan to help solve said problem?
· Who is your competition?
· How do you plan on getting ahead of them?
· Why is your product better than other products in the market?
What Is Your Value Proposition?
Let us consider the following definition for value proposition:
“A product’s value proposition is a statement of the functional, emotional and self expressive benefits delivered by the brand that provide value to the target customer.”
(Aaker, David A. (1996). Building Strong Brands. The Free Press: New York
From the definition, we can see that value proposition depends on the following key components:
· What your brand offers to customers
· How do customers benefit from your offering?
(Time saving, cost savings, revenue increase etc.)
· Who is your target audience?
The Value Proposition Process: Frameworks and Process
Many entrepreneurs consider designing their business model a daunting task. They just don’t know where to begin. As each start up is unique, it is important that you consider every possible account; variation and problem which you may encounter and start devising a solution that may help you get through it.
Here’s a three-step procedure on how you can organize the value proposition and business model:
· Focus on the value proposition. This step involves analyzing the problems you may encounter
· Propose a solution to the said problems which you may encounter
· Create a sustainable business model with the help of the validated value proposition
These three steps lessen the complexity of decision making, helping you build a healthy business model.
Testing Your Target Customer Assumptions
When devising a business model, you need to focus on a problem that your product will be solving with the help of your product. You need to consider concrete objectives such as cost, profits, and market share. Normally, a failure to meet these objectives leads to grave consequences and may lead the company to jeopardy. Understand that as human beings, your consumers pursue a wide range of emotional, functional and social objectives other than just eating, drinking and sleeping.
When you are unable to reach an objective, the realization of your current situation is ultimately not what you had desired. This causes cognitive dissonance. It is a sense of mental conflict that causes anger and irritation when a situation does not turn out the way you had planned. Here’s where you need to realize that cognitive dissonance lies at the core of your customer’s problems. Marketing initiatives and advertisements are all designed to cause cognitive dissonance, making the customer feel that in order to feel fulfilled, they will have to purchase the advertised product.
At some point in their lives, your customers will realize they are hungry or thirsty. This is because the human brain is responsible for sending signals to the body, making you aware of your state of hunger. These are all obvious problems. However, there are latent problems your consumers are not aware of. It is your duty to tend to the needs of the latent problems of the people using your product.
In order for your business to become a success, you need to look for latent problems that your customers might be facing. Here’s how you should work it out:
· Devise a plan on how to collect information from your target audience
· Consider the objectives you are focusing on and find a way to execute them
· Consider how failure to meets these objectives will affect your business
· Calculate the loss in terms of numbers and figures (economic loss)
Conducting Customer Interviews
You can’t expect to solve your customer’s problems without speaking to them. At some point, you will have to interview your customers. Here’s how you can go about it:
· Start by interviewing people who are nearest to you
· Don’t simply start talking about sales. Instead, try to connect with the customer at an emotional level and allow them to express themselves. Only then will you be able to learn more about their problems.
· Ask open-ended questions that allow the customers to talk about multiple issues. If there are specific areas you wish to address, note them down and ask those questions before the time is up.
· Document all the information you have gathered
· Be punctual and respectful to everyone’s time. Display proper meeting etiquette by switching off your phone and listening attentively to your customer
Evaluate Test Results
At this point, you should be able to conduct interviews and gather important information. Now it is time for you to evaluate the results:
· How correct were your previous assumptions about the objectives you had laid out regarding the customer’s problems?
· Were you able to cover any new dimensions by talking to the customer?
· How do you propose to identify your target audience?
· Is the market problem urgent? Will the customer even care if the problem is solved? Is there another way of solving the problem?
· Will the customer actually pay for the problem to be solved? Does the problem really require the amount of attention you think it does?
Deciding On Your First Customer
After conducting intense research about the market, it is important for you to be able to identify who your first target audience will be. Your potential customer will have the following traits:
· They will be aware of the problem
· They will need a solution for the said problem
· They will have the budget to acquire the solution for the problem
Devising the Product Solution
Your next step should be identifying a solution to the problem. The solution should not only solve the customer’s problem but should also persuade and motivate them to buy the product.
Testing the Product Solution
After devising the product solution, it is important to test the product solution. The minimum viable product (MVP) will be the initial product that the customers will be paying for. This product has the fewest features and is used to generate feedback from the customers.
After your product solution has been tested, it is important for you to evaluate the results:
· Has the customers problems been verified?
· How accurate and validated is the product solution?
For this step, you have to gather the feedback received by the customers and discuss with your team how well you are able to achieve your objectives.
Creating a Value Proposition Statement
Now that you have completed all the required processes, it is time for you to write your value proposition statement. This statement basically summarizes the above-mentioned points. A good value proposition statement focuses on the following:
· The specific target audience (who are they?)
· Their problems/needs
· The solution you have proposed
· How your solution will improve their quality of life