Tag Archives: customers

Focus Early on the Value Proposition to Help Manage New Market and New Product Risks

By Karen Utgoff

Savvy small business owners and startup teams take time to develop, test, and validate assumed value proposition(s) before making a significant investment in a new market or new product. This is a cost effective way to learn whether — and how — to best pursue opportunities. Be smart. Include this step early in your new product development and/or market launch planning efforts.

Is this really necessary? The further a new market or new product is from your current business, the more value-proposition-based, hypothesis-driven approaches are likely to increase your probability of success, help avoid missteps, and minimize the cost of failure. It’s better to recognize a gap between what you think and what your market needs while you have the flexibility to improve product-market fit; if there is an incurable mismatch, it’s better to “fail fast and cheap,” especially if there would have been a big investment. Concerned that this just adds to your costs? Consider the wasted resources and employee demotivation associated with failure of a new product, especially when better alignment between product and customer needs might have led to success.

Before sinking dollars and employee time into a new market or product/service offering, develop a hypothetical value proposition. Use this as your starting assumption as you test, revise, and pivot to achieve the best possible fit between product/services, new target customers/markets and your business goals. Many believe this type of effort is just for startups but it’s very useful for any company ambitious to grow beyond familiar territory. This is different from the process Laurie Breitner describes to take advantage of the existing customer relationships and knowledge a team accumulates over time to clarify and confirm value propositions for established products in well understood markets.

Test your hypothetical value proposition to corroborate, refute, revise, and reinvent before making a big commitment. While methods for doing this aren’t foolproof, you will be amazed at what you can learn. The fundamental idea is to get feedback from customers and influencers early in the process. While this may reveal painful truths, it’s much better than discovering them after building the wrong inventory, focusing on disinterested customers, or setting prices too high or too low.

Three low-cost methods are within reach of most small businesses and new ventures. Each has its strengths. They are not mutually exclusive and are most effective when customized to apply to the particulars of each situation. In all cases, focus on learning not selling.

  • Observe potential users going about their daily routines. See how potential customers currently solve a problem and why they might value your alternative solution. These opportunities take some finesse to structure but cost little and — with the right frame of mind — can deepen your understanding of customers, improve your product, and clarify the value proposition. If you are contemplating entering a new market with an existing (or new) product, this method may work best as a next step with your interviewees (see below). If you are developing a new product for existing customers, it can build on established relationships.
  • Interview potential customers, influencers, distributors, and partners to gauge their attitudes and get their input. Your hypothetical value proposition embodies assumptions about what problems are important to potential customers and what they value in a new solution. One-on-one interviewing lets you test those assumptions and make changes to the value proposition, change the product design, and/or redefine the target market. Plan on devoting significant effort to interviews and to processing what you hear from each interviewee. These videos provide a good general guidance on planning, conducting and learning from interviews as a starting point; different situations, products, industries and customer segments require variations on this approach.
  • Test a pre-commercial (prototype) product by putting it in the hands of potential customers. Recruit a small group of thought leaders, early adopters, and (if you have them) interested customers to individually give you feedback on a prototype. There is nothing like getting an early version into customers’ hands to learn if the form factor, instructions, and performance meet their needs and it’s much better to improve the product before investing in inventory, advertising, and other expensive aspects of a product launch. Interviewing and observing this group maximizes learning — there is no survey that can follow up on interesting remarks or probe for more detail the way a skilled, well-prepared, objective, and curious interviewer can.

Who says you never get a second chance to make a first impression? All three of the above methods enable you to test your ideas, assumptions and decisions. To make the most of them and to preserve your chance for future “first” impressions, follow two rules:

  • Don’t argue with or disparage the expertise of interviewees or others with whom you engage. Be sure not to insist your assumptions are correct or preach that your product is “better.” Instead, acknowledge that you don’t have all the answers and appreciate the opportunity to learn from them. If you need to drill down for more detail, resist the urge to dissect the details in favor of asking open ended questions such as: “Why?” “How?” or “Can you tell me more?”
  • Be considerate. If interviewees are interested in spending more time with you than planned, be encouraged; but do not stay past your allotted time unless invited to do so. Be sure to thank everyone for their time and help. Ask if you may come back to clarify, ask more questions, or share future progress. An enthusiastic “yes” is a good indicator that you are on the right track.

When to begin? It is essential to begin early in the product or market definition/development process while you still have the flexibility, time, and resources to pivot. When well done, using hypothesis-based methods to craft, test, and refine an initially assumed value proposition can help to assure that product development and market development efforts are well-aligned and attuned to customers in initiatives that move forward. This increases the likelihood of success while reducing the risk that further investment will be off target.

 

 

© Copyright 2017 Karen Utgoff. All rights reserved.

Put More Value into Your Product’s Value Proposition

By Karen Utgoff

Many business owners, entrepreneurs, executives, marketers, and product managers are hard pressed to express a value proposition crisply or craft one that holds up well in the real world.

Can you? If you aren’t sure, read on.

What is a value proposition? In short, it’s the answer to why customers buy and why they buy from you. Strong value propositions reflect a deep understanding of your customers and serve to unify and align marketing — promotion, packaging, pricing, distribution, product, etc. — efforts.

Sound value propositions address customers’ operational, economic, or emotional concerns.

Operational value propositions appeal to customers who need to solve, ease, or prevent problems, that is, change the conditions under which they operate. For example, a new drug might cure a previously incurable disease, slow its progress better than existing treatments, or prevent those at risk from contracting it. When a breakthrough technology is at the core of the product, an operational value proposition typically appeals to visionaries — early adopters who are most likely to be open to and excited by the promise of a new, relatively unproven offering.

Economic value propositions resonate with customers who are cost-driven. But cost can be measured in a number of ways. Customers may seek the lowest purchase price, more predictable total cost of ownership, or some other cost-related benefit. Economic value propositions can be powerful or painful depending on how low-cost is defined and achieved. Wal-Mart achieves every day low prices through superior logistics and supply chain management forcing others to lower prices or find some other way to compete.

Emotional value propositions appeal to customers’ feelings, attitudes, ethics, and/or self-image. Designer labels command a premium price from customers who see themselves as fashionable and perhaps affluent, even as others fail to see any significant difference with a no-name version that may be from the same contract manufacturer. Products branded as “all natural” or “low fat” may draw the interest of health conscious customers even when the only change is relabeling to accentuate product attributes that were already present. Fad products such as the legendary pet rock may offer fun, frivolity, or the cool factor to customers. Clothing associated with a school, club, or team offers a sense of belonging.

Multidimensional value propositions mix operational, economic, and emotional appeals and are especially powerful. Customers buy for different reasons in response to evolving conditions, public opinion, marketplace developments, and even modes. One-dimensional value propositions can lose their relevance in the face of short-term changes and it can be very challenging to adjust without abandoning long-term focus. By recognizing the inevitability of evolving customer needs and market uncertainty, multidimensional value propositions enable leaders in product, marketing, and sales to effectively maneuver while maintaining long-term focus. In addition, such value propositions can more easily address the needs of different individuals involved in product selection and purchase decisions.

Hybrid and electric car manufacturers put forth an economic value proposition based upon their lower long-term operating costs and strong value on the used car market. In addition, they include an emotional element that aligns with owners’ self-image as environmentally responsible as well as an operational element based upon the distance that can be traveled between fill-ups. Recently, the drop in gasoline prices has devalued their economic benefits which may cause marketers to put more emphasis on emotional components of their value propositions and/or their vehicles’ potential to go further on a single tank than conventional models.

As products and markets mature, competition often intensifies pressure to focus on an economic value proposition and commoditization leads to a complete focus on lowest price. Businesses that commit to operational and/or emotional elements as part of their overall value proposition create potent tools to resist commoditization. Apple is an example of a company that uses this approach effectively in the personal computer market.

Organizations that take a nuanced approach to defining value propositions are better able to use them to maneuver in the marketplace while maintaining strategic focus for the long run and providing a benchmark for alignment of product development, pricing, marketing communication, sales and other key market/customer-related activities.

In a future post, I’ll get into some good practices for crafting multidimensional value propositions.

© Copyright 2015 Karen Utgoff. All rights reserved.

Look Before You Leap

By Laurie Breitner

Public domain. U.S. Air Force photo by Tech. Sgt. Jeremy T. Lock

U.S. Air Force photo by Tech. Sgt. Jeremy T. Lock. Public domain.

Too many entrepreneurs believe raising funds to finance their idea is a first step when starting a new business or expanding an existing one. Some create business plans — often only to satisfy lending guidelines — and head off to shop their ideas at banks or other funding sources. I have known people who depleted their retirement savings, put their homes at risk, and/or tapped friends and relatives with promises of great returns only to discover that they had not done their homework.

While starting or growing a business always involves some risk, none of us wants to take on more than is necessary. Before taking a financial leap, be certain that you can answer these questions thoroughly and with confidence — that is, you have some empirical evidence and/or analysis to back up your passion:

Does your plan have legs? Have you tested your idea to determine that you know and can reach your target market and that your planned offering meets their needs? Please don’t assume that if you “build a better mousetrap” that people will flock to your door to buy one. Instead, talk to potential customers; gauge their interest and learn more about their needs and some obstacles you will likely have to overcome. Also, consider the competition — there is always competition — for your target market’s dollars. How would your business woo customers?

What resources do you have/will you need to be successful? It is essential to have as full an understanding as possible of what resources (expertise, suppliers, location, marketing collateral, forms/contracts, etc.) you have and will need to be successful. If you plan a foray into a new business or market, find someone to help you better detail what’s needed. Consider visiting a library to access industry surveys and statistics (UMass Business Library), getting how-to information from industry associations, talking to business owners in a similar business that serve different geographical markets, and checking out industry discussions on LinkedIn and other web sources.

How long will it be before your plan starts generating revenue? Is your product/service well understood, or will you need to mount an educational effort to explain its uses and benefits? Consider your sales cycle (the elapsed time from initial contact to receiving payment). Do customers make buying decisions immediately, or is there a delay to get approvals, consider alternatives, etc. Typically, how quickly does your target market pay? If you plan to open a retail store, you could realistically expect payment at purchase. If, however, you plan to sell to government agencies, expect significant delays.

Can you start smaller? Many entrepreneurs are so bullish on their products/services and excited by their potential that they seek to fulfill the needs of multiple markets with a range of offerings. What is your low-hanging fruit? Is there a niche market that you could enter to build a satisfied/loyal customer base? Consider starting small to learn what works — and doesn’t — before making a larger investment.

How much will it really take to get your plan off the ground? It’s generally safer to be conservative; no one goes out of business by having too much cash. Before you head off to borrow money, consider whether you could fund your initial foray with cash from on-going operations? For a new venture, is it possible to keep your current job (and income) while building your new business on the side? Many couples/partners who want to open a joint business do so by having one work in the new business and the other stay in their current job to keep the financial boat afloat until the new venture starts to make enough money to support both. Typically it takes about 3 years for a new business to be able to support its owner.

How will you measure success? Some entrepreneurs wait until they start generating P&Ls (profit and loss statements) before looking at results. Instead, put together a project plan (with measurable milestones) as early as possible. This is difficult to do, especially without a history of operating results, but the process will help you think through the business challenges ahead. The information you need for your guesstimates will help you with early steps for the business itself — e.g., identify/vet suppliers, develop a sales plan and marketing materials, etc. — and become one yardstick to measure your progress. Adjust revenue projections and planned expenses as you learn. By having a documented plan to help you monitor progress, you will be more nimble and able to uncover small speed bumps before they become major obstacles.

If you learn that you will need outside funding, most banks and other funding sources will appreciate your diligence. And, you will have more confidence during the inevitable tough times when you are doing all the essential pre-work before your earn that satisfying first dollar from your new venture.

© Copyright Laurie Breitner. All rights reserved.

Get a Fresh Perspective on Your Organization’s Culture: A (Mostly) Do-It-Yourself Approach

By Karen Utgoff

When was the last time you took a systematic look at your organization’s culture? Many owners and leaders of small-to-medium sized businesses could answer this question with one word: “Never.” Unfortunately, culture is often neglected when leaders size up their organizations even when its importance is recognized because it is difficult to measure:

  • Unlike cash flow, leads generated, cost of goods sold, defect rates, absenteeism, or other company/industry empirical measures, culture cannot be assessed strictly in terms of numbers.
  • Culture — good or bad — is so much a part of an organization’s day-to-day “normal” it can be difficult just to recognize its influences, much as individuals may be blind to their own good or bad behavior patterns.
  • Culture is very much in the eyes of its many beholders — employees, customers, suppliers, as well as the management team. Although it may be uncomfortable, it is important to consider each for their perspectives and bring the necessary objectivity to the process.
  • Convincing yourself (and staff) of its importance to find the time to do this type of assessment can be very difficult in the midst of day-to-day demands.

Nevertheless taking a fresh look at your organization’s culture is critical; while the work is difficult, the payoff could be substantial. In many ways, an organization’s culture is at the core of its ability to respond effectively to immediate difficulties as well as meet long-term challenges and seize opportunities. Culture significantly influences an organization’s ability to attract and retain employees and, of course, its customer experience.

Don’t let the desire for perfection derail getting started. Taking initial steps will allow you to build a foundation for future improvements. Here is an approach that might help you begin.

Use a general framework as a starting point. While it is tempting to start by framing your assessment around the particulars of your organization, this could introduce assumptions about your culture that skew results or interfere with insights. Instead, start with a one-size-fits-all structure to assure a fresh perspective that will help you develop an objective, inclusive view of your culture.

While there are many frameworks out there, I like the one provided in John Coleman’s “Six Components of a Great Corporate Culture” from the HBR Blog Network. This article breaks culture into more manageable pieces:

  • Vision (and/or mission)
  • Values
  • Practices
  • People
  • Narrative*
  • Place*

It’s worth noting that these are components of both great and problematic cultures; the difference being that in great cultures the elements work together to create a highly productive, effective organization.

Go beyond your talk to get at your walk. Because culture depends much more upon what an organization does than what it says, look for evidence of culture in action. Use facts to support your observations or help you to see more clearly.

Use the framework to describe your organization’s culture from your (the CEO/owner’s) perspective. Record your view of each aspect of your organization’s culture. Limit yourself to a single page that succinctly covers the six components rather than a detailed description. Once this summary is complete, if you feel the need for more information add backup pages to support the summary page. For example in the section on Narrative you may want to mention the story about when you and everyone else worked late into the night to help a customer in a crisis. This could be listed as “How we went above and beyond for XYZ Co. when they needed our help,” while backup information could include highlights of your team’s efforts and XYZ’s thank you letter.

Use the framework to see your organization’s culture from many perspectives. Eventually you may want use the template to gather the perspectives of employees, customers and others who have experience with your organization. To get started, focus on employees from the front lines to the management team. Provide a copy of the template and Coleman’s blog.  Ask each one to describe your organization’s culture as he or she sees it. Encourage backup notes to support observations on the main sheet. Anonymous returns encourage frankness, but you will not be able to follow up for more detail. Often a third party is engaged to gather and consolidate returns to help overcome this barrier.

Compare and consolidate perspectives to see with fresh eyes. As you accumulate perspectives from various individuals throughout your organization and beyond, look for points of agreement and divergence. Be mentally prepared for both delightful and disappointing discoveries. For example, you may find that employees are quietly taking the initiative to realize the mission through their day-to-day actions, or that employees are only partially aware of the organization’s values. You may also find that there are some positive aspects of your culture that you, as the leader, rarely or never see but want to encourage. In any case, your mandate is to see your culture through fresh eyes rather than to act immediately on the details.

Once you have a deeper understanding of your culture, it will become easier to find ways to strengthen and nurture its positive aspects. For example, if employees are unaware of the organization’s values, you may realize that a values statement needs to be distributed to everyone, that values need to be integrated into performance evaluations, or that you will seek opportunities to create new narratives by recognizing employees whose actions exemplify organizational values.

Improve your ability to analyze and assess organizational culture by observing others. The steps above are just a starting point. One of the joys of my work is that I am regularly exposed to a wide range of organizations. In some it’s clear that talk and walk have diverged, while in others employees are remarkably in sync. There is a lot to learn from both. To strengthen your ability to nurture the culture in your organization, try applying the framework to others. Does your supplier tell you that its people are innovative problem solvers but your experiences say otherwise?

Include organizational culture as a regular part of management review. Remember that the steps above are a beginning not the end. Along with your margins, customer-base and employees’ technical capabilities, a healthy organizational culture is an important part of your business’ strength. In addition to its internal value, it plays directly into your reputation, brand, and competitiveness. To create, nurture and sustain culture effectively, make time to assess it systematically as part of routine, ongoing management and leadership efforts.

* For more on Narrative and Place, see my post on “Using narrative and place to nurture small business culture” in Succeeding in Small Business.

© Copyright 2014 Karen Utgoff. All rights reserved.