Tag Archives: product/market fit

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.

When Better Isn’t Good Enough: An Entrepreneur’s Tale

By Karen Utgoff

2017-06-04 Mousetrap_patent_model_3_-_National_Museum_of_American_History_-_DSC00350

By Daderot (Own work) [CC0], via Wikimedia Commons. Exhibit in the National Museum of American History, Washington, DC, USA. Photography was permitted in the museum without restriction.

Many believe that if they build a better mousetrap customers will beat a path to their door, but it isn’t necessarily so. Inventors, small business owners, or startup teams confident that their vision of a better product, service, or technology will automatically lead to business success should balance that confidence with healthy skepticism. Testing product-market fit with potential customers, users, partners, influencers, and others could make the difference between success and failure. Consider this (made-up) cautionary tale.

Howie Ketchum, inventor and CEO of Ketchum Mousetraps, was in a somber mood after reviewing disappointing revenue numbers and similarly troubling web and mobile traffic statistics. Unique first-time visitors were plentiful and many made their way through all of the technical information detailing the advantages of his Internet-of-Things (IOT) enabled mousetrap with smartphone apps to enable monitoring from anywhere in the world. However, pitifully few signed up for more information, or even returned for a second visit let alone ordered the product.

The patented Ketchum IOT Mousetrap added an accelerometer and Wi-Fi connectivity to a traditional mousetrap. When a mouse triggered the trap the accelerometer determined its “status” and notified the owner via the IOT Mousetrap app. The company’s primary target market were home owners, who could buy traps directly from Ketchum. Companies with sensitive facilities could buy traps in bulk and monitor them with the app to provide a system that would be easily monitored by the maintenance staff. In this way, Ketchum planned to disrupt the pest control industry. Apps were available for all smartphones. In addition to notifications, apps kept statistics on all traps in use, allowed users to order new traps, and provided value-added tips on mouse control. If you find Howie Ketchum and his Internet-enabled, Wi-Fi connected mousetrap preposterous, check out this article or this one or this service.

Ketchum’s national product launch had been received with great fanfare including write-ups in top tech magazines and a national tour but did not result in sales. Efforts to improve the marketing and sales process had resulted in more visitors navigating through to the order page but nothing seemed to prompt more lookers to become buyers.

Six months later, Ketchum Mousetraps was out of money and closed for good; the 99,950 of the original 100,000 units of inventory Howie had stocked in anticipation of the product launch sold for 2% of the manufacturing cost. In his final act as CEO, Howie took down the “Build a better mousetrap and the world will beat a path to our door” banner from the reception area and left the office for the last time.

This fictional story illustrates what can happen when “better” isn’t good enough in the real world. Here are some of the (nonfiction) reasons “better” falls short:

Not “better” in the eyes of the customer:  A product or service is only better when it’s better in the eyes of enough customers to support a financially healthy business. Could Ketchum have been successful by offering a somewhat different product packages to the target customers? Or by targeting industrial customers directly? Or by concentrating exclusively on sales through established providers of pest control services? Or by aiming to be a rodent control business rather than mouse control solution?

Contrary to current practices, perceptions, or culture: When “better” involves a change in habits or violates the current culture, it raises rational and emotional objections that may have little to do with the problem the “better” solution solves. For the example of an IOT mousetrap, concerns might include users preferring not to have a phone app declaring they had a mouse problem.

Not invented here: When a customer has a homegrown solution that is already in place, there can be considerable resistance to adopting a new one, especially from a stranger. Whether this resistance is the result of ego or a more objective reason, it’s often impossible to overcome. If Ketchum had talked to  pest control companies, he might have found they already offered low-tech versions mouse control services that allowed for routine operations with well planned, efficient servicing schedules and routes rather than creating a need for immediate, unpredictable service calls as the app might have.

Not a high priority: When the problem is relatively unimportant compared to other issues and/or current situations are pretty good, users often will not take the time to seriously consider “better” offerings. In Ketchum’s situation, most potential customers may see their problem as the occasional mouse rather than a serious infestation.

Switching cost: Any additional burden — even a short term one — imposed by a new solution can easily derail consideration of a “better” product, especially for a low priority situation or where “better” does not result in a measurable financial improvement. For the cautionary case, Ketchum’s app adds a number of costs to the low-tech mousetraps, including giving up personal information, time spent on initial configuration, and the cost of buying new traps.

Switching risk: An unproven solution always carries with it the risk of disappointment. Perhaps it will not work or lead to unintended consequences that cause harm. Will an IOT mousetrap be plagued with false positives or false negatives? Will the app distract users from more important matters? What happens to pest control companies using their system if Ketchum goes out of business?

Too far ahead of its time: One of the most frustrating reasons for “better” falling short is when the improvement is too far ahead of its time. It may be that the time will be right for an IOT-enabled mousetrap when home automation systems controlled by smartphone apps become common.

Refusing to be seduced by the myth of the better mousetrap does not guarantee success but can help both established small businesses and new ventures minimize the cost of failure and live to try another way. My next post will offer thoughts on testing and validating assumed value propositions as a way to do this.

Related links:

Listen to the NPR interview with Professor Bill Hammack of the University of Illinois on “When technology bets fail” and watch his  videos on “How the Sony the Betamax lost to JVC’s VHS recorder” and on “Why the DVORAK keyboard didn’t take over the world.”

Read Nicholas Jackson’s March 28, 2011 article in The Atlantic on “Mousetraps: A Symbol of the American Entrepreneurial Experience

 

© Copyright 2017 Karen Utgoff. All rights reserved.

Regarding Your Company’s Value Proposition: Is Everyone on the Same Page?

By Laurie Breitner

Recently my colleague, Karen Utgoff, wrote a post to help business owners, entrepreneurs, executives, marketers, and product managers better understand the important role value propositions can play in ensuring business success. Whether your business has been around for a year or for decades, evaluating the relevance of and adherence to your value proposition is well worth the effort. What you learn can serve as the basis for unifying and aligning marketing and operational priorities to ensure you stay on track for long-term success even as you respond to immediate demands.

Silhouettes of Business People Meeting with Business SymbolsOnce businesses get off the ground, business plans often get set aside in favor of greasing whatever wheel is squeaking on a day-to-day basis. Perhaps past assumptions about who your customers are and what products/services they need were off or markets have changed, and you find yourselves busily serving other customers with different needs. Or, maybe your value proposition is crystal clear in your mind, but not carried out as you might hope by employees or well supported by your company’s capabilities. Especially when customers keep walking in the door, it’s easy to lose sight of the big picture. Read on for some ideas about how to get started on your VP Assessment.

Get a team together. Involve everyone whom you rely upon to implement your value proposition. Don’t overlook your support areas like HR, customer service, and systems or key external professionals including your suppliers, creative agencies, channel partners, banker, or tax accountant. To keep costs down, you might have a small working group, but get input from all corners and run results by all key stakeholders.

Review your assumptions. Start with the basics; clearly define your customer. Consider demographics (age, gender, and economic status), psychographics (likes, dislikes and values), and geography. Start by listing as many attributes as possible and from that list pick the top few that most accurately describe your customer base. Your company may serve more than one market, but start with one and then repeat this process with others.

Make a list of customers’ needs that your company addresses. Note whether it is an operational, economic or emotional concern. Pay close attention to needs your business meets that the competition doesn’t. These important differentiators can inform your internal and external communication and help you maintain margins.

Here’s an example:

A worker-owned co-operative, Pioneer Valley PhotoVoltaics (PV Squared), sells and services reliable, custom-designed, renewable energy systems for homeowners, businesses and institutions located within about 100 miles of Greenfield, MA. Through experience, they have learned that their customers are seeking solutions for operational, economic and emotional needs. Customers’ economic needs include predictable energy costs, excellent return on investment, and support for the local community in terms of good jobs for local residents. Operational needs include long-term system reliability, efficient system operation, better public health (cleaner air and water), and stronger grid infrastructure. Emotional needs include helping to address serious social and economic problems — reducing atmospheric carbon, energy independence and conflict reduction. Many customers also appreciate that PV Squared is a locally based, worker-owned cooperative.

Because incentives such as tax credits and rebates differ from year to year, interest rates vary, and energy costs fluctuate, relying exclusively on an economic appeal could be risky. Similarly, expecting customers to make an investment solely to improve public health and community job growth is unrealistic. While many appreciate system reliability and promoting increased distributed power generation, most customers seek additional benefits before making a purchase. While there are competitors who meet some of the needs, few — if any — meet all as well as PV Squared does. With this three-pronged approach, PV Squared has the flexibility to respond to changing conditions while staying on their chosen path to sustained, long-term success.

Assess your ability to follow through. Don’t fall into the trap of promising more than you can deliver or assuming everyone in your organization knows your company’s priorities. Here are some questions for self-examination:

  • Can each of your employees articulate your value proposition? Are their actions consistent with it?
  • Would your customers, employees, vendors and suppliers agree?
  • Is fulfillment of the promise represented by your value proposition achievable? Providing the highest quality, most personalized service and lowest price while cultivating a profitable business is a practical impossibility.
  • Do you have the key resources, capabilities, and partnerships you need to fulfill the value proposition? If not, what would it take to build that capability and what evidence would demonstrate that you were successful?
  • How have you tested to ensure that you really are meeting customers’ key needs?
  • Do your customer have other needs that you are not solving?
  • How does your value proposition compare to that of your competitors?

Use the results of your VP Assessment to build a list of improvement opportunities. In a future post, I’ll discuss ways to evaluate the list of possible initiatives and select ones that have the most potential for your business so that you can develop both operational and marketing goals.

© Copyright 2015 Laurie Breitner. 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.

Six Misunderstandings about the Lean Startup

By Karen Utgoff

Use of Lean Startup techniques is becoming ubiquitous in entrepreneurship circles these days and rightly so. Along with the closely related Lean Launchpad methodology, this highly effective approach puts one essential success factor — fit between customers, markets, products and company — front and center for founders who might previously have defaulted to “If we build it they will come.”

In late 2012 I was privileged to serve as a mentor for a National Science Foundation Innovation Corps team and to be immersed in the Lean Launchpad method first-hand as part of that program. For more information on the team experience and methodology, visit Steve Blank’s blog; the link is in the list of resources at the bottom of this post. Recently, in preparation for a workshop I’m giving, I reread Eric Ries’ The Lean Startup and noted his observation that:

“Throughout our celebration of the success of the Lean Startup movement, a note of caution is essential. We cannot afford to have our success breed a new pseudoscience around pivots, MVPs, and the like.” (Eric Ries. The Lean Startup, p. 279)

This rang true to me and prompted me to write here about several significant misunderstandings that I’ve observed.

Misunderstanding One: Lean Launchpad methodology avoids failure. Actually the Lean Launchpad method and the Lean Startup movement focus on failing faster, at lower cost, and under controlled conditions that enable the team to learn rapidly and pivot effectively.

Misunderstanding Two: The tools and techniques are only for brand new startup ventures. Confusion on this point seems to be around the definition of a startup. I’ve written before about the need for entrepreneurial activity in established businesses and I was glad to rediscover Ries addressing the issue:

“Entrepreneurs who operate inside an established organization sometimes are called “intrapreneurs” because of the special circumstances that attend building a startup within a larger company. As I have applied Lean Startup ideas in an ever-widening variety of companies and industries, I have come to believe that intrapreneurs have much more in common with the rest of the community of entrepreneurs than most people believe.” (Eric Ries. The Lean Startup, pp. 26-27)

That said it’s important to recognize that a new external venture is different from an internal venture within a successfully operating business. Here is an interesting post by Henry Chesborough and my take on the subject as well.

Misunderstanding Three: We’re already customer focused and therefore in sync with the philosophy even if we don’t talk about minimal viable products (MVPs) and pivots. Perhaps, but it isn’t necessarily so; the key is the organization’s capacity to systematically learn. Are activities designed so that customer and market response will lead to insights? Is the team aware of leap-of-faith assumptions? Are your entrepreneurial teams truly cross-functional? Is your culture tolerant of setbacks and supportive of learning?

Misunderstanding Four: It’s about product development. This sells the methodology short. Sure, product development is one aspect but equally important is identifying receptive customer segments (customer discovery/development) and business model development. All three may be subject to change as the team learns.

Misunderstanding Five: It’s about iteration. Iteration is necessary but not sufficient. If you don’t organize and measure in a way that allows you to learn, iteration is just spinning your wheels.

Misunderstanding Six: The Lean Startup approach frees us from needing to worry about mission, vision, competition, intellectual property and so forth. Not so! Your initial hypothesis and pivots will be informed by and inform the evolution of each of these.

I hope this blog serves to clarify the Lean Startup and that it encourages you to try, and then embrace, it. It has a lot to offer ambitious entrepreneurs and intrapreneurs.

Books

  • Steve Blank and Bob Dorf, The Startup Owner’s Manual
  • Alexander Osterwalder et al, Business Model Generation (72 page preview available)
  • Eric Ries, The Lean Startup

Web Resources

© Copyright Karen Utgoff. All rights reserved.