Do You Suffer From Value Proposition Confusion?

A word battle may be increasing your product fail rate

“I’m not sure if we’ve fully described the pain points for the patient customer, let’s take another crack at that one,” said the product manager. She was trained as a computer scientist and was practicing a method she recently learned at a “Lean Startup for the Enterprise” workshop.

“Customer pain? Why are we talking about pain points? That shouldn’t be anywhere near the value proposition!” – said, the marketer, who was graduated from business school in 1998. “We need to outmaneuver competitors! We need to better define our segments and figure out how we’re different! What are the reasons to believe?” he cried with escalating agitation.

They’d been at this for days.

What’s going on here?

It turns out, one of those business terms that should be well understood by now, with  clear consensus across all disciplines, is still causing regional and generational confusion.

The experts and gurus of strategy, branding, startup methods, design thinking, business models, and marketing are not speaking the same language. Yet.

Let’s go over the two primarily opposing viewpoints on what, exactly, value proposition means.

Reasons to Believe: Strategy and Mad Ave Camp

If you went to business school before the year 2000 (or work for someone who did), your definition for value proposition was more linked to branding and corporate strategy concepts. In the olden times before the internet, companies were thought of as value chain: “a set of interconnected activities that a company performs to deliver a valuable product or service to the market,” according to Michael Porter, godfather of strategy.

Conceptually, this was an industrialized view of how a company works. The arrow starts with the supply chain, with the customer at the end. Most S&P index companies founded before the internet era still operate with this value chain mindset. As one consumer packaged goods CEO told me once, “Our job is to shuffle products out to consumers, and wrap products in a big marketing bow at the end.”

Value Chain

For Porter, a Value Proposition is an exercise in strategic choices about customers, needs, and price. The goal is to compete on uniqueness and differentiation. Strategy is then a set of choices about how value is configured within the value chain.

David Aaker, a prominent brand strategist and author of Building Strong Brands, encouraged marketers at the end of the chain to think deeply about the customer.

He defined the value proposition as a marketing exercise, creating a “statements of the benefits delivered by the brand that provide value to the customer.”

In a classic marketing view of the world, the Value Proposition communicates the functional and emotional benefits that add value, why we are different, the brand-customer relationship, and gives customers an ‘RTB’ or reason to believe.

The method encouraged marketers to define new customer segments determined by demographic studies. Marketing involved generating new feature and benefit promises as the primary strategy for product introduction. Pricing would be set based the right combination of features, benefits, and their intended customer segment.

Value Proposition Porter

In the 1950s and 1960s, when we used to crowd around 3, maybe four TV channels and all watch the same shows, marketers had more power to communicate these messages. and the work of branding was all powerful. Watch Mad Men the Kodak Carousel episode for one of the greatest examples of the value proposition advertising effect on a wonky new technology launch.

But today, the fastest growing companies do not seem to be neatly organized or understood in value chain boxes or marketing promises alone. Airbnb, Google, Facebook, Netflix and Uber did not reach their growth potential by fiddling with the number of people in the inbound logistics box, or buying Superbowl ads.. Something else is going on today, which can be best described by another flavor of value proposition.

Pain Points and Jobs to be Done: The Innovator’s Camp

What’s going on with all of these new companies? It traces back to the father of Disruption Theory, Clayton Christensen. In his  2003 book Innovator’s Solution, Christensen outlined the secret to successful a successful innovation: don’t sell products and services to customers, but help people address their jobs-to-be-done. Once you look at the competitive solutions, analyze the pain points. Have any pain points been overlooked? Great! Now you know where to invest in emphasizing your distinctive strengths.

But he saw a key limiting factor that kept incumbents from adopting the jobs-to-be-done method. In a diatribe published in Harvard Business Review called Marketing Malpractice, Christensen criticized the features-benefits-segmentation model.

“The great Harvard marketing professor Theodore Levitt used to tell his students, ‘People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!’ Every marketer we know agrees with Levitt’s insight.

Yet these same people segment their markets by type of drill and by price point; they measure market share of drills, no holes; and they benchmark the features and functions of their drill, not their hole, against those rivals. They then set to work offering more features and functions in the belief that these will translate into better pricing and market share. When marketers do this, they often solve the wrong problems, improving their products in ways that are irrelevant to their customers’ needs.”

– Clayton Christensen, Marketing Malpractice, HBR 2005

The lowly milk shake is Christensen’s example for how this insight plays out. A fast food company attempted the classic marketing method to increase milk shake sales. They defined their features and benefits, and drew up clear segmentation profiles of customers. When they tested variables of features – thicker, more chocolatey, cheaper, chunkier, they got clear feedback. But the improvements made had no impact on sales.

Milkshake Job to be Done

When the question was turned to ”What job is the customer hiring the milkshake to do?” the answer was revealed. Many milkshakes were purchased in the early morning, by commuters, traveling alone, sipping slowly in their cars. The milkshake offered a cleaner and more entertaining option than a messy breakfast sandwich, donut, or banana. The fast food company then used these insights to make deliberate improvements to the product for these to different jobs-to-be-done, sales improved (along with obesity rates, but that is for another day).

For Christensen, a Value Proposition is therefore a product that helps customers do more effectively, affordably and conveniently a job they’ve been trying to do. He used this theory to explain the rise of eBay and Google. “Pierre Omidyar did not design eBay for the ‘auction demographic.’ He founded it to help people sell personal items. Google was not designed for the job of finding information, not for a ‘search demographic.’”

We can see in this example how two views of the world, both originating from living Harvard Professors, play out in new product development meetings today. While Christensen’s theories are still not as widely accepted in corporate marketing circles, startup disruptors have fiercely embraced disruption theory and jobs-to-be-done concepts for their benefit.

The One Page Strategy School: Lean Startup and Business Modeling Camp

Suddenly, it seems everyone in technology and the startup sector is talking about pain points. Within the past five years, there has been rapid adoption of Christensen’s theories in incubators, university entrepreneurship programs, venture capital firms, and even grant-giving government agencies like the NSF and the NIH. “Jobs to be done” and “pain points” are natural shorthand for everyone in the Lean Startup movement, and are embedded in a widely popular on page strategy “canvas” tools like the Value Proposition Design canvas.

Value Proposition Canvas

Business Model Canvas was introduced in Alexander Osterwalder’s well-designed coffee table book Business Model Generation. Osterwalder observed that business model innovation exercises were often plagued by “blah blah” language, with everyone talking over each other, no clear decipherable path to actually understand and generate new business model concepts. (So true!).

The canvases serve as visual tools, meant to be used with stickies, and sketched. When practiced well, teams work together to understand their current business model and value proposition design, and are freed to experiment with potential new changes for growth.

The original Business Model Canvas was hugely popular in startup circles, and spawned a number of variations and twists on the original canvas as founders and practitioners began to experiment with the tool (see our roundup of popular one page canvas tools). Osterwalder followed up with the Value Proposition Canvas in order to create more clarity and focus to the customer-to-value proposition connection. Osterwalder cites Clayton Christensen for the concept of “jobs to be done.”

A working value proposition is designed to meet a specific customer segment’s jobs to be done. First, you understand that segment deeply, observe and discover what job a customer is trying to do. What are her biggest pains? How does she define gain?

Then when you develop the value proposition, you are defining your core features, and prioritizing which ones to build first, based on this architecture of pain and jobs to be done. Which features alleviate the pain? Which create a new unexpected gain?

pain points

The focus on pain is critical for a startup. The status quo is the biggest competitive barrier for any new technology or innovation. Customers are unlikely to change their behavior and try a new untested brand without experiencing identified pain or discomfort in their routine. By making strategic choices about which customers, which jobs, and which pains to solve for, a startup can turn on the engine of growth.

How does differentiation play into the mix? The radical idea is that competitive advantage is “transient” – according to Rita McGrath of Columbia Business School in her book The End of Competitive Advantage. The world is too volatile and uncertain to base strategy on competitive advantage.

“..Virtually all strategy frameworks and tools in use today are based on a single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage.” She argues that executives need to stop this, and offers to explain the alternative of transient competitive advantage. “..To win in volatile and uncertain environments, executives need to learn how to exploit short-lived opportunities with speed and decisiveness.” In fact, the deeply ingrained systems and structures “are outdated and even dangerous in a fast-moving competitive environment.”

– Rita McGrath, The End of Competitive Advantage

What does that mean for competitive differentiation? It means that it may be a bit of a trope. The best companies compete not with each other, but for a core customer. By understanding the rapidly shifting world of the customers, companies do well when they can constantly reconfigure their strategy and structure to deliver a well-defined proposition.

You still have to understand competitive moves and explain how your strategy differs from your competitors when you build a business case or ask a venture capitalist for funding, but your core strategic activity no longer focuses on competitive chess moves. Instead, the entire organization is built and constantly rebuilt to identify, predict, and deliver new value propositions to the customer. Whew!

Know Your Mental Models

So you’re back in that windowless room, and Jasmine from R&D is still yelling at Tom from marketing. Tom wants to focus on differentiated features and selling tactics based on outmaneuvering competitors. Jasmine wants to talk about pain points. How do you help them resolve their differences?

Recognize the benefits of holding multiple mental models, and encourage a moment of cross-silo communication and understanding.

Building your strategy on competitive differentiation alone may be dangerous, but spending time thinking about competitor moves, shifts, acquisitions, and combinations could be a helpful exercise to jar thinking. Even more fun, bring in companies from outside your narrow competitive set and see what happens when Google, Target, Coca Cola, Uber, Netflix, Ford or Tesla move into your territory.

The jobs-to-be-done view of the world is a useful starting point for a product that do not yet exist, and has the added benefit of uniting everyone’s focus on customer needs (rather than competitive moves). That’s a good thing. But jobs-to-be-done is an awkward starting place for many to wrap their heads around.

The best move? “Get out of the building,” says Steve Blank, the godfather of the Lean Startup movement in his Stanford Lean Launchpad course. Go observe customers. Listen to customers, Ask key questions. Don’t pitch your idea (yet). To get to jobs-to-be-done, ask them to tell you about a typical day. To understand pain points, learn what keeps your customer up at night. Dig under the known and obvious challenges in your customer’s life to uncover unarticulated needs and pains.

Iceberg

Then you can reconvene your product launch team with quotes, artifacts, photographs and observations about your customer to create a valuable value prop. And don’t stop there – go back out and test your value proposition directly with your customers.

Now, you’re rolling. You’ve stopped a turf war. Tom from marketing and Jasmine from R&D are colleagues. You’ve built your team to focus on customer needs. Build a rigorous commitment to deep customer centricity, ongoing learning, and the opportunity for meritocracy-based high accountability culture. You will have to shift from the false comforts of planning through Powerpoint, and learn to build markets and demand. And I promise you’ll have much more fun.

So start now. End the language war in product launch rooms everywhere. Get out of the building, Feel the fear, and learn a new way of working.

Here’s an armchair MBA reading list of books mentioned in this post:

Competitive Advantage: Creating and Sustaining Superior Performance by Michael Porter, 1998.

The Innovator’s Dilemma, by Clayton Christensen (first edition 1997 but read the most recent from 2011).
The Innovator’s Solution by Clayton Christensen,

Business Model Generation  by Alexander Osterwalder and Yves Pigneur, 2010

Value Proposition Design by Alexander Osterwalder, 2014

The End of Competitive Advantage by Rita McGrath, 2013

Here are previous Reason Street articles that relate to this post: 

Can You Define Your Strategy on One Page? August 2016

Customer Delight is Elusive – Focus on Customer Pain, May 2016

Finding Your Customer Pain Points: How Far Do You Go? November 2015

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Business 101.1 NYU ITP: Values, Value Proposition, and The Future of Business

We recently covered competing value proposition mental models as they relate to The Business Model Canvas and Lean Startup.

We also took a pause to uncover the core motivations, values, and inherent friction in starting a social purpose-driven company.

And customer relationships, customer channels, and running your first test:

 

The Future of Your Job: Will You be Automated, or Augmented?

Data Intelligence, Cognitive Bias, and Emerging Tech  

You don’t always realize at the moment of a new technology’s introduction that it was designed to take your job.

Early Bloomberg Terminal

I remember my early career working as an analyst grunt on Wall Street. To learn my job, I would compete with other analysts on a fun game called merger practice. We’d be expected to create a fully merged Profit and Loss statement for two merged companies in 15 minutes, or less.

I had to work between machines. I’d look at the Bloomberg terminal’s company data, piped real time through some sort of non-Internet based system. I’d toggle my head over to my PC, where I’d copy the numbers into Excel to show how two companies would merge together. We’d issue reports fast, faster than other analysts. That was our edge.

Then one day, it was all connected. Market data piped right into Microsoft Excel. It was a true human-centered achievement. Hooray. Time saved. Lives better. I no longer had cramps from all of that neck rotating.

In fact, soon I would not be needed. Who needs a grunt to merge companies fast when that can now be done with a button?

I was lucky. I self-selected out of Wall Street and found myself in more creative and swashbuckling environments like tech startups and design firms and then my own companies after that. I do business modeling for a living, but insist on all of the fuzzy work that needs to happen with humans before we make spreadsheets. I stayed just ahead enough of technology to keep me from being replaced by a button.

Just this week, I saw some tech that called me back to those analyst days, and made me hopeful for data analysts, everywhere.

I was judging the startups at Strata Hadoop World in NYC, the data conference.

At Strata, everyone is an amateur behavioral economist. Humans have bias. Humans aren’t rational. Humans also don’t scale as fast as machines.  In the tutorials and main stage shows, everyone is trying to learn how to use the tools of data science to design human fallibility out of the system.

Startups are focused on delivering automation, to scale faster. Reproducibility was a  big theme, because of all of the pesky human error.

For example, Compellon, the startup who came in second place, seeks to overcome what it calls the trial and error approach to data analytics. The company’s analysis engine aims at eliminating the traditional analytics method of testing data against multiple statistical models. The promise from Compellon: “Not a statistician? Not a problem. Compellon 20|20 was built to deliver answers for business professionals with or without data science skills.”

There’s an equal and opposite trend happening at Strata Hadoop and the edges of technology culture. Tim O’Reilly, the CEO of O’Reilly which runs that Strata conference series, has called innovators to augment humans. “Don’t Replace People. Augment Them. If we let machines put us out of work, it will be because of a failure of imagination and the will to make a better future.”

At the Startup Showcase, a company called Virtual Cove is augmenting financial traders. Virtual Cove is creating mixed reality (augmented reality, virtual reality) to let you see thousands of data points at one time. “In contrast, Virtual Cove’s approach lets your mind absorb combinations simultaneously.  This way, the lock simply opens, insight intuitively revealing itself.”

Once you put on the headset, you can see the entire Nasdaq stock market and 100 of the top companies, each with hundreds of data points. You can get a sense of the visualization in this 2-D image below – but the real benefit is being able to walk around and quickly take in all of that information.

The founder, Bob Levy, points out that that humans have skills that are hard to reproduce in machines. The role of the trader has been decimated by the rise in algorithmic trading. Code and software and data have replaced humans, because they move faster. But the ability to quickly take in sensory data in 3-D form and process all of that information visually could be our saving grace.

Where else could this go? Could we move beyond augmenting our analytical brains and tap into our human desire to feel, to express, to play?

Having had the pleasure of playing with Tilt Brush on the HTC Vive, I could envision a future virtual trading floor of traders hurling iridescent company stock sculptures at each other to make a trade.

I could see a future annual shareholders meeting, with community activists and eco-activists parading their data sculptures of impact in front of the company’s financial performance review.

What do you see as the future of data intelligence? Do you see machines gunning for your job? Are you at risk of being automated, or will you benefit from tech and data-driven augmentation? How are you playing with new technology make a better future?

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Lean Validation for Social Impact + Design Entrepreneurs

There’s something social impact founders and design entrepreneurs have in common  – a shared allergy/yuck factor when asked to make business models. We try to dispel that myth – business modeling as an iterative act of emergent and divergent discovery, pattern association, and everything fun.