E245 Value PropositionAnn Miura-Ko

January 2011

The Business Model Canvas

Test Hypotheses:•Product•Market Type•Competition

How to Build A Startup

IdeaSize of the Opportunity

Business Model(s)

Customer Discovery

Customer Validation

Theory Practice

We start with the theory…

Key Questions for Value Prop

Problem Statement: What is the problem?

Technology / Market Insight: Why is the problem

so hard to solve?

Market Size: How big is this problem?

Competition: What do customers do today?

Product: How do you do it?

Inspiration

Where do these ideas come from?

Flickr Image: Jeff Kubina

The Authentic Entrepreneur

Technology and Market Insight

Technology Insight Moore’s Law New scientific

discoveries Typically applies to

hardware, clean tech and biotech

Market Insight Value chain disruption Deregulation Changes in how people

work, live and interact and what they expect

Examples of Market Insight

People want to play more involved games than what is currently offered

Facebook can be the distribution for such games

Masses of people are more likely to micro-blog than blog

The non-symmetric relationships will allow companies and individuals to self-promote

European car sharing sensibilities could be adopted in North America

People, particularly in urban environments, no longer wanted to own cars but wanted to have flexibility.

Insight Characteristics

Non-Consensus

Consensus

Wrong Right

Biggest Potential Wins

Mindless Competition

Key Thought

What insight do I have that is not yet conventional wisdom?

Market TypeExisting Resegmented New

Customers Known Possibly Known Unknown

Customer Needs Performance Better fit Transformational improvement

Competitors Many Many if wrong, few if right

None

Risk Lack of branding, sales and distribution ecosystem

Market and product re-definition

Evangelism and education cycle

Examples Google Southwest Groupon

Market Type determines: Rate of customer adoption

Sales and Marketing strategies Cash requirements

Existing MarketCharacteristics: Customers are always hungry

for better performance Incumbents exist Usually technology driven

Positioning driven by product and how much value customers place on its features

Risks: Incumbents will defend their turf Network effects of incumbent Continuing innovation

Resegmented Market Low cost provider (Southwest) Unique niche via positioning

(Whole Foods)

What factors can you eliminate that your industry has long competed on?

Which factors should be reduced well below the industr’s standard?

Which factors should be raised well above the industry’s standard?

Which factors should be created that the industry has never offered? (blue ocean)

New Market Customers don’t exist today How will they find out about

you? How will they become aware of

their need? How do you know the market

size is compelling?

Which factors should be created that the industry has never offered? (blue ocean)

The ProblemThe “problem” justifies why the product is valuable to someone

The Problem Statement:For whom?What issue do they face?

Note: Doesn’t reference the product

Potency of the Problem

Competition

Are substitute products and services available? Are competitors threatening to offer better price or value? How saturated is our market? How likely are customers to defect?

The Ecosystem (“Customers”)

End User

Day to day users May actually have zero influence in buying

process

Preferences and decisions influence or impact buying decisions

The person who controls the purse strings or is in charge of the budget

The buck stops here

Influencer / Recommender

Economic Buyer

Decision Maker

Types of Product Value

Faster

More Efficient

More Simple

Lower Cost

Smaller

The Ecosystem (The Rest)

Group or organization that installs, distributes or sells the product in your place

Suppliers

Channels

Government

Partners

Entity that provides parts or services needed to manufacture your product

Organizations responsible for monitoring trading and safety standards related to your product

Other entities that provide products related to delivery of your final product

Wait! I thought this lecture was about products?!?

Product

Service Hardware

NetworkData

Knowledge Resources

Minimum Viable Product (MVP)

A product that solves a core problem for customers

The minimum set of features needed to learn from earlyvangelists- Avoid building products nobody wants- Maximize the learning per dollar spent

The Art of the MVP

A MVP is not a minimal product “But my customers don’t know what they want!”At what point of “I don’t get it!” will I declare defeat?

Testing the MVP

Smoke testing with landing pages using AdWords In-product split-testing Prototypes (particularly for hardware) Removing features Continued customer discovery and validation Surveys Interviews

Testing the MVP (Web Example)

Can you get customers to pay for a product that doesn’t yet exist (or barely does)?

Interview customers to make sure they have a matching core problem

Set up web site landing page to test for conversion See what offers are required to get customers to use the

product (e.g. prizes, payment) Use problem definition as described by customers to

identify key word list – plug into Google search traffic estimator - high traffic means there is problem awareness

Drive traffic to site using Google search and see how deep into a registration process customers are willing to go through

Example: Chegg

Testing the MVP (Non-Web)

Can you get customers to pay for a product that doesn’t yet exist (or barely does)?

Interview customers to make sure they have a matching core problem

Set up web site landing page to test for conversionSet up a Lighthouse Customer Program where

potential customers pay to get early access to product prototypes

The Pivot

The heart of Customer Development

Iteration without crisis

Fast, agile and opportunistic

The Value Proposition Pivot

UK-92480 Problem: Angina (chest

pains) Selectively blocking an

enzyme called PDE5 could expand blood vessels and treat angina.

Nuf said

The Value Proposition Pivot

Craigslist for Colleges College students have

unique sets of goods and services they need to trade, buy and sell at a local level

Textbook rentals College students have

unique sets of goods and services they need to trade, buy and sell at a local level

Test these hypotheses for next week:

Problem Statement: What is the problem? For

whom?

Technology / Market Insight: Why is the problem

so hard to solve?

Competition: What do customers do today?

Product: How do you do it? Is this valuable or

unique? What is the MVP?

TEST THE MVP!