Scaling the Revenue Engine — Chapter 5: Value Proposition
Your venture’s value proposition and its valuation are linked.
As a tech company CEO, you understand the power of technology to change the world. Every sector of the global economy is under continuous invention and recreation; technology’s forward march is relentless. In this march, tech companies (led by their CEOs) stride forward in a long, ragged line. Some peter out. Some fall away. Only the best accelerate. For the few who have brought to a big market a uniquely powerful combination of product and message, the investor / team / customer flywheel spins ever faster. As it does, these companies earn the privilege to change the world.
If you’re a tech company CEO, perhaps you are one of these. Perhaps your product is so visionary that it has opened a new market. Or so disruptive that it has rebuilt an existing market by delivering a faster, better, cheaper solution to existing needs. Or, maybe your company hasn’t yet done this, but possesses the potential to do so.
If your product has “need it yesterday” value to the market you choose to serve, then your work on “value proposition” will be fruitful. Since your value is real, you will simply need to define the value attributes that best convey that value for the audience you seek to serve. The market into which you bring your product has been defined by your segmentation work (discussed in Chapter 4 — Customer Segmentation). With your top priority segments defined, value proposition is the next stepping stone on the path to your brand identity:
- From customer segmentation
- To value proposition
- To competitive positioning
- To brand identity
Since brand identity is the basis for your messaging schema (the top foundational layer in the revenue engine Bow Tie Schema below), it is vital to get it right.
Value proposition and competitive positioning are not the same. Value proposition clarifies the essence of your value to your target customer (internal). Its role is to inform your competitive positioning, which clarifies how you express that value to your target customer (external).
Your segmentation scheme has revealed the key tasks, expectations and pain points of your top priority segments. It has also revealed the personas of your product’s buyer and the users. Inside these personas lies the unique psychographic and demographic attributes of the human beings who will make the purchase decision. Whether your business is B2B, B2C, or B2B2C, your prospects have personal needs that must be met, for example:
- To be respected
- To be loved
- To enjoy
- To avoid excessive work
- To be safe (not wrong)
- To be competent
- To be efficient
- To be rewarded
Similarly, for B2B prospects, buyers commingle personal and company needs and wants as they make decisions. Beyond personal needs, a buyer will consider her company’s need to:
- Avoid disruption
- Reduce risk
- Reduce cost
- Increase revenue
So how does one ascertain customer-defined value?
First, consider all needs that your product actually addresses — stated in both functional and psychographic terms. Second, pair each of these needs with the value attribute that fulfills it (i.e., “need for efficiency” is paired with “high-speed”). Third, rank these value attributes based on the importance accorded to each attribute by prospects and customers in your top priority segments.
How will you know you’ve got it right?
Research. Lots of it. Research takes many forms: surveys, A/B testing, conjoint analysis, customer advisory boards, feedback from customer-facing employees such as salespeople and customer success teams, and regular executive-level engagement with real prospects and customers — often in the customer’s own work or living space — are all critical ingredients to create deep customer-centric understanding.
More than anything, it is important to bring the customer’s voice into the center of value proposition development. A true understanding of your most important value attributes is hard-won, and never permanently assured. It must be continuously validated. Everything depends on it.
To filter the raw data and gain clarity, it’s useful to complete a value attributes chart:
- The X axis contains value attributes
- The Y axis contains the customer-defined rating (0 to 10)
- Place the value attributes on the X axis of a graph from left (most important, according to the target customer) to right (least important)
- Score yourself for each attribute
- Score your competitors
In the example below, if you are green and your competitor is gold, you win on attributes A, B, C and D (the four most important attributes to your target customer):
The next step is to use this data to build out a value proposition statement. There are many different variations, but Geoffrey Moore’s framework from his book Crossing the Chasm¹ gets the job done effectively.
- For (target customers)
- Who are dissatisfied with (the current market alternative)
- Our product is a (description of product category)
- That provides (compelling reason to buy)
- Unlike (the product alternative)
- We deliver (key whole product features for your specific application)
Mark Brewer is CEO of Lightbend, an exciting, fast-growing development platform company. His company provides the leading reactive application development platform for building distributed applications and modernizing aging infrastructures. Companies such as Walmart, Intel, Samsung, Verizon and LinkedIn depend on Lightbend’s technology. To get to a stronger value proposition, Mark Brewer commissioned a significant research initiative. The research revealed three key buyer and user personas, tied to three roles: technology leaders, architects, and development managers. Through this research, Lightbend gained deep insights into its position in the market, and how its value is perceived by multiple stakeholders.
The Lightbend value proposition is:
- For technology leaders, architects and development managers at large enterprises
- Who need to modernize aging infrastructure, improve the reliability of their systems, establish new multi-year technical standards, and increase developer productivity
- Lightbend’s application development program for the Java Virtual Machine (JVM)
- Leverages microservices and fast data on a message-driven runtime to scale applications effortlessly on multi-core and cloud computing architectures
- Enabling you to modernize at startup speed
Lightbend has gone further. It has leveraged its research to customize the overall value proposition for its three targeted personas. For the technology leader, the emphasis is on modernization and systems reliability. For the architect, the focus is on establishment of multi-year technical standards. And for the development manager, the focus is on developer productivity. These customizations ensure value propositions are developed for each persona that are unique and impactful.
As the Lightbend example underscores, research is the absolute key to a successful value proposition. Research, and when you’re done, research again.
Your value proposition is the foundation for competitive positioning. It isn’t complicated, but it’s important. Get it right, and your competitive positioning statements will be built on solid footing. From competitive positioning comes your brand identity. And from brand identity comes your messaging schema, the blueprint for day-to-day prospect and customer messaging.
With a crisp value proposition in hand, your road trip toward a persona-specific, powerful, and resonant messaging schema accelerates.
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- Geoffrey Moore. Crossing the Chasm,3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers. HarperBusiness, January 2014.