Notes on Value
A guide to different value propositions and how nailing this will make your life as a startup founder a lot easier.
In a recent meeting here at RNV, we were discussing a company that had recently pitched to us. It had many strong attributes but we couldn’t agree on its definitive value proposition nor target customers. Eventually, someone (Mike) made an impassioned case:
We think about value a lot at RNV (Mike wrote a whole other post about it). Within the B2C arena, I find that startups articulate their value proposition and growth market relatively clearly. Perhaps it’s easier in that we are all individual consumers in some way. With B2B startups though, they sometimes lack this clarity of thought. For example in this meeting, the investment team had been sitting for 30 minutes talking through the possible use cases because the B2B startup in question could not articulate it.
Spoiler: we passed.
This got me thinking. Many B2B startups we meet with appear not to truly know the ins and outs of their value proposition. Maybe it’s harder to ‘walk in the shoes’ of their clients, being businesses rather than consumers. Maybe some startups simply don’t spend enough time thinking about it. Who knows.
Whatever the case, it’s too important to any startup to overlook.
I don’t pretend to have all the answers but, running on this theme, I have taken the liberty to jot some notes below regarding on my take on the core B2B value propositions and some thoughts to consider with each. Enjoy.
1. The Preventative: pay now so you don’t pay later.
A Preventative value proposition is when a product is pre-emptively purchased to avoid incurring higher costs later.
In some cases, this arises from a complex legal requirement, like compliance. In others, it might be a straightforward form of protection, such as insurance or cybersecurity.
Sure, it’s not the most exciting game in town but, done right, this is big business.
A company who excelled here is OneTrust. OneTrust helps firms navigate privacy laws and — according to legend — was founded weeks after the GDPR was passed. OneTrust realised the legislation resulted in large, expensive fines with uncertainty on how best to avoid them; it was ideal. Such was their success that OneTrust reached a unicorn valuation in three years.
- With this proposition, no news roughly means good news. Of course, that means the opposite is also true.
- The benefit of this proposition is that what is a necessity for one firm, is often a necessity for many. Find the right wedge of impending doom and the market size can be considerable.
- The key here is to ensure that you are a ‘must-have’ and never ‘nice-to-have’ for your target market. You can spot a ‘must-have’ market by identifying large, tricky, expensive problems that are likely to occur and that remain in being likely to occur. As soon as one of these factors slip, then so do your sales.
2. The Saver: pay now to save later.
A Saver proposition is when the client can reduce their costs to deliver the same product.
There are two types of Saver: Add-on and Swaps.
a) Add-on Savers
As the name suggests, this requires your client to purchase something additional (i.e. your product) that allows them to more efficiently carry out their work. You still get to the end result but they save money by making the journey easier or faster.
Plandek (an RNV portfolio company) is a classic form of this. Software delivery can be a black box for those not in the nitty-gritty of it, and frankly sometimes even for those in it. This lack of clarity slows progress. Plandek uses metadata to give clients insights and metrics into what’s really going on in their DevOps . It improves management, collaboration, and communication and this magic trio save a lot of time and resources. Voila!
- These are easy to implement (because they essentially slide into your tech stack) and therefore low-risk products, which is great. The flipside is that this makes them easy to remove, so mitigate for this.
- It’s important to communicate the savings made in clear terms. These products save by reducing operations costs over time, rather than making quick savings upfront. This can be tricky, as people are good at seeing what they actively save, but less so on what they avoid spending on in the first place. To help, make it clear how it impacts the bottom line.
b) Swap Savers
Again, excuse the literal name but this is when the product can be directly swapped with an existing activity, resource, or service with a cheaper version and delivers the same quality end product.
For example, Voctro Labs released Voiceful earlier this year. Currently, recording dialogue for games — and especially for AAA productions — is expensive. Voiceful’s synthetic voices offer a cheaper, faster, and more flexible alternative to actor-recorded dialogue. Even though it’s not yet at actor comparable quality, it still can serve to be used in the game development process and as end-dialogue for non-playable characters. Even to this extent, the savings can be considerable.
- When you swap in a new product, the cost savings are often immediate and obvious, as they are realised quickly in invoices rather than more slowly through operating costs.
- However, this proposition carries with it both a quality risk (concerns that it may detract from the end-product) and an emotional risk (the internal changes for the client can politically tricky). Look to assuage these concerns from the get-go.
- There are alternative ‘costs’ that might be swapped here aside from financial. For example, many companies are actively identifying sustainable alternatives to their current practices to reduce their environmental impact.
My broad view regarding the Saver value proposition is that it is easier to sell savings to larger, more established companies because they have more legacy activities and technology. I suggest starting with companies under particular pressure to perform: those facing new competition, changing market conditions, or requiring digital transformation to survive.
3. The Earner: pay now to earn later.
An Earner value proposition is when a product increases the company’s revenue.
As before, there are three segments of Earner value propositions: Earn via Product, Earn via Process, and Earn via New Revenue.
a) Earn via Product
These are value propositions that — by your firm providing a product that improves your client’s product — result in a better experience for their end-user. This improves sales and revenue.
A good example is 12traits (an RNV portfolio company). 12traits collects and analyses psychological insights from players so gaming studios can improve the game itself. Without 12traits’s help, they would still be able to make the game, sure, but it would be an inferior experience for the player.
- Key here is that your product needs to work. Frankly, beyond this, it needs to be worth the hassle of adopting it and people learning to use it. So to accomplish this then it needs to not just work — but be exceptional.
b) Earn via Process
As I’m sure you’ve worked out these are products that improve the sales and marketing process itself. This leads to more customers coming into the pipeline and eventually converting to a sale.
Litmus, for example, helps businesses that use email as a key marketing channel. Its software allows these firms to optimise their processes so they bring more potential customers into the pipeline upfront. Further along the pipeline, Dynamic Yield’s products help e-commerce businesses win-back those pesky abandoned shopping carts, so they can recover those previously-lost sales.
- I believe there is a hierarchy of value within this type of product: the closer yours is positioned to the sale and the end customer, the more valuable it is to your client. Simply put, the closer your product is positioned to the client’s sale, the more obvious its value.
- If your product is positioned further from the sale then all is not lost — but you do need to consider how to communicate your benefits. Identify clear data to show the impact and long-term advantage your product delivers — both for your upfront sales and your client retention.
c) Earn via New Revenue
This category is for products that purport to open up an entirely new stream of revenue to their clients. A brave new world!
The most common version we see of this is ad-tech opportunities. For example, BidStack is an in-game advertising platform that allows game developers to monetise nature spaces within their games. They connect these spaces with advertisers to programmatically serve targeted ads. More money for the game developers, more inventory for the advertisers and, in theory, a continuing great experience for the gamers.
- Difficulties in selling this proposition may emerge from the perceived risks i.e. concerns that your product impacts their end-customer experience. There also might be unvoiced concerns about upsetting the apple cart internally by altering the business model. Ultimately, your sales team need to be experienced enough to navigate these conversations and aid in solving issues that arise.
- More external reasoning may also challenge sales with this proposition. A new revenue opportunity may contradict your client’s view of how the industry is evolving. They may not think it will be successful. In this context, you will most likely need insights, case studies and data to persuade them otherwise.
In the beginning, I noted how we see some B2B startups struggle to get under the skin of their value proposition and what it means for their customers. It’s not always something — in the hectic whirl of a startup — that people revisit and really ponder on.
All I can say is this: when we meet startups, it’s obvious who has spent time honing their thinking and who has not. Firms that demonstrate that razor-sharp understanding are the step ahead. Because the value proposition shapes their target market, their product roadmap, their go-to-market strategy and so on. It’s not so much an edge as a major head start.
My advice? Don’t be left behind. Get on your value proposition and onto the front foot.
If you have any comments, questions or preferably glowing feedback, then get in touch via email@example.com.