Value Proposition — What Makes a Product Great
Last month I published a high-level summary of the epic research project that we undertook here at Supernode Global last year, to figure out what it takes to build a successful company at the intersection of media and tech. I don’t want to rehash what I said in that post, so here are our three key findings that we believe a company must show:
1. A compelling value proposition
2. Favourable market conditions
3. Enduring defensibility
In this post, I am going to drill down into the first — and possibly most important — of the above points: a compelling value proposition and why it’s so crucial to building a great product that gives your company the best chance of success.
Overview of a compelling value proposition
Broadly speaking, a value proposition is the value that your product — and by extension, your company — will bring to its users.
For instance, these don’t bring much value to their users:
But this certainly does (no snide comments about the price point please, that’s a separate discussion!):
The reason why we focus so much on value proposition is very simple — if you create a product that doesn’t bring enough value to your users, the chances of you being able to be extremely successful, are virtually non-existent.
This is backed up by the fact that 100% of the 114 companies that we looked at exhibited at least one of the elements that we consider to make up a compelling value proposition.
Many of them exhibited more than one: for instance, Skype exhibited 9 of the traits that we consider to be compelling (out of a total of 11!) at the time it was purchased by eBay.
On the flip side, if your product makes people’s lives demonstrably better, you are giving yourself a strong platform to build off. Of course, having a great value prop doesn’t guarantee that you will build a great business, but it goes a long way to giving you the best chance possible.
Recipe for creating a compelling value proposition
So now you know why we find value propositions so important, I’m going to talk about the types of value propositions that get us all giddy at the office, and why.
A) High Utility
This is the big mama of compelling value propositions! It is arguably the most defensible, and one of the things that we feel gets potential acquirers most excited.
The key to determining whether you can consider your product to have ‘High Utility’ is as follows:
- Does your product have a non-depreciating use case?
In other words, your users must be able to use your product over a long period of time, without seeing a drop in value. A great example of this is Excel. Its core use case is the same today as the day it was launched. The people that fired up the first version of Excel in 1985 were looking to use it for more or less the same reasons that we use the current version today. The same with Word. They have innately non-depreciating use cases.
An example of a product that has a depreciating (or perishable) use case, is a game that only has a single player campaign mode (such as the original Tomb Raider series). Once the player has completed that campaign, there usually isn’t enough value in the game to keep them playing it.
2. Does your product address a regular need or want?
The alarm clock probably best illustrates this. People need a way of waking up at the same time every day. The alarm clock solves this problem.
3. Does your product enhance existing behaviours via new platforms?
We already talked on the phone via a landline — the mobile phone enabled us to do it anywhere. The advancement from cash → cheque → credit card is another good example. It is the same behaviour, only new technology enables it to be enhanced and/or made more convenient.
4. Does your product provide essential infrastructure?
Think the App Store!
5. Is there a significant financial benefit to using your product?
This comes in the form of allowing your users to either make or save money. E-commerce as an industry vs bricks and mortar retail illustrates the power of this. The e-commerce companies who didn’t have to pay significant overheads, and who employed drop-shipping, were able to save costs that they could then pass on to their customers (if they chose to!).
6. Is their a social cost to not using your product?
This is perhaps the most ephemeral of all of the above, but it is one of the key ones for social media companies. They thrive off making you feel that you are missing out on seeing what is going on with your friendship group if you don’t use their product. Whilst being both platform-agnostic and free, helped WhatsApp gain traction, I strongly believe WhatsApp’s group messaging function has played a key role in keeping them relevant. It is now almost mandatory for many people to be on WhatsApp if they want to keep up with what is happening in their friendship groups.
Other (slightly less compelling) value propositions
Aside from high utility, there are two other types of value proposition that made the cut:
B) Does your product provide 10x better user experience relative to alternatives (4% of the researched companies exhibited this)?
A good example of this (in my opinion!) is Gmail.
C) Does your product/company benefit from a strong element of scarcity (just under 5% showcased this)?
Sports rights are a fantastic example of this e.g. if your company has bought the rights to be the sole broadcaster of the Premier League in China.
Conclusion
We have deduced that there are three meaningful ways that a product can have a compelling value proposition, but high utility is by far and away the most important of these for most media-tech companies (and actually tech companies in general).
It has been proven time and time again, that your product stands a better chance of winning the market if it is the most convenient, most useful, provides essential infrastructure, saves you money, or makes you money.
Make sure your product ticks one of these boxes.
Indeed, if you want to end up being amongst the most valuable companies in the world, you will likely have to tick a number of them.
There are still two more areas of the research left to discuss (market conditions and defensibility). I will be posting what we uncovered about those topics over the coming months.
As ever we would love feedback on the post so feel free to leave thoughts below. Alternatively, you can tweet us @SupernodeGlobal or email hello@supernodeglobal.com.
Hasta Luego!
Mike
