The Launch Path
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The Launch Path

Photo by Sudan Ouyang on Unsplash

The Value Prop Hierarchy.

I spent most of my career running enterprise software companies — we sold software products to other businesses. Over time I realized that there is a sort of value proposition hierarchy, and your ability to sell and price your product is almost entirely determined by your ability to position your product as far up that ladder as you possibly can.

Here’s what I mean:

  • If your product is perceived as something that will improve an existing process, well that’s nice, everyone wants their sock drawer to be more organized, but it’s not something a company would pay a lot of money for. So many you’ll get 2 points in the customer’s mind.
  • However if your product is going to save the company real money, well, the customer should easily be able to get their boss to sign-off on that purchase. So now you get 5 points in the customer’s mind.
  • But wait — if your product will help them drive revenue, well, everybody wants that and the boss’s boss will be happy with that purchase! So now you are worthy of 8 points in the customer’s mind.
  • What if your product will drive their share price and the valuation/market capitalization of the company? The CEO herself will jump at the opportunity to approve that purchase. So you have 10 points and two tacos in the customer’s mind!

This hierarchy explains how Customer Relationship Management (CRM) became the most successful enterprise software category ever. A CRM vendor is selling a value proposition that says their product will help you to improve a process, reduce costs, drive sales, and (by extension) drive shareholder value. That’s right there is the home run. And Salesforce (whose stock ticker symbol is “CRM”, by the way) has built this into a $260B business.

So whatever your business is, think about how you can position your offering as far up this ladder is possible. If today you’re down at the “improve a process” level, that’s fine, but think how you can create a product roadmap that will move you up that ladder over time. Your sales process will improve, your sell cycles will get shorter, and you will be able to charge more for your product.

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A new book, under development.

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Bret Waters

Silicon Valley guy. I teach entrepreneurship at Stanford, run the 4thly Startup Accelerator, and coach startup CEO’s at Miller Center. Also, I love fish tacos.

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