I had read the authors’ previous book on Business Model Generation but I found this one, Value Proposition Design: How to Create Products and Services Customers Want by Alexander Osterwalder, Yves Pigneur, Patricia Papadakos, Gregory Bernarda, Alan Smith, to be pretty on point. The book provides information on the patterns of great value propositions, get closer to customers, and avoid wasting time with ideas that won’t work.
Most entrepreneurs ask this question: Where do you start when you want to launch your own business? Many people would answer, “With the product or service you want to sell.” That might sound easy enough, but how do you create something that actually provides value to customers? A couple of key takeaways to help you tackle this.
To identify value, put yourself in your customers’ shoes and recognize the pains and gains of their jobs. If you want to sell something, be it cupcakes, computers or cars, you have to ask yourself one important question: What makes my product valuable to a customer?
To figure this out, you first need to understand the jobs your potential customers need help with. A “job” is any task a customer performs on a regular basis. There are two kinds: functional jobs and social jobs. Functional jobs are specific things customers need to get done, such as tending to the garden or buying groceries. Social jobs are the things customers want to do in order to impress others, such as buying a trendy outfit or wowing their boss with an amazing presentation.
The next step in identifying value is understanding customer pains: the things in life that stand in the way of a customer performing a functional or social job. The first customer pain is unwanted outcomes, which is when a customer doesn’t get the outcome he was after. Maybe the customer bought a garden sprinkler that turned out to be useless or worked on a presentation that put everyone to sleep – both examples are unwanted outcomes. The second customer pain is obstacles, which prevent the customer from even starting a job. Maybe that coveted sprinkler system is just too expensive; or maybe the customer simply doesn’t have the time to prepare a satisfactory presentation. The last customer pain is risks – the unpleasant things that happen when a job goes unperformed. Without a sprinkler system, for instance, your customer’s garden might die; and if that customer doesn’t nail the presentation, she won’t get a promotion.
The final step in determining value is recognizing the three types of customer gains: the things customers are hoping to get. The first is required gains, which is the basic function of a product. The required gain of a sprinkler is that the plants get watered. The second is expected gains. Customers expect a sprinkler to be well made and reliable. The third is desired gains, which is when a product goes beyond expectations – such as a sprinkler system that can be operated with a smartphone app.
Once you understand the needs and wants of your customers, you’re on your way to delivering a valuable product. The next step is to identify and understand all the components of your product. This will allow you to determine and design the value proposition.
You already have your starting point – you’ve identified the value of a sprinkler system that can be operated with a smartphone. Okay, now let’s break this down into its individual components.
Imagine your product being advertised in a shop window, with the display listing all its different features. There’s your product’s physical/tangible component, which is the sprinkler itself. Then there’s the intangible component, such as a five-year warranty. And there’s a digital component: the smartphone app that controls the system. Breaking things down like this further identifies the ways your product or service alleviates customer pains. And the more pains you relieve, the more valuable you become.
Focus on the biggest customer pains. For functional jobs, ask questions like, “How can I save customers time and money?” (One option might be to offer discounted installation services.) For social jobs, ask, “Can I help customers be seen favorably by others?” Perhaps you can offer an online social platform where people share photos of their flourishing gardens. Finally, to ensure your product’s value and its appeal to customers, identify exactly how your product creates expected and desired gains for your customers
Since you can’t cover everything, focus on the most important areas. Don’t try to do too much. Then ask questions like, “How can I exceed the expectations of my customers?” And, “How can I make my customer’s life easier?” Keep adjusting to ensure a perfect and profitable fit with the market.
Now that you’ve designed the initial value proposition for your product or service, you can take the next step: figuring out how well it will fit in the marketplace.
There are three different stages for determining whether your product fits the market. The first indicator of a good fit is presentation. Does your product’s value proposition look good on paper? Can you point to how it tackles all of a customer’s jobs, pains and gains? Keep in mind that this is just a hypothetical fit, so it’s a good idea to design a few different models of your product before you go out into the marketplace and get real customer feedback. That’s where the second fit happens – in the marketplace, where you roll out a product or service and get the customer feedback that tells you how well you’re actually doing. This is when you get real facts about your product and can make adjustments to attain the best possible fit. The first model you put out there might receive some negative feedback. For instance, maybe some customers will tell you that your sprinkler-control app becomes unresponsive after a few minutes.
If customer feedback indicates that your product isn’t meeting expectations, then it’s time to redesign the product, reintroduce it to the market and continue fine-tuning it until it’s a perfect fit. The last stage is the financial fit. Here you get the cold, hard facts that reveal whether your value proposition is profitable and scalable.
The goal is for your value proposition to lead you to a profitable business. Generally speaking, this happens when the revenue you generate exceeds the costs of your business. Whether you’re trying to sell a sprinkler system or a fashionable pair of shoes, you’ll only succeed if your value proposition generates more revenue than costs. That way, you will truly be profitable.
Check out the book here: