Curtis Carlson, Harvard Business Review writer in his “Innovation for Impact” article, points out two interlinked groups of thought. First, that value in innovation comes through a structured, five level “Active Learning” process. Second, a structured “NABC” (Need, Approach, Benefit and Competition) framework can be used to define an appropriate value proposition.
The whole article is great. I recommend you read it and the book Carlson co-authored with William Wilmot, Innovation: The Five Disciplines for Creating What Customers Want. There is one minor reservation I do have with this article though. Carlson speaks of the nine blocks of the Business Model Canvas as being overly complex but I have found this tool highly valuable in helping entrepreneurs inject needed reality into their business plans.
That being said, the most important part of the article for me was the three mistakes he says are common in formulating a value proposition as follows:
“People are prone to making three major mistakes in formulating value propositions. First, most people fail to pay adequate attention to their customers’ needs, which should be the foundation of the value proposition. Instead they fall in love with their idea, which means they focus almost exclusively on their approach. Over 95% of the innovation pitches I see are all about approach—a sign that the team has yet to figure out what really matters.
If teams avoid this trap and make the effort to look seriously at needs, they typically make a second mistake: over-relying on what customers say they’re seeking, rather than identifying the real need. Consider the first iPhone. Apple’s surveys at the time suggested that people wanted a better keyboard. What they actually wanted was more convenience and ease of use, and that is what the iPhone’s revolutionary touchscreen delivered. Customers can ask only for what they know, and they rarely know what is possible.
The third major mistake is related to the other two: It involves spending too much money on an ill-defined approach. If the value proposition is not well-defined, building a minimally viable product wastes time and money. At the start, the smallest possible team should be assembled to address the major risks in the value proposition. Until those risks are mitigated, building the offering is almost always a costly error.” (“Innovation for Impact”, Curtis Carlson, Harvard Business Review, Nov-Dec 2020)
So what are the three critical steps you can take to avoid these mistakes?
- In determining your customers’ needs; absolutely ignore what you are currently offering AND absolutely ignore what is possible for you to provide now. Over the last 25+ years I have seen dozens of leaders fail because a competitor began providing a product that their team believed “wasn’t doable”. Without exception, the postmortem discussion includes statements like, “We could have done that if…”. So, ignore the limitations until after you decide what the customer really needs.
- Ask your customers what they need and they’ll tell you what they want. What they want is lower price, better quality, and faster delivery. By the way, they want shorter lead times and smaller minimums too. By being a supplier to the industry, you have the opportunity to provide innovation that your customers will recognize once they see it but will struggle to identify beforehand. So, generate potential new offerings before going to your clients for their input. Then go to your biggest check writer and ask, “Would you pay $1,000 for this?”
- Betting the farm is rarely the best strategy. There is a lot of wisdom in the “fail fast, fail forward” philosophy. Built into this strategy is the idea of not risking so much on one idea that there is nothing left for the next idea. Good leaders are not risk adverse; they do count the cost before committing. They always look for the best way to mitigate the risk. So, get some real-world data around the development and implementation costs, the potential market base, and conservative revenue expectations for each potential project. Compare one viable project against others. It is tough to realistically consider one project against itself. And remember, not taking a chance, is still taking a chance.
EOS (the Entrepreneurial Operating System) may sound like it’s not about value proposition, but, in fact, it dives deep into value proposition, marketing strategy and company goals. EOS is a whole way of operating a business with the right Discipline, Vision, Strategy and with 100% Alignment to get the most out of your business for everyone and become better than the competition.