Once upon a time… I was responsible for commercializing a startup TV channel targeted at farmers. As nobody in our team had any formal experience in that industry we used a proven technique of data gathering. We posted a job offering and ran a number of job interviews with people from the largest media networks and TV brokers. We collected a lot of information on how to sell advertising time and sponsored content.

The conclusions were as follow. The whole market worked on the per thousand viewers rate. The estimated number of viewers at a certain time of the day and demographics was converted into price per spot. Easy. So we sat together with our sales team and designed a beautiful pricelist based on the best practices and we went to the market to acquire advertisers from the farming industry — chemical, pharmaceutical, crop and machinery companies. We used professional vocabulary and it looked fancy. But no one wanted to buy. So we started anaysing what went wrong?

How to design a value proposition

I assume you are looking for some hints on how to design an offer and bring a product to the market. There are no golden rules. But you can play with probability to make the holes in your strategy as small as possible. In other words to minimize risk. I share with you thinking strategies and some hints that worked for me and my clients. It all comes down to the customer, the problem and the solution. It is an iterative process where you constantly jump among these three.

If you are not so much into reading — feel free to watch a video from my recent Facebook Live Session on this topic.

1. Who is your customer?

First of all — do not start from the product. It is sometimes tempting as you already have “something” and you are looking for a way to commercialize it. It can be the right way to look for inspiration and the AREA of business that you want to address. But the primary issue you want to define is — “who has a problem and what is that problem”.

Secondly — when you find a group of people that have something in common do not go for a broad market. The idea to open a grocery store, just because every human has to eat is not a good enough reason. Don’t fall into a “demography trap”. For a startup it is usually the wrong way of defining a target group. You need to make a better job looking for patterns and commonalities. It is hard but it pays off. What you want to get is a group of people with the highest concentration of a certain problem, homogeneous enough to somehow define the group as a whole. For example, book worms from Denver who use Uber to get to work.

Tips on finding the group: meet people in person. Forget about focus group research run by a third party company as your primary or only source of information. Why? Because you want to hear,quality feedback and interpret it yourself. This is a rule for the whole process.

2. What is the customers’ problem?

There are some common problems that happen to certain groups of people. If you travel to work by Uber and read on the way you don’t want the driver to talk or disturb you. OK, but is this a problem big enough that it requires a product to solve it? You can ask him too turn the music off without any dedicated product.

  • Is this a problem that someone would want to pay for to have removed? Usually it is better to solve problems that reduce risk rather than ones that bring a new opportunity. This is why it is easier to sell pain killers then to sell preventative solutions such as supplements.
  • Is removing this problem worth a dollar to a number of people or can they just use an alternative solution? How much money are you willing to exchange for solving the problem? In other words how much more will I pay for a bottle of water at the gym so I don’t have to stop at the grocery store on the way.
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    You do not want to guess. So go to your target group and ask about certain situations in which you assume the problem occurs. (eg. What makes your way to work annoying?). Slowly move from more general open questions to more specific problem-related questions. Gauge emotions and listen to answers. You want to define the right problem not confirm that the problem you came up with is right.

    3. How can you solve the problem?

    This is where you design the solution. You can take a product you have and see if it is adaptable to the expectations. The most common problems of value proposition design are:

  • You think you can be cheaper and win in the long run. That is not true in most situations. Mainly because you can only compete with price if the intrinsic product cost is a few times lower due to unfair advantage (eg. technology). In all other situations your competitors will make you bleed to death and then take your place in the market. You want to compete by offering an easier and faster solution to an existing problem.
  • You think there are no competitors. Your first and most common competitor is inaction. The prospect who is maintaining the status quo and not buying. If the customer pain is too small — you are done. Another competitor is an indirect competitor. In some situations tea can be both the competitor to water and ham as you have only one stomach to fill.
  • You think people want the product. People usually want to remove pain. They don’t care about the product. The most common example of this theory is buying a drill. Hardly anyone wants a drill, most people just want a hole in the wall.
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    Again – test your product assumptions with clients. Ask them for advice — they will be flattered. If they are involved it is harder for them to quit. At this stage you want them to pre-order. Do not believe in declarations, only orders pay the bills.

    4. Little tips that worked:

    Pricing is often an issue.

    Maximise the value and the price. So you want to have the best solution, that people have to pay a lot for. Price builds perceived value. If a client is excited to have his problem removed — he can pay a premium. Clients don’t trust cheap products unless they are commoditized. To set the price look for similar products that people are already are paying for. Price promotions do not work unless people have an internalized notion of the regular value of the product.

    Compare your product to another product or service people are already paying more for. For example, if you teach Spanish you can charge X per hour, but if you run language coaching in Spanish you can charge 5X being a unique teacher, who uses coaching techniques thus charges like a coach or advisor.

    In services experiment with incremental price increases. Let the price build up with your skills and confidence, but don’t settle for a market average.

    Communicate like a pro.

    Focus on the problem and how quick and easy you solve it. Don’t talk about features and specs. They are secondary.

    Build credibility from the very first day. It is your currency and the trust people need to give you their money. You want to create a trophy brand by any means. Use your logo in your sales pitch. Get an influencer on board. Tell your “Why” — a true personal story that shows a higher motivation (than just making money).

    Solving the puzzle

    So you have those three elements to juggle: the customer, the problem and the solution. In the process of customer development you will probably go back and forth on all three, until you get pre-orders. It can take you a few months. But you want to talk to prospects from the very first day. When you feel that you have hit the spot — refine the pricing and design a simple, but compelling story. And make history.

    After failing to sell advertising to the farming industry we returned home and analyzed all we had heard. We realized that people in this industry were extremely conservative (“We will keep watching you for the next two years and then we may start advertising in your medium”). So we started following the money. We figured out that they spent most of their marketing budget on “field shows” — huge, expensive one or two-day events run a few times a year. How to tap into this budget? Eureka! Let’s extend their event presence by filming their booth and then air it for the next few weeks. This is something they already know, spend money on and understand.

    “We will extend your booth’s life from two days to a month for an extra 20% — what do you think?”. That was our pitch at the next big fair. Our team sold and produced over 30 clips over only two days. We succeeded in solving the first puzzle. Unfortunately, that was the easiest one.

    Thanks for reading. Share your product stories — successess, failures and challenges. Let’s have a discussion!

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