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Creating a clear and succinct value proposition that is meaningful to all of a startup’s stakeholders, including its staff, customers and investors, is one of the first challenges any entrepreneur faces.

A value proposition can be defined as follows: “A product’s value proposition is a statement of the functional, self-expressive and emotional benefits delivered by the brand that provides value to the target customer.”

To learn more about what a value proposition is, read the article “Value proposition: a reflection of the relationship between your customer and brand.”

To develop the insights you need to make the decisions around your target customer, your customer problem and the solution that underpins your value proposition, read on.

The process described here is modelled on the first of four steps of Steven G. Blank’s Customer Development Model as described in his book, The Four Steps to the Epiphany.

This first step is called “customer discovery,” and its primary objective is to identify your first customers. This is done by taking your main assumptions about who your customer is, the exact problem you are solving for the customer, and how the customer will buy from you—and turning those assumptions into hypotheses which you will then test (mainly through interviews with potential customers).

The idea is to find your first customers, but not necessarily a broad customer group. The reason for this is that, by nature, the first customers of a startup tend to be a limited number. Blank calls them “Earlyvangelists”; in Crossing the Chasm, Geoffrey Moore calls them “Visionaries.” Blank provides the following description of this group which will help you recognize a potential “Earlyvangelist”:

  1. They have a business problem.
  2. They are aware that they have this problem.
  3. They have searched for a solution.
  4. They have put together a “DIY” solution.
  5. They have access to the budget required to purchase a solution.

Customer discovery: Four phases

State your hypothesis, test problem hypothesis, test product concept, verify
The four phases of the customer discovery step (process) include:

  1. State your hypotheses: Write down your core business assumptions in a set of briefs. These form the basis for subsequent testing.
  2. Test your hypotheses: Seek validation for your hypotheses. Speak to those in and around your target market, including potential customers, analysts and the media. These should not be sales-oriented conversations.
  3. Test your product concept: Once you have a deeper understanding of the customer problem, test your product idea to get a sense of the relevance and attractiveness of your product solution and its features. Do this by engaging potential customers and sharing information with your product development team.
  4. Evaluate customer feedback and determine next steps: Reflect on the information obtained in phases 2 and 3. Are you ready to move forward with what you have? If not, you may need to conduct another iteration of problem/solution validation or halt the project.

After completing the four phases of the customer discovery step, you will have what you need to create the following four items:

A succinct value proposition statement and the customer discovery process

The activities of the customer discovery process will allow you to narrow down and create a succinct value proposition.

The process of formulating a value proposition statement is not only an essential part of engaging with external stakeholders such as advisors, partners and investors, but it is a critical step for early-stage startups. This is because developing a value proposition is one of the first major steps towards creating a business; it precedes and enables the design of your business model.

Reaching a stage where you have a value proposition that has been validated means that one of the core elements of your business model is in place.

To commence the customer discovery process, proceed to the article Value proposition and Blank’s customer discovery method—Phase 1: State your hypotheses.

References

Blank, S.G. (2005). The Four Steps to the Epiphany. Self-published: Cafepress.com.
Maurya, A. (2011). Running Lean. Self-published.
Moore, G. (1991). Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. New York: HarperCollins.
Ries, E. (2011). Lean Startup. New York: Crown Business.
Vlaskovits, P. and Cooper, B. (2010, July 29). The Entrepreneur’s Guide to Customer Development: A cheat sheet to The Four Steps to the Epiphany. Self-published.