Test Your Value Proposition: Supercharge Lean Startup and CustDev Principles

In my last post I described a new business tool, the Value Proposition Designer Canvas. In this post I outline how you can use the tool to not only design Value Propositions, but also to test them. You’ll learn how you can supercharge the already powerful Lean Startup and Customer Development principles to design, test, and build stuff that customers really want.

The Value Proposition Designer Canvas (VP Designer Canvas) allows you to zoom into the details of your Value Proposition and the Customer Segments you target. You can use it as a poster (cf image below) to design better Value Propositions with sticky notes. However, to make sure your customers really want what you design, you'll need to test all the assumptions you make with the VP Designer Canvas.
Value Proposition Canvas
We already now know how to do this kind of designing and testing for business models: by combining the Business Model Canvas with the Customer Development process. Steve Blank has impressively demonstrated this in his work.

We can achieve the same for Value Propositions by combining the VP Designer Canvas with the Lean Startup process. This will help us more systematically work towards achieving what the startup movement calls a product-market fit or problem solution fit. In other words, building/offering stuff that customers really want.

Design, Test, and Build Business Models & Value Propositions
In a nutshell, the Lean Startup process essentially consists of iterating through the “building” of, “measuring” of, and “learning” from product (and service) prototypes. The Lean Startup movement calls these prototypes Minimum Viable Products (MVP).

Supercharge the Lean Startup Process

The VP Designer Canvas can add two crucial things to this process that are currently missing. Adding them to the mix will bring us to a whole new level.

Firstly, the VP Designer Canvas gives you a simple and practical way to rapidly sketch out WHAT you are building and how you believe this will create customer value/benefits, as well as WHY your are building it: which customer jobs, pains, and gains you intend to address.

Doing this BEFORE building an MVP, will help you better track and manage the testing, measuring, and learning process.

Value Proposition Canvas: What and Why

Secondly, the VP Designer Canvas helps you distinguish between Product/VP and Customer assumptions. If you “just” build an MVP to measure and learn, you won’t know if a negative outcome of your experiment is related to your MVP or to a lack of customer interest.

In science such a significant bias would invalidate your results all together. Hence, you need to separate the testing of your product/VP assumptions (i.e. WHAT) and your customer assumptions (i.e. WHY) whenever possible. The latter is something you can observe and investigate even before designing an MVP.

Using the Value Proposition Designer Canvas - Step by Step

Let me walk you through a rough step by step process of how to use the VP Designer Canvas for testing. In reality, of course, these steps will be less sequential and much more messy. You'll also want to adapt this process to your needs and circumstances.

1. Fill Out Your VP Designer Canvas.

Describe the JOBS your customer is trying to get done and outline their PAINS and GAINS. List the PRODUCTS and SERVICES you intend to offer and describe how you believe they will ALLEVIATE your customer’s PAINS and CREATE GAINS. You can use the trigger questions in the poster and in my last blogpost if you need help.

1 - Fill Out VP Canvas

Voilà, you now have a great list of Produc/VP and Customer assumptions. You described who you think customers are and what you think would create value for them. It’s your best guess - but still just your (smart) opinion.

1b - Your Assumptions

2. Test your Customer Assumptions

Now it’s time to “get out of the building” - to use Steve Blank’s terms - in order to verify your customer assumptions. Talk to as many (potential) customers as possible to verify if they really are trying to get those JOBS done that you described in the VP Designer Canvas. Find out if those JOBS are crucial to them or unimportant? Find out if the really have those PAINS you believed they have. Are those PAINS severe or minor? Verify if they really value the GAINS you believed they value.

2 - Test Customer Assumptions

It’s even better if you can test your customer assumptions more rigorously. What I mean with that is going beyond simply talking to customers, but not yet building an MVP. The design professions have several techniques to achieve that.

3. Adjust your Customer Assumptions Based on Insights

Now that you better know who your customers are you should revisit the Customer Profile in your VP Designer Canvas. Ideally you now understand the significance of your customers’ JOBS, the severity of their PAINS and the intensity of their desired GAINS.

3 - Adjust Customer Assumptions

4. Redesign your Value Proposition Based on Insights

Adjust which pains and gains you want to focus on, based on your customer insights. Then redesign your Value Proposition accordingly. Don’t forget that great Value Propositions rarely address all customer PAINS and GAINS. They address a few really well!

4 - Redesign your Value Proposition

This will give you a readjusted VP Designer Canvas.

4b Adjusted VP Canvas

5. Start Testing your Value Proposition

Now it’s time to build your MVP and continuously test and adjust your Value Proposition based on what you learn.

5 - Test with MVP

The VP Designer Canvas will serve as your map to permanently track assumptions and tests, while you're pivoting through the Lean Startup process. The moment this circle ends is when you've achieved a fit between your Value Proposition and what your Customers expect. This is what the startup movement calls product-market fit or problem-solution fit. It's when you build stuff that customers really want!

Lean Startup Process

Don't hesitate to give me your feedback, since this process is just a first suggestion of how to use the Value Proposition Designer Canvas.

Achieve Product-Market Fit with our Brand-New Value Proposition Designer Canvas

I’m a big fan of the Lean Startup movement and love the underlying principle of testing, learning, and pivoting by experimenting with the most basic product prototypes imaginable - so-called Minimal Viable Products (MVP) – during the search for product-market fit. It helps companies avoid building stuff that customers don’t want. Yet, there is no underlying conceptual tool that accompanies this process. There is no practical tool that helps business people map, think through, discuss, test, and pivot their company’s value proposition in relationship to their customers’ needs. So I came up with the Value Proposition Designer Canvas together with Yves Pigneur and Alan Smith.

The Value Proposition Designer Canvas is like a plug-in tool to the Business Model Canvas. It helps you design, test, and build your company’s Value Proposition to Customers in a more structured and thoughtful way, just like the Canvas assists you in the business model design process (I wrote more about how we came up with this new tool previously).

The Canvas with its 9 building blocks focuses on the big picture. The Value Proposition Designer Canvas zooms in on two of those building blocks, the Value Proposition and the Customer Segment, so you can describe them in more detail and analyze the “fit” between them. Companies need to get both right, the “fit” and the business model, if they don’t want to go out of business, as I described in an earlier post on failure. The tools work best in combination. One does not replace the other.

Untitled

In this post I’ll explain the conceptual tool. In my next post I'll outline how you can use it for testing in combination with the Customer Development process by Steve Blank and the Lean Start-up process by Eric Ries. The Value Proposition Designer Canvas will allow you to better describe the hypotheses underlying Value Propositions and Customers, it will prepare you for customer interviews, and it will guide you in the testing and pivoting.

The Value Proposition Designer Canvas

As mentioned above, the Value Proposition Designer Canvas is composed of two blocks from the Business Model Canvas, the Value Proposition and the corresponding Customer Segment you are targeting. The purpose of the tool is to help you sketch out both in more detail with a simple but powerful structure. Through this visualization you will have better strategic conversations and it will prepare you for testing both building blocks.

Achieving Fit

The goal of the Value Proposition Designer Canvas is to assist you in designing great Value Propositions that match your Customer's needs and jobs-to-be-done and helps them solve their problems. This is what the start-up scene calls product-market fit or problem-solution fit. The Value Proposition Designer Canvas helps you work towards this fit in a more systematic way.

Value Proposition Canvas - fit

Customer Jobs

First let us look at customers more closely by sketching out a customer profile. I want you to look at three things. Start by describing what the customers you are targeting are trying to get done. It could be the tasks they are trying to perform and complete, the problems they are trying to solve, or the needs they are trying to satisfy. Value Proposition Canvas - customer jobs

Ask yourself:

  • What functional jobs is your customer trying get done? (e.g. perform or complete a specific task, solve a specific problem, ...)
  • What social jobs is your customer trying to get done? (e.g. trying to look good, gain power or status, ...)
  • What emotional jobs is your customer trying get done? (e.g. esthetics, feel good, security, ...)
  • What basic needs is your customer trying to satisfy? (e.g. communication, sex, ...)

Customer Pains

Now describe negative emotions, undesired costs and situations, and risks that your customer experiences or could experience before, during, and after getting the job done. Value Proposition Canvas - pains Ask yourself:

  • What does your customer find too costly? (e.g. takes a lot of time, costs too much money, requires substantial efforts, ...)
  • What makes your customer feel bad?(e.g. frustrations, annoyances, things that give them a headache, ...)
  • How are current solutions underperforming for your customer? (e.g. lack of features, performance, malfunctioning, ...)
  • What are the main difficulties and challenges your customer encounters? (e.g. understanding how things work, difficulties getting things done, resistance, ...)
  • What negative social consequences does your customer encounter or fear? (e.g. loss of face, power, trust, or status, ...)
  • What risks does your customer fear? (e.g. financial, social, technical risks, or what could go awfully wrong, ...)
  • What’s keeping your customer awake at night? (e.g. big issues, concerns, worries, ...)
  • What common mistakes does your customer make? (e.g. usage mistakes, ...)
  • What barriers are keeping your customer from adopting solutions? (e.g. upfront investment costs, learning curve, resistance to change, ...)

Rank each pain according to the intensity it represents for your customer. Is it very intense or is it very light. For each pain indicate how often it occurs.

Customer Gains

Now describe the benefits your customer expects, desires or would be surprised by. This includes functional utility, social gains, positive emotions, and cost savings. Value Proposition Canvas - gains Ask yourself:

  • Which savings would make your customer happy? (e.g. in terms of time, money and effort, ...)
  • What outcomes does your customer expect and what would go beyond his/her expectations? (e.g. quality level, more of something, less of something, ...)
  • How do current solutions delight your customer? (e.g. specific features, performance, quality, ...)
  • What would make your customer’s job or life easier? (e.g. flatter learning curve, more services, lower cost of ownership, ...)
  • What positive social consequences does your customer desire? (e.g. makes them look good, increase in power, status, ...)
  • What are customers looking for? (e.g. good design, guarantees, specific or more features, ...)
  • What do customers dream about? (e.g. big achievements, big reliefs, ...)
  • How does your customer measure success and failure? (e.g. performance, cost, ...)
  • What would increase the likelihood of adopting a solution? (e.g. lower cost, less investments, lower risk, better quality, performance, design, ...)

Rank each gain according to its relevance to your customer. Is it substantial or is it insignificant? For each gain indicate how often it occurs.

Products & Services

Now that you sketched out a profile of your Customer, let's tackle the Value Proposition. Again, I want you to look at three things. First, list all the products and services your value proposition is built around. Value Proposition Canvas - products & services

Ask yourself which products and services you offer that help your customer get either a functional, social, or emotional job done, or help him/her satisfy basic needs?

Products and services may either by tangible (e.g. manufactured goods, face-to-face customer service), digital/virtual (e.g. downloads, online recommendations), intangible (e.g. copyrights, quality assurance), or financial (e.g. investment funds, financing services).

Rank all products and services according to their importance to your customer. Are they crucial or trivial to your customer?

Pain Relievers

Now lets outline how your products and services create value. First, describe how your products and services alleviate customer pains. How do they eliminate or reduce negative emotions, undesired costs and situations, and risks your customer experiences or could experience before, during, and after getting the job done? Value Proposition Canvas - pain relievers Ask yourself if they...

  • ... produce savings? (e.g. in terms of time, money, or efforts, ...)
  • ... make your customers feel better? (e.g. kills frustrations, annoyances, things that give them a headache, ...)
  • ... fix underperforming solutions? (e.g. new features, better performance, better quality, ...)
  • ... put an end to difficulties and challenges your customers encounter? (e.g. make things easier, helping them get done, eliminate resistance, ...)
  • ... wipe out negative social consequences your customers encounter or fear? (e.g. loss of face, power, trust, or status, ...)
  • ... eliminate risks your customers fear? (e.g. financial, social, technical risks, or what could go awfully wrong, ...)
  • ... help your customers better sleep at night? (e.g. by helping with big issues, diminishing concerns, or eliminating worries, ...)
  • ... limit or eradicate common mistakes customers make? (e.g. usage mistakes, ...)
  • ... get rid of barriers that are keeping your customer from adopting solutions? (e.g. lower or no upfront investment costs, flatter learning curve, less resistance to change, ...)

Rank each pain your products and services kill according to their intensity for your customer. Is it very intense or very light? For each pain indicate how often it occurs.

Gain Creators

Finally, describe how your products and services create customer gains. How do they create benefits your customer expects, desires or would be surprised by, including functional utility, social gains, positive emotions, and cost savings? Value Proposition Canvas Ask yourself if they...

  • ...create savings that make your customer happy? (e.g. in terms of time, money and effort, ...)
  • ... produce outcomes your customer expects or that go beyond their expectations? (e.g. better quality level, more of something, less of something, ...)
  • ... copy or outperform current solutions that delight your customer? (e.g. regarding specific features, performance, quality, ...)
  • ... make your customer’s job or life easier? (e.g. flatter learning curve, usability, accessibility, more services, lower cost of ownership, ...)
  • ... create positive social consequences that your customer desires? (e.g. makes them look good, produces an increase in power, status, ...)
  • ... do something customers are looking for? (e.g. good design, guarantees, specific or more features, ...)
  • ... fulfill something customers are dreaming about? (e.g. help big achievements, produce big reliefs, ...)
  • ... produce positive outcomes matching your customers success and failure criteria? (e.g. better performance, lower cost, ...)
  • ... help make adoption easier? (e.g. lower cost, less investments, lower risk, better quality, performance, design, ...)

Rank each gain your products and services create according to its relevance to your customer. Is it substantial or insignificant? For each gain indicate how often it occurs.

Competing for Customers

Most Value Propositions compete with others for the same Customer Segment. I like thinking of this as an "open slot" that will be filled by the company with the best fit. The visualization for this was an idea by Alan Smith, one of my co-founders, and the designer of Business Model Generation. Competing Value Propositions If you sketch out competing value propositions, you can easily compare them by mapping out the same variables (e.g. price, performance, risk, service quality, etc.) on a so-called strategy canvas. BoS Strategy Canvas

The Value Proposition Designer Canvas Poster

You can use the Value Proposition Designer Canvas like the Business Model Canvas: plot it as a poster, then stick it up on the wall, and then use sticky notes to start sketching.

Contrary to the Canvas, the Value Proposition Designer Canvas poster and methodology is copyrighted. However, you are free to use it and earn money with it as an entrepreneur, consultant, or executive, as long as you are not a software company (the latter need to license it from us). However, when you us it please reference and link to BusinessModelGeneration.com.

Here is a downloadable draft poster version of the Value Proposition Designer Canvas.

Value Proposition Designer

Testing and Pivoting

Using the Value Proposition Designer Canvas as a thinking and design tool is only a start. To get the best out of it you need to combine it with testing and pivoting. In my next blogpost I explain how the Value Proposition Designer Canvas perfectly integrates with the Customer Development and Lean Startup Process. I explain how it helps you substantially when you "get out of the building" as Steve Blank would say.

Last But Not Least: Workshop Date Announcements

We have a couple of 2-day workshops coming up where you can learn about all our tools:

Hope to see you in either San Francisco or Zurich!

7 Questions to Assess Your Business Model Design

Ultimately, customers are the only relevant judges of your business model. However, even before you test your model in the market, you can assess its design with 7 questions that go well beyond the conventional focus on products and market segments.

First things first. In order to assess your business model you should sketch it out on the Business Model Canvas outlined in the video below. If you want to know more about the Canvas and how to use it you can read Business Model Generation of which 70 pages are available for free on our website.

Assessing the basics

Every business model has a product and/or service at its center that focuses on a customer’s job-to-be-done. I call this the Value Proposition. So before even turning to your business model as a whole, you need to ask yourself some basic questions related to your Value Proposition and the Customer Segments that you are targeting.

  • First, ask yourself how well your Value Proposition is getting your target customer’s job done. For example, if a user of a search engine is trying to find and purchase the latest Nike running shoe, the measure of success will be how well the search engine helps the user get this job done.
  • Secondly, ask yourself how many people or companies there are with a similar job-to-be-done. This will give you the market size.
  • Thirdly, ask yourself how important this job really is for the customer and if she actually has a budget to spend on it.

That’s it as to the basics. However, even the greatest products are having an increasingly hard time to achieve a long-term competitive advantage. That is the reason why you need to shift your focus away from a pure product/market segment oriented approach towards a more holistic business model approach. Below are eight questions to assess your business model design. Rank your business model’s performance on a scale of 0 (bad) to 10 (excellent) for each question.

1. How much do switching costs prevent your customers from churning?

The time, effort, or budget a customer has to spend to switch from one product or service provider to another is called “switching costs”. The higher the switching costs, the likelier a customer is to stick to one provider rather than to leave for the products or services of a competitor.

A great example of designing switching costs into a business model is Apple’s introduction of the iPod in 2001. Do you remember how Steve Jobs heralded his new product with the catchphrase “thousand songs in a pocket”? Well, that was more than a product innovation focusing on storage. It was a business model strategy to get customers to copy all their music into iTunes and their iPod, which would make it more difficult for them to switch to competing digital music players. In a time when little more than brand preferences were preventing people from switching from one player to another this was a smart move and laid the foundation for Apple’s subsequent stronghold on music and later innovations.

2. How scalable is your business model?

Scalability describes how easy it is to expand a business model without equally increasing its cost base. Of course software- and Web-based business models are naturally more scalable than those based on bricks and mortar, but even among digital business models there are large differences.

An impressive example of scalability is Facebook. With only a couple of thousand of engineers they create value for hundreds of millions of users. Only few other companies in the world have such a ratio of users per employee. A company that has pushed the limits even further is the social gaming company Zynga. By building games like Farmville or Cityville on the back Facebook, the world’s largest social network, they could benefit from Facebook’s reach (and scale) without having to build it themselves.

A company that quickly learned its lessons regarding scalability was peer-to-peer communication company Skype in its early days. Their customer relationship collapsed under the weight of large numbers, when they were signing up ten thousands of users per day. They quickly had to adapt their business model to become more scalable.

3. Does your business model produce recurring revenues?

Recurring revenues are best explained through a simple example. When a newspaper earns revenues from the sales at a newsstand they are transactional, while revenues from a subscription are recurring. Recurring revenues have two major advantages. Firstly, the costs of sales incur only once for repetitive revenues. Secondly, with recurring revenues you have a better idea of how much you will earn in the future.

A nice example of recurring revenues is Redhat, which provides open source software and support to enterprises based on a continuous subscription basis. In this model clients don’t pay for new software versions because it is continuously updated. In the world of Software as a Service (Saas) these types of subscriptions are now the norm. This contrasts with Microsoft, which sells most of its software in the form of licenses for every major release.

However, there is another aspect to recurring revenues, which are additional revenues generated from an initial sales. For example, when you buy a printer, you continue to spend on cartridges, or when you buy a game console, you’ll continue to spend on games. Or have a look at Apple. While they still earn most of their revenues from hardware sales, the recurring revenues from content and apps is steadily growing.

4. Do you earn before you spend?

This one goes without saying. The more you can earn before spending, the better.

Dell pioneered this model in the computer hardware manufacturing industry. By assembling on order after selling directly they managed to escape the terrible inventory depreciation costs of the hardware industry. Results showed how powerful it is to earn before spending.

5. How much do you get others to do the work?

This is probably one of the least publicized weapons of mass destruction in business model design. What could be more powerful than getting others to do the work while you earn the money?

In the bricks and mortar world IKEA gets us to assemble the furniture we buy from them. We do the work. They save money. On the web Facebook gets us to post photos, create and participate in conversations, and “like” stuff. That’s the real value of Facebook, entirely created by users, while they simply provide the platform. We do the work. They earn the sky-high valuations of their shares.

Previously mentioned Redhat crafted another smart business model based on other people’s work. Their entire business model is built on top of software developed by the open source software development community. This allowed them to substantially reduce their development costs and compete head-on with larger companies like Microsoft.

A more malicious business model in which others do the work is the one practiced by so-called patent trolls. In this model patents are purchased with the sole intention of suing successful companies to extract payments from them.

6. Does your business model provide built-in protection from competition?

A great business model can provide you with a longer-term protection from competition than just a great product.

Apple’s main competitive advantage arises more from its powerful business model than purely from its innovative products. It’s easier for Samsung, for instance, to copy the iPhone than to build an ecosystem like Apple’s appstore, which caters to developers and users alike and hosts hundred thousands of applications.

7. Is your business model based on a game changing cost structure?

Cutting costs is a long practiced sport in business. Some business models, however, go beyond cost cutting by creating value based on a totally different cost structure.

Skype, for example, provides calls and communication almost like a conventional telecom company, but for free or for a very low cost. They can do this because their business model has a very different cost structure. In fact, Skype’s model is based on the economics of a software company, while a telecom provider’s model is based on the economics of a network company. The former’s costs are mainly people; while the latter’s cost include huge capital expenditures in infrastructure.

Similarly, Bharti Airtel, one of the world’s largest mobile network providers, has substantially modified its cost structure by getting rid of their entire network and IT. By buying in network capacity on a variable cost basis from a consortium around network equipment manufacturer Ericsson and IBM, they can now offer among the lowest prices for mobile telephony globally.

Redhat, which was mentioned previously, also built its business model on a game changing cost structure: by smartly building its own model on top of other people’s work.

How does your business model design perform?

Of course no business model design scores a perfect 10 as to every single one of the above questions. Some might even succeed in the market without scoring well at all. However, by asking yourself these questions and by scoring well on at least some of them you are very likely to substantially increase the long-term competitive advantage of your business.

Now all you need to do is test your business model with the real judge: the market. The best way to do that is by turning to Steve Blank's Customer Development process, which fits perfectly with the Business Model Canvas.

Some more info on my workshops, speaking, and projects.

PS: I will be running a series of workshops you might be interested in. Sign-up or pre-sign-up here. In Paris (French: Sept 27/28), in Boston (Oct 27/28), and in Munich (German: Nov 24/25).

PS2: These days are your last chance to get your name into a book project that I'm involved in: Business Model You. Check it out here.

PS3: I wrote this post as a guest post for the Business of Software conference where I'll be speaking in October.