As a business advisor for the Onondaga Small Business Development Center (SBDC), I frequently encounter entrepreneurs with great ideas for new businesses. Most often, they are convinced that they have a business model that will be successful in the marketplace. Whether it is high-tech or low, product, service, or a combination of both, they are convinced that it is a winner.
I frequently pose various questions to these startup leaders, including: What value are you providing? How do you know it will be successful? Have you identified any customers? Is anyone else providing this service or selling this product? Surprisingly, very often the entrepreneurs respond with a blank stare. The reason for “the stare” is that they have not created a value proposition or done any customer discovery.
Steven G. Blank originally described customer discovery as part of the Customer Development Model (CDM) in his book, “The Four Steps to the Epiphany: Successful Strategies for Products that Win.” Blank is a lecturer in entrepreneurship at the University of California at Berkeley and Stanford University. He based the book on his observations while working for a number of startups in the Silicon Valley area. However, many of the principals and hypotheses apply equally well to non-high-tech firms as well as the high fliers in Silicon Valley.
Blank defines the CDM as a “set of objectives and milestones that are meaningful for a startup”. He describes the first step in that process as “customer discovery.” It is designed to identify a startup’s first customers. In this step, the main objective is to test your hypothesis about who you think your customers are, what is the problem that they have, and the solution you are offering to that challenge. Then testing that hypothesis is the next step. This testing is accomplished the hard way, at least in many entrepreneurs’ view — mainly through interviews with potential customers, analysts, and the media.
This is obviously an oversimplification of Blank’s process and an abbreviated description of his overview of the CDM, but what I hope to highlight is this often-overlooked step in creating a new business. Too often, an entrepreneur comes to us for assistance with a concept that “is certain to sell” because it is such a great idea. Generally, that description is coming from the mouth of the creator of the idea. In reality there is no way to know if something will sell if one has not described the value proposition to a potential customer and asked if he/she will buy it.
So, what then is the “value proposition?” Simply stated it is a description of the obviously apparent benefits from a product or service that deliver value to a customer. By testing this value proposition with potential customers, a startup is able to refine this statement to become a core part of the developing business model. The company will most effectively be profitable if it delivers substantial value to its customers. This is where the previously discussed “customer discovery” comes in. Testing this proposition with your target customers accomplishes two things — one, you will know if the identified target customer is in fact your target audience for the product or service, and two: if that target audience is sufficiently motivated by the value proposition to avail themselves of the offering. Then you will know if you have to re-evaluate your target audience or your value proposition. That, of course, may in fact necessitate another round of customer discovery to test the revised market segment and value proposition of your offering.
Therefore, it is important to consider this: If you are convinced that you have a unique product or service offering and are ready to charge off to create a company and start selling it, you have missed an important step (well, probably many). Until you have decided what it is that is valuable to your potential customers and tested your concept for market acceptance, you will not know with any certainty if you have the potential for a successful venture.
Paul Brooks is a certified business advisor with the Onondaga SBDC. Contact him at firstname.lastname@example.org