Introduction
How do you design value creation? How do you start thinking about ways to create something out of nothing? In this post, we’re going to discuss 3 frameworks that help us identify ways to conceive new products or services for our customers. We’ll look into three models that for years have assisted entrepreneurs to think about their companies in a different, more innovative ways, the Blue Ocean Strategy, the Minimum Viable Product and the Value Proposition Canvas.
When you decide to start a company, you really want to have a good reason for it. Most times the good reason is the opportunity to provide a product or a service which is able to compete in the market, by solving a problem that customers are experiencing. This is not easy to do, as new and innovative solutions to life’s problems are developed every day. Our job as entrepreneurs is not only to come up with things that make life easier but also to create value which cannot be easily replicated by competitors, as soon as we show that our way of doing things is much better than the competition.
If you’re already running a business, you can start looking at what processes in your firm generate more value, we developed an article on this topic right here. However, if you are at the Startup stage you may approach this issue from the opposite angle, which is identifying how your company can develop its operations around the value creation process. In this post, we’re going to look at ways in which innovation and value creation have been conceptualised into business frameworks, in order to develop products which can maintain market competitiveness for a long amount of time, while providing much better solutions than the ones already offered by the market.
If you’re interested in finding out what frameworks can be employed to create value for your customers in this post, we’re going to review the most relevant ones, while trying to understand what is the thread that connects them and hints us to the future of business development.
These are the topics we’re going to discuss:
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- “Blue and Red Waters of Competition” the Blue Ocean Strategy.
- Propose value through a “Minimum Viable Product” or MVP.
- Use Jobs to Be Done to Create your Value Proposition Canvas.
- Conclusions.
1. “Blue” and “Red” Waters of Competition, The Blue Ocean Strategy
The blue ocean strategy is a theory that argues how growing markets are always inflated by aggressive competition. This is so much so, that the market itself (metaphorically represented by an ocean) is red with the blood of competition. This competition is mostly due to how firms end up competing on very similar dimensions of the product, without actually trying to differentiate themselves from the competition by creating new value propositions, capable of creating blue oceans, which are unspoilt, untapped market opportunities.
This theory in fact tries to analyse the competition in the market and to suggest how it can be entirely avoided by developing new products which follow a different model of value creation. Here are some of the model’s characteristics:
- Compete in existing market space/Creating new market spaces. Firms that want to follow the blue ocean approach, should realise that competing in inflated markets is both expensive and unprofitable. As a result, they should work toward creating products that, simply put, create entirely new markets.
- Beat the competition/Making competition irrelevant. In BOS firms should find ways to avoid a head-to-head confrontation with its competitors and instead build a market proposition that simply does not compare to the one offered by other companies.
- Exploit existing demand/Create and Capture new demand. Again, in the BOS model firms should create a new type of demand, which is unserved by the market, and develop products that are able to satisfy this newly generated demand.
- Make the value-cost trade-off/Beat the value-cost trade-off. The value-cost trade-off is the idea that customers will always have to compare the received benefits of a product and service with the cost of acquisition. This can be limiting as it connects the retail price of a product to its cost of manufacturing and sales. On the contrary, by building products that tap new market demands, firms which use the BOS should create a perceived value on behalf of the customer that simply disconnects hisher perception of perceived value to the actual price.
- Align all of the firm’s activities with its strategic choice of differentiation or low cost/Align all of the firm’s activities in pursuit of differentiation and low cost. The foundational pillar of BOS is the idea, that all of the above can be effectively obtained by focusing on how a firm can reduce cost while increasing value.
All in all, this framework allows businesspeople to think about the development of new products and services by utilising a 4-step strategy: eliminate, reduce, raise, create.
- Eliminate. What factors that the industry has long competed on can be eliminated?
- Reduce. Which factors should be reduced well below the industry standard?
- Raise. Which factors should be raised well above the industry standard?
- Create. Which factors that the industry never offered should be created?
Of course, this model helps business owners and entrepreneur to focus on what actually matters the most for the firm, but a lot more information needs to be implemented in order to make this framework fully viable.
In the next paragraph of our post, we’re going to take a look into another model that, from a different angle allows us to think about product development.
2. Propose Value through an MVP, or Minimum Viable Product.
A minimum viable product is a direct descendant of the Business Model Canvas. The BMC, in short, is a business framework which allows entrepreneurs to plot out all of the different strategic decisions which are operated by a business and to create value by identifying which mix of value, activities, customer segments and resources create the best fit for the market. If you’d like to read more about the BMC here’s an article that might interest you. But what does the MVP have to do with all of this? Well, once your business model has been figured out (or as much of it as possible) then you can start building your product or service to evaluate if all of your speculations have actually led to an interesting result. The MVP is a practical, hands-on validation of your project, tested by actually creating the simplest, most efficient and inexpensive proof of concept you can.
But what can be the benefits of creating an MVP? Well, a product which has been created out of trial and error, by studying the market and looking into customer behaviour will be likely to become a profitable product, if it’s capable of actually solving a customer’s need. However, the MVP is only the beginning of this approach to value creation. In a way, this second approach is much more physical, as it actually allows you to test your product by interacting with the market. But how can you do more than this?
Is there a way to get your product to the next level? Well, there might be: as discussed in this article an option you may have available at this stage is Crowdfunding.
At the heart of value creation, however, there are several behavioural elements to be taken into consideration. As discussed in this article unless we understand exactly what our customers are planning on using our products for, it’s very difficult for us to actually understand what features to implement or how to price it. This is why in recent years a new model has emerged to account for these additional elements. We’ll be discussing this in the next paragraph of our post.
3. Use Jobs to Be Done to Create your Value Proposition Canvas
By connecting the two essential blocks of the business model canvas, we can focus on the value proposition canvas which analyses in more depth the relationship between the value brought by the firm and the customer segment that is targeted by the offer.
The model is structured on two focal points: the customer and the product.
The customer has to be mapped according to the following elements:
- Jobs to Be Done. What are the essential jobs that a customer needs to get done through the purchase of our product?
- Pains. What are the issues that a customer might find in the current market offer?
- Gains. What are the benefits that he or she might be looking for, that are not currently offered by the market?
These elements need then to match with the mapping of the product offer. The product has to be mapped according to the following elements:
- Gain Creators. What can you offer your customers to help them achieve their goals?
- Pain Relievers. How can you help your customers to help them relieve their pains?
- Products and Services. What are the products and services that you can offer your customers to help them achieve their goals?
In this sense, the Value Proposition Canvas goes in a great deal of depth to help you think about the product core benefits and additional features that might help you address the competition.
Now that we’ve discussed these three models in-depth, let us look at how we start drawing some conclusions.
4. Conclusions
As we’ve seen in this post, the process aimed at identifying value-rich products for your customers entails for a lot of hard work. Each framework discussed, allows us to look at this challenge from a different angle, but all in all, there is no one way to do this. We hope that this article has helped you figure out how you can use the perspective developed by these three different frameworks to create value for your customers and build a position of advantage for your firm. If you’re interested in reading more on this topic, we discuss business frameworks to help you identify the most value-bearing divisions of your business in this article.
