New Venture Creation: Are You Creating the Right Value for Your Customer?: Advice from a Student VC — Volume 2
“About two-thirds of businesses with employees survive at least 2 years and about half survive at least 5 years.” That statistic is from the U.S. Small Business Administration. As an MBA student, that isn’t too crazy to fathom. If there’s anything I’ve learned from attending Babson College, a leading school in entrepreneurial thought, is that starting and growing your own business is INCREDIBLY difficult. And there are a number of reasons why a business can fail, but for the purpose of this blog post, I’m going to focus on just one.
According to Bill Aulet, Director of MIT Sloan’s Martin Trust Center, and author of the book Disciplined Entrepreneurship: 24 Steps to a Successful Startup, “the single necessary and sufficient condition for a business is a paying customer.” And that makes sense, right? No matter what product or service you’ve created, if no one wants to buy it, then can your business really be a business? In order to have a paying customer, your product or service must create some kind of value, or else why would someone pay for it? Developing your business’s customer value proposition may be one of the most single important aspects that will dictate your success. That’s what I want to focus on and hopefully provide some insights and tips to ensure your business is creating value as it should.
Don’t Start with the Solution
The basics of entrepreneurship can be broken down into two simple components: problem and solution. People have problems that need solving and businesses provide solutions to those problems. There’s obviously a lot more complexity here but thinking about new venture creation in this manner helps to boil down the main components of your business. The most important thing to understand, however, is to never start with the solution. Kevin Hale, Partner at Y Combinator, puts it best when he says:
“There’s pretty much only one piece of advice I really have for the solution. That’s the best advice that you can ever follow. And that is don’t start here… It’s much better to be, like, let me see what problems people have and then I will use whatever is necessary to solve them. And therefore, it’s much more likely that you will grow as a result because the other way around is you might have to go and try to drum up the problem or you have to like the brand the problem as something that people have.”
There are countless startups that fail because they’ve developed a product or service without a deep understanding of the problem they’ve intended to solve; this then leads to an inadequate solution that doesn’t provide value or enough of it to justify a customer to pay. In other words, it leaves the company with a very poor customer value proposition.
Know Your Customer INTIMATELY
According to Bill Aulet, when it comes to new venture creation, you must “take a customer-driven approach by finding an unmet need and building your business around it.” This approach is grounded in primary market research on your potential customers with the goal of understanding their pain points and then building a solution that will provide value to them. As an entrepreneur, you will need to know EVERYTHING about your potential customers in order to really develop a solution that solves their most pressing problems. The work done at this stage of your venture will have a vastly disproportionate effect on the success of your business. The absolutely worst thing an entrepreneur can do is create a solution that doesn’t provide the value a customer needs to solve his or her problem. And a big part of creating that solution is to understand their “jobs to be done.”
One of the most eye-opening things I’ve read in business school was a Harvard Business Review article titled, Know Your Customers’ “Jobs to Be Done” by Clayton M. Christensen, Taddy Hall, Karen Dillon, and David S. Duncan. The article discusses the jobs-to-be-done theory, which can be summed up by the following:
“When we buy a product, we essentially “hire” it to help us do a job. If it does the job well, the next time we’re confronted with the same job, we tend to hire that product again. And if it does a crummy job, we “fire” it and look for an alternative.”
Knowing your customer's “jobs to be done” is about knowing what their priorities are, what they’re hoping to achieve, and the circumstances that surround them. The article takes specific care to define “job”, providing several principles to keep in mind:
- “Job” is shorthand for what an individual really seeks to accomplish in a given circumstance. But this goal usually involves more than just a straightforward task; consider the experience a person is trying to create.
- The circumstances are more important than customer characteristics, product attributes, new technologies, or trends.
- Good innovations solve problems that formerly had only inadequate solutions — or no solution.
- Jobs are never simply about function — they have powerful social and emotional dimensions.
Once you have a deep understanding of your customers’ “jobs to be done” you can create a product or service in a much more informed manner as you come to understand what trade-offs your customers are willing to make. Additionally, you will be able to precisely create a customer experience for the purchase and use of the product that will resonate strongly.
Ultimately, the value that you create for your customers will realize itself in revenue dollars, which after all, is the underlying condition in which a business can exist and be able to endure into the future.
-Steve Shafran, Founding Partner of Green Line Ventures
- Disciplined Entrepreneurship: 24 Steps to a Successful Startup by Bill Aulet
- Talking to Humans by Giff Constable