Creating Your Business Model | Value Proposition

How effective is your business model? Have you been able to answer the why, who, when and hows?

A business model is a company’s plan for how it will generate revenues and make a profit. It explains what products or services the business plans to manufacture and market, and how it plans to do so, including what expenses it will incur.

Over the next few days, we will be exploring the how to create a business model that is effective and clearly definitive. But first, we will be talking about value proposition.

To put together a good business model, you need to know the value proposition for the business. A value proposition is a straightforward statement of what a company offers in the form of goods or services that is of value to potential customers or clients, ideally in a way that differentiates the company from its competitors.

It is important for a product to solve a problem in a unique way. The problem could be unworkable, unavoidable, urgent or undeserved. On the other end of the spectrum, the need for your product or service could be blatant, critical, aspirational or latent. A blatant need, as the word suggests, is one openly voiced and expressed by the customer. A latent need, conversely, is one which the customer himself may not be aware of having. A critical need is an immediate need that the customer MUST have fulfilled.

When designing a value proposition, there are three important factors to consider. These are;

Products and Services

It is important in the beginning to do an evaluation of the products and services around which your value proposition is built.

Products can be either tangible or intangible. They can also be characterized as digital or financial. When designing and evaluating your value proposition, it is crucial to get inside the customers head. A useful exercise would be to rank your product and services offerings in order of importance to the consumer. For this, the company needs to understand the appeal of the product. Is it a must-have for the customer because it fulfills a basic need? Or does it serve a functional, social or emotional requirement?

Pain Relievers

Your product or service must solve a problem the customer is facing. In essence it is relieving a chronic pain that the customer goes through on a regular basis and which no other product has been able to alleviate to the same degree. This pain could take the form of emotional stress, higher costs and increased risks

An effective way to evaluate your product is to analyze whether it generates lower usage of customer resources such as time, effort or money; Produces a positive change in the customer’s life by reducing his/ her frustration, monotony or boredom; resolve the challenges customers may face, reduce the chances of negative social stigmas and behaviors, reduce risks, alleviate stress, reduce chances of error, eliminate barriers between the customer and a possible solution etc.

By ranking the intensity with which each of these pains impacts your customer and the frequency of their occurrence, an entrepreneur can build up a detailed analysis of the pain relievers the various products and services in his/ her repertoire represent for customers.

Gain Creators

In this section, an entrepreneur needs to evaluate how the products and services in his portfolio lead to customer gains. An effective metric would be to understand how aspects of your products and services would enhance the customer experience by fulfilling his/ her expectations and wishes and even going beyond to surprise and delight him/ her.

The entrepreneur can analyze whether the product or service results in savings that delight the customer, has results that meet or surpass customer expectations, produce better results than the alternatives the customer is currently using, result in positive social relationships and status, fulfill a customer need and are easy to adopt, among other concerns.

By ranking the intensity with which each of these gains impact your customers and the frequency of their occurrence, an entrepreneur can build up a detailed analysis of the gain creators the various products and services in his/ her repertoire represent for customers.

The best value propositions often start with the problem and simply state something to the effect of “we fix that”. Always include existing customer references that specifically spell out how you have helped them.

Identify your UVP and use it to your advantage. Your UVP , or simply put, your unique selling pint is a clear statement that describes the benefits of your offer, how you solved customer needs and what distinguishes you from the competition.