Value Proposition Design

Value Proposition Design Cover image: Pilot Interactive Cover design: Alan Smith and Trish Papadakos This book is printed on acid-free paper. ∞ Copyright © 2014 by Alexander Osterwalder, Yves Pigneur, Alan Smith, Greg Bernarda, and Patricia Papadakos. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. 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For general information about our other products and services, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. ISBN 978-1-118-96805-5 (paper); ISBN 978-1-118-96807-9 (ebk); ISBN 978-1-118-96806-2 (ebk); ISBN 978-1-118-97310-3 (ebk) Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 How to create products and services customers want. Get started with… Value Proposition Design strategyzer.com/vpd Written by Alex Osterwalder Yves Pigneur Greg Bernarda Alan Smith Designed by Trish Papadakos 1. Canvas 2. Design 1.1 Customer Profile 10 1.2 Value Map 26 1.3 Fit 40 2.1 Prototyping Possibilities 74 2.2 Starting Points 86 2.3 Understanding Customers 104 2.4 Making Choices 120 2.5 Finding the Right Business Model 142 2.6 Designing in Established Organizations 158 TION RVA OBSE TO G TIN TES ENT ESSM ASS STIO UE 7Q NS M FROING T TES TS POIN TING STAR G YPIN TOT PRO L ESS DE MO SIN BU ED FAIL 3. Test 4. Evolve 3.1 What to Test 188 3.2 Testing Step-by-Step 196 3.3 Experiment Library 214 3.4 Bringing It All Together 238 Create Alignment 260 Measure & Monitor 262 Improve Relentlessly 264 Reinvent Yourself Constantly 266 Taobao: Reinventing (E-)Commerce 268 SU CC ES S Glossary 276 Core Team 278 Prereaders 279 Bios 280 Index 282 HYPO THES IS You’ll love Value Proposition Design if you’ve been… H, BLA L AH BL A H STRATEGYZER.COM / VPD / INTRO VI BL AH … LAH BL BLAH BL AH Overwhelmed by the task of true value creation Frustrated by unproductive meetings and misaligned teams Sometimes you feel like… You have experienced teams that… ǃɲ There should be better tools available to help you create value ǃɲ Lacked a shared language and a shared understanding of for your customers and your business. ǃɲ You might be pursuing the wrong tasks and you feel insecure about the next steps. customer value creation. ǃɲ Got bogged down by unproductive meetings with tons of unstructured “blah blah blah” conversations. ǃɲ It’s difficult to learn what customers really want. ǃɲ Worked without clear processes and tools. ǃɲ The information and data you get from (potential) customers is ǃɲ Were focused mainly on technologies, products, and features overwhelming and you don’t know how to best organize it. ǃɲ It’s challenging to go beyond products and features toward a deep understanding of customer value creation. ǃɲ You lack the big picture of how all the puzzle pieces fit together. rather than customers. ǃɲ Conducted meetings that drained energy and ended without a clear outcome. ǃɲ Were misaligned. STRATEGYZER.COM / VPD / INTRO VII Involved in bold shiny projects that blew up You have seen projects that… ǃɲ Were big bold bets that failed and wasted a lot money. ǃɲ Put energy into polishing and refining a business plan until it Disappointed by the failure of a good idea. perpetuated the illusion that it could actually work. ǃɲ Spent a lot of time building detailed spreadsheets that were completely made up and turned out to be wrong. ǃɲ Spent more time developing and debating ideas rather than testing them with customers and stakeholders. ǃɲ Let opinions dominate over facts from the field. ǃɲ Lacked clear processes and tools to minimize risk. ǃɲ Used processes suited for running a business rather than ones for developing new ideas. Get “From Failure to Success” poster Value Proposition Design will help you successfully… STRATEGYZER.COM / VPD / INTRO VIII Leverage the experience and skills of your team Equip your team with a shared language to overcome “blah blah Understand the patterns of value creation blah,” conduct more strategic conversations, run creative exercises, and get aligned. This will lead to more enjoyable meetings that are full of energy and produce actionable outcomes beyond Organize information about what customers want in a simple a focus on technology, products, and features toward creating way that makes the patterns of value creation easily visible. As value for your customers and your business. a result, you will more efectively design value propositions and profitable business models that directly target your customers’ most pressing and important jobs, pains, and gains. Gain clarity. Get your team aligned. Avoid wasting time with ideas that won’t work Design, test, and deliver what customers want. Relentlessly test the most important hypotheses underlying your business ideas in order to reduce the risk of failure. This will allow you to pursue big bold ideas without having to break the bank. Your processes to shape new ideas will be fit for the task and complement your existing processes that help you run your business. Minimize the risk of a flop. Get “From Failure to Success” poster STRATEGYZER.COM / VPD / INTRO IX Our Value Proposition to You STRATEGYZER.COM / VPD / INTRO X The links you see on the side of every page point to resources in the online companion. Watch for the Strategyzer logo and follow the link to online exercises, tools/templates, posters, and more. How to create products and services customers want. Get started with… Value Proposition Design gn strategyzer.com/vpd Written by Alex Osterwalder Yves Pigneur Greg Bernarda Alan Smith Designed by Trish Papadakos Series Sequel to Business Model Generation International Bestseller 30+ Languages VPD Book + VPD Online Companion 2 Note: To gain access to these exclusive online portions of Value Proposition Design, you'll need to prove you own the book. Keep the book near you to help you answer the secret questions and verify your ownership! Web App + Online Courses Go further with pro tools and courses 3 Helps create products and services people want Integrates with other business Minimizes risk methods of (big) failure Apply Helps Business Model Canvas understand Succeed! what matters to customers Helps Proven and efective shape ideas suite of business tools Access to advanced material and knowledge Engaging online multimedia content Softwaresupported Practical, visual, + methodology enjoyable format Shared language to communicate and collaborate Share with and learn from peers Enables practice + skills Brief, clear, (self-)assessment and applicable Instructions content avoids to get started confusion Learn STRATEGYZER.COM / VPD / INTRO XI Integrated with the The Tools and Process of Value Proposition Design Zoom out STRATEGYZER.COM / VPD / INTRO XII Zoom in Canvas Design / Test Tools Search The heart of Value Proposition Design is about applying Tools to the messy Search for value propositions that customers want and then keeping them aligned with what customers want in Post search. Progress Manage the messy and nonlinear process of value proposition design and reduce risk by systematically applying adequate tools and processes. Evolve Post search Design Squiggle adapted from Damien Newman, Central XIII STRATEGYZER.COM / VPD / INTRO Value Proposition Design shows you how to use the Value Proposition Canvas to Design and Test great value propositions in an iterative search for what customers want. Value proposition design is a never-ending process in which you need to Evolve your value proposition(s) constantly to keep it relevant to customers. An Integrated Suite of Tools STRATEGYZER.COM / VPD / INTRO XIV Zoom out The Value Proposition Canvas is the tool at the center of this book. It makes value propositions visible and tangible and thus easier to discuss and manage. It perfectly integrates with the Business Model Canvas and the Environment Map, two tools that are discussed in detail in Business Model Generation,* the sister book to this one. Together, they shape the foundation of a suite of business tools. The Value Proposition Canvas zooms into the details of two of the building blocks of the Business Model Canvas. Zoom in * Business Model Generation, Osterwalder and Pigneur, 2010. The Business Model Canvas helps you create value for your business. The Value Proposition Canvas helps you create value for your customer. XV STRATEGYZER.COM / VPD / INTRO The Environment Map helps you understand the context in which you create. Refresher: The Business Model Canvas STRATEGYZER.COM / VPD / INTRO XVI Embed your value proposition in a viable business model to capture value for your organization. To do so, you can use the Business Model Canvas, a tool to describe how your organization creates, delivers, and captures value. The Business Model Canvas and Value Proposition Canvas perfectly integrate, with the latter being like a plug-in to the former that allows you to zoom into the details of how you are creating value for customers. Customer Segments segment. It is how an organization are the groups of people and/or orga- captures value with a price that nizations a company or organization customers are willing to pay. aims to reach and create value for with a dedicated value proposition. Key Resources are the most important assets Value Propositions required to offer and deliver the previ- are based on a bundle of products ously described elements. and services that create value for a customer segment. Key Activities are the most important activities an Channels organization needs to perform well. describe how a value proposition is The refresher of the Business Model Canvas on this spread is sufficient to work through this book and create great value propositions. Go to the online resources if you are interested in more or get Business Model Generation,* the sister publication to this book. communicated and delivered to a Key Partnerships customer segment through commu- shows the network of suppliers nication, distribution, and sales and partners that bring in external channels. resources and activities. Customer Relationships Cost Structure outline what type of relationship is describes all costs incurred to oper- established and maintained with ate a business model. each customer segment, and they explain how customers are acquired Profit and retained. is calculated by subtracting the total of all costs in the cost structure Revenue Streams result from a value proposition successfully offered to a customer * Business Model Generation, Osterwalder and Pigneur, 2010. from the total of all revenue streams. Key Partners Key Activities Key Resources Cost Structure Designed for: Designed by: Value Propositions Customer Relationships Date: Version: Customer Segments Channels Revenue Streams designed by: Business Model Foundry AG The makers of Business Model Generation and Strategyzer This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit: http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. Download detailed Business Model Canvas Explanation and the Business Model Canvas pdf XVII STRATEGYZER.COM / VPD / INTRO The Business Model Canvas strategyzer.com Value Proposition Design works for… STRATEGYZER.COM / VPD / INTRO XVIII Are you creating something from scratch on your own or are you part of an existing organization? Some things will be easier and some harder depending on your strategic playground. New Ventures Individuals or teams setting out to create a great value proposition and business model from scratch A start-up entrepreneur deals with diferent constraints than a project leader for a new venture within an existing organization. The tools presented in this book apply to both contexts. Depending on your starting point you will execute them in a diferent way to leverage diferent strengths and overcome diferent obstacles. Main challenges Main opportunities ǃɲ Produce proof that your ideas can ǃɲ Use speedy decision making and work on a limited budget. ǃɲ Manage involvement of investors (if you scale your ideas). ǃɲ Risk running out of money before finding the right value proposition and business model. agility to your advantage. ǃɲ Leverage the motivation of ownership as a driver for success. Unit Unit Unit C B A Established Organizations XIX setting out to improve or invent value Main challenges propositions and business models P rocess Get “Innovating in Established Organizations” poster ǃɲ Get buy-in from top management. ǃɲ Get access to existing resources. ǃɲ Manage cannibalization. Main opportunities ǃɲ Overcome risk aversion. ǃɲ Build on existing value proposi- ǃɲ Overcome rigid and slow tions and business models. ǃɲ Leverage existing assets (sales, channels, brand, etc.). ǃɲ Build portfolios of business models and value propositions. processes. ǃɲ Produce big wins to move the needle. ǃɲ Manage career risk of innovators. STRATEGYZER.COM / VPD / INTRO Teams within existing companies Use Value Proposition Design to… STRATEGYZER.COM / VPD / INTRO XX invent and improve value propositions. The tools we will study work for managing and renewing value propositions (and business models) just as much as for creating new ones. Put the value proposition and business model to work to create a shared language of value creation in your organization. Use them to continuously invent and improve value propositions that meet customer profiles, which is an undertaking that never ends. Unit Unit Unit C B A P rocess Invent Invent new value propositions that people want with business models that work. STRATEGYZER.COM / VPD / INTRO XXI Improve Manage, measure, challenge, improve, and renew existing value propositions and business models. STRATEGYZER.COM / VPD / INTRO XXII Assess Your Value Proposition Design Skills Complete our online test and assess whether you have the attitude and skills required to systematically be successful at value proposition design. Take the test before and after working through Value Proposition Design to measure your progress. Take your skills test online Entrepreneurial Knowledge Tool Skills You enjoy trying out new things. You don’t see the You systematically use the Value Proposition risk of failing as a threat but an opportunity to Canvas, Business Model Canvas, and other tools learn and progress. You easily navigate between and processes in your search for great value prop- the strategic and the tactical. ositions and business models. STRATEGYZER.COM / VPD / INTRO XXIII Design Thinking Skills Customer Empathy Experimentation Skills You explore multiple alternatives before pick- You relentlessly take a customer perspective and You systematically seek evidence that supports ing and refining a particular direction. You are are even better at listening to customers than your ideas and tests your vision. You experiment comfortable with the nonlinear and iterative selling to them. at the earliest stages to learn what works and nature of value creation. what doesn’t. Sell Your Colleagues on Value Proposition Design concerned that we don’t have a methodology to track our progress on the development of that new value proposition and business model. STRATEGYZER.COM / VPD / INTRO XXIV worried that we focus too much on astonished at how poorly products and features instead of aligned product development, creating value for customers. sales, and marketing are surprised at how often we when it comes to developing make stuff nobody wants, new value propositions. despite our good ideas and good intentions. I am… really disappointed by how much we talked blown away by how about value propositions unclear that last amazed by how many and business models at presentation on that resources we wasted when our last meeting without new value proposi- that great idea in that last really getting tangible tion and business business plan turned out to results. model was. be a flop because we didn’t test it. concerned that our product surprised that we invest development process doesn’t so much in research and not sure if everybody in use a more customer-focused development (R&D), but fail our team has a shared methodology. to invest in developing the understanding of what a good right value propositions and value proposition actually is. business models. The Value Proposition Canvas Value Proposition Customer Segment Gain Creators Gains Products & Services Customer Job(s) Pain Relievers Pains Copyright Business Model The makers of Business Foundry AG Model Generation and Strategyzer strategyzer.com Designed by: Designed for: Date: Version: The Business Model Canvas Key Partners Key Activities Key Resources Value Propositions Customer Relationships Customer Segments Channels Revenue Streams Cost Structure designed by: Business Model Foundry AG The makers of Business Model Generation and Strategyzer strategyzer.com view a copy of this license, visit: Attribution-Share Alike 3.0 Unported License. To USA. This work is licensed under the Creative Commons Street, Suite 300, San Francisco, California, 94105, or send a letter to Creative Commons, 171 Second http://creativecommons.org/licenses/by-sa/3.0/ Get a slide deck with 10 arguments to use with the Value Proposition and Business Model Canvases XXV STRATEGYZER.COM / VPD / INTRO So, what if we tried out the Value Proposition Canvas (and Business Model Canvas) in our next project? can vas 1 The Value Proposition Canvas has two sides. With the Customer Profile p. 10 you clarify your customer understanding. With the Value Map p. 26 you describe how you intend to create value for that customer. You achieve Fit p. 40 between the two when one meets the other. STRATEGYZER.COM / VPD / CANVAS / 1.0 6 F Create Value The set of value proposition benefits that you design to attract customers. DEF·I·NI·TION VALUE PROPOSITION Describes the benefits customers can expect from your products and services. STRATEGYZER.COM / VPD / CANVAS / 1.0 7 it Observe Customers The set of customer characteristics that you assume, observe, and verify in the market. Gain Creators describe how your products and services create customer gains. STRATEGYZER.COM / VPD / CANVAS / 1.0 8 Value Map The Value (Proposition) Map describes the features of a specific value proposition in your business model in a more structured and detailed way. It breaks your value proposition down into products and services, pain relievers, and gain creators. Fi This is a list of all the Products and Services a value proposition is built around. Pain Relievers describe how your products and services alleviate customer pains. Gains describe the outcomes customers want to achieve or the concrete benefits they are seeking. The Customer (Segment) Profile describes a specific customer segment in your business model in a more structured and detailed way. It breaks the customer down into its jobs, pains, and gains. Fit Customer Jobs describe what customers are trying to get done in their work and in their lives, as expressed in their own words. Pains describe bad outcomes, risks, and obstacles related to customer jobs. You achieve Fit when your value map meets your customer profile—when your products and services produce pain relievers and gain creators that match one or more of the jobs, pains, and gains that are important to your customer. STRATEGYZER.COM / VPD / CANVAS / 1.0 Customer Profile 9 10 . Customer Profile Customer Jobs STRATEGYZER.COM / VPD / CANVAS / 1.1 12 Jobs describe the things your customers are Supporting jobs trying to get done in their work or in their life. Customers also perform supporting jobs in the A customer job could be the tasks they are trying context of purchasing and consuming value either to perform and complete, the problems they as consumers or as professionals. These jobs arise are trying to solve, or the needs they are trying from three diferent roles: to satisfy. Make sure you take the customer’s perspective when investigating jobs. What you ǃɲ BUYER OF VALUE: jobs related to buying think of as important from your perspective might value, such as comparing ofers, deciding which not be a job customers are actually trying to get products to buy, standing in a checkout line, done.* completing a purchase, or taking delivery of Distinguish between three main types of a product or service. customer jobs to be done and supporting jobs: ǃɲ COCREATOR OF VALUE: jobs related to Functional jobs cocreating value with your organization, such When your customers try to perform or complete as posting product reviews and feedback or a specific task or solve a specific problem, even participating in the design of a product for example, mow the lawn, eat healthy as a or service. consumer, write a report, or help clients as a professional. ǃɲ TRANSFERRER OF VALUE: jobs related to the end of a value proposition’s life cycle, such as Social jobs canceling a subscription, disposing of a product, When your customers want to look good or gain transferring it to others, or reselling it. power or status. These jobs describe how customers want to be perceived by others, for example, look trendy as a consumer or be perceived as competent as a professional. Personal/emotional jobs When your customers seek a specific emotional state, such as feeling good or secure, for example, seeking peace of mind regarding one’s investments as a consumer or achieving the feeling of job security at one’s workplace. * The jobs to be done concept was developed independently by several business thinkers including Anthony Ulwick of the consulting firm Strategyn, consultants Rick Pedi and Bob Moesta, and Professor Denise Nitterhouse of DePaul University. It was popularized by Clay Christensen and his consulting firm Innosight and Anthony Ulwick’s Strategyn. Job context Customer jobs often depend on the specific may impose certain constraints or limitations. For example, calling somebody on the fly is diferent when you are traveling on a train than when you are driving a car. Likewise, going to the movies with your kids is diferent than going with your partner. Job importance It is important to acknowledge that not all jobs have the same + Important importance to your customer. Some matter more in a customer’s work or life because failing to get them done could have serious ramifications. Some are insignificant Insignificant - because the customer cares about other things more. Sometimes a customer will deem a job crucial because it occurs frequently or because it will result in a desired or unwanted outcome. Download trigger questions to help find customer jobs 13 STRATEGYZER.COM / VPD / CANVAS / 1.1 context in which they are performed. The context Customer Pains STRATEGYZER.COM / VPD / CANVAS / 1.1 14 Pains describe anything that annoys your custom- Risks (undesired potential outcomes) ers before, during, and after trying to get a job What could go wrong and have important neg- done or simply prevents them from getting a job ative consequences (e.g., “I might lose credibility done. Pains also describe risks, that is, potential when using this type of solution,” or “A security bad outcomes, related to getting a job done badly breach would be disastrous for us”). or not at all. Pain severity Seek to identify three types of customer pains and A customer pain can be extreme or how severe customers find them: moderate, similar to how jobs can + Extreme be important or insignificant to the Undesired outcomes, problems, and characteristics customer. Moderate - Pains are functional (e.g., a solution doesn’t work, doesn’t work well, or has negative side efects), social (“I look bad doing this”), emotional (“I feel bad every time I do this”), or ancillary (“It’s annoying to go to the store for this”). This may also Tip: Make pains concrete. involve undesired characteristics customers don’t To clearly diferentiate jobs, pains, and gains, like (e.g., “Running at the gym is boring,” or “This describe them as concretely as possible. For design is ugly”). example, when a customer says “waiting in line was a waste of time,” ask after how many minutes Obstacles exactly it began to feel like wasted time. That way These are things that prevent customers from you can note “wasting more than x minutes stand- even getting started with a job or that slow them ing in line.” When you understand how exactly down (e.g., “I lack the time to get this job done customers measure pain severity, you can design accurately,” or “I can’t aford any of the existing better pain relievers in your value proposition. solutions”). The following list of trigger questions can help you think of diferent potential customer pains: ǃɲ How do your customers define too costly? Takes a lot of time, costs too much money, or requires substantial eforts? are their frustrations, annoyances, or things that give them a headache? ǃɲ How are current value propositions underperforming for your customers? Which features are they missing? Are there performance issues that annoy them or malfunctions they cite? ǃɲ What are the main difficulties and challenges your customers encounter? Do they understand how things work, have difficulties getting certain things done, or resist particular jobs for specific reasons? ǃɲ What negative social consequences do your customers encounter or fear? Are they afraid of a loss of face, power, trust, or status? ǃɲ What risks do your customers fear? Are they afraid of financial, social, or technical risks, or are they asking themselves what could go wrong? ǃɲ What’s keeping your customers awake at night? What are their big issues, concerns, and worries? ǃɲ What common mistakes do your customers make? Are they using a solution the wrong way? ǃɲ What barriers are keeping your customers from adopting a value proposition? Are there upfront investment costs, a steep learning curve, or other obstacles preventing adoption? Download trigger questions 15 STRATEGYZER.COM / VPD / CANVAS / 1.1 ǃɲ What makes your customers feel bad? What Customer Gains STRATEGYZER.COM / VPD / CANVAS / 1.1 16 Gains describe the outcomes and benefits your Unexpected gains customers want. Some gains are required, These are gains that go beyond customer expec- expected, or desired by customers, and some tations and desires. They wouldn’t even come would surprise them. Gains include functional up with them if you asked them. Before Apple utility, social gains, positive emotions, and cost brought touch screens and the App Store to the savings. mainstream, nobody really thought of them as part of a phone. Seek to identify four types of customer gains in terms of outcomes and benefits: Gain relevance + A customer gain can feel essential Required gains or nice to have, just like pains can These are gains without which a solution wouldn’t feel extreme or moderate to them. Essential work. For example, the most basic expectation that we have from a smartphone is that we can make a call with it. Nice to have - Expected gains These are relatively basic gains that we expect Tip: Make gains concrete. from a solution, even if it could work without them. As with pains, it’s better to describe gains as For example, since Apple launched the iPhone, we concretely as possible to clearly diferentiate expect phones to be well-designed and look good. jobs, pains, and gains from one another. Ask how much they’d expect or dream of when a customer Desired gains indicates “better performance” as a desired gain. These are gains that go beyond what we expect That way you can note “would love an increased from a solution but would love to have if we could. performance of more than x.” When you under- These are usually gains that customers would stand how exactly customers measure gains (i.e., come up with if you asked them. For example, we outcomes and benefits), you can design better desire smartphones to be seamlessly integrated gain creators in your value proposition. with our other devices. The following list of trigger questions can help you think of diferent potential customer gains: ǃɲ Which savings would make your customers happy? Which savings in terms of time, money, and efort would they value? would they wish for more or less of? ǃɲ How do current value propositions delight your customers? Which specific features do they enjoy? What performance and quality do they expect? ǃɲ What would make your customers’ jobs or lives easier? Could there be a flatter learning curve, more services, or lower costs of ownership? ǃɲ What positive social consequences do your customers desire? What makes them look good? What increases their power or their status? ǃɲ What are customers looking for most? Are they searching for good design, guarantees, specific or more features? ǃɲ What do customers dream about? What do they aspire to achieve, or what would be a big relief to them? ǃɲ How do your customers measure success and failure? How do they gauge performance or cost? ǃɲ What would increase your customers’ likelihood of adopting a value proposition? Do they desire lower cost, less investment, lower risk, or better quality? Download trigger questions 17 STRATEGYZER.COM / VPD / CANVAS / 1.1 ǃɲ What quality levels do they expect, and what Profile of a “Business Book Reader” STRATEGYZER.COM / VPD / CANVAS / 1.1 18 We chose to use potential readers of this book to illustrate the customer profile. We deliberately went beyond jobs, pains, and gains merely related to reading books, since we intended to design an innovative and more holistic value proposition for businesspeople in general. Gains are benefits, results, and characteristics that customers require or desire. They are outcomes of jobs or wanted characteristics of a value proposition that help customers get a job The customer profile sketched out on the right is informed by several inter- done well. views we conducted and thousands of interactions we had with workshop participants. However, it is not mandatory to start with preexisting customer knowledge. You may begin exploring ideas by sketching out a profile based The more tangible and specific on what you believe your potential customers look like. This is an excellent you make pains and gains, the starting point to prepare customer interviews and tests regarding your better. For example, “examples assumptions about customer jobs, pains, and gains. from my industry” is more concrete than “relevant to my context.” Ask customers how they measure gains and pains. Investigate how they measure success or failure of a job they want to get done. Make sure you deeply understand your customer. If you have only a few sticky notes on your profile, that probably indicates a lack of customer understanding. Unearth as many jobs, pains, and gains as you can. Search beyond those directly related to your value proposition. lack of sufficient budget being associated with a big failure clear indicators to measure progress going down wrong path management boring “not getting it” content that's hard to work wasting time through with ideas no clear path that don't to applying work method assess + reduce risk You should know your customers’ social and emotional jobs in addition to their functional jobs, which are usually easier to identify. Make sure you go beyond a superficial understanding of jobs. Why do customers want to “learn new knowledge”? It might be that they want to bring new methods into their organization. Ask “why” several times to get to the most important jobs. Make sure you don’t just consider jobs, pains, and gains related to a value proposition or product in mind. Identify those (e.g., “Business books are too long”) as well as other extreme pains (e.g., “lack of time” or “get boss’s attention”). 19 STRATEGYZER.COM / VPD / CANVAS / 1.1 get recognized by team can apply with conidence look good buy-in from easy to connect with with help when leadership understand like-minded colleagues, stuck + team people boss, clients applicable helps me helps with leads to ideas communicate make things promotion or improve skill better my ideas people want pay raise set + advance collaboration clearly career home run concrete ind, learn, value tips (e.g., to convince improve + apply propositions reduce risk) biz book others about or build methods reader preferred a business (generic) methods collaborate too much make with others lack of time theory decisions communicate or help them getting stuck with + sell ideas in career or conidence jeopardizing “translating” run making dealing methods to it “day job” things with risk + stay own context well nobody uncertainty up to date wants leads to results (ideally quick wins) Ranking Jobs, Pains, and Gains STRATEGYZER.COM / VPD / CANVAS / 1.1 20 Although individual customer preferences vary, you need to get a sense of customer priorities. Investigate which jobs the majority consider important or insignificant. Find out which pains they find extreme versus merely moderate. Learn which gains they find essential and which are simply nice to have. Ranking jobs, pains, and gains is essential in order to design value propositions that address things customers really care about. Of course, it’s difficult to unearth what really matters to customers, but your understanding will improve with every customer interaction and experiment. It doesn’t matter if you start out with a ranking that is based on what you think is important to your potential customers as long as you strive to test that ranking until it truly reflects priorities from the customer’s perspective. Pain severity Gain relevance Rank jobs according to their Rank pains according to Rank gains according to importance to customers. how extreme they are in the how essential they are in customers’ eyes. the customers’ eyes. + Important improve skill set + advance career look good with colleagues, boss, clients run “day job” well improve or build a business make decisions with conidence communicate + sell ideas assess and reduce risk collaborate with others or help them ind, learn, + apply methods make things people want convince others about preferred methods stay up to date + Extreme getting stuck in career or jeopardizing it going down wrong path management “not getting it” dealing with risk + uncertainty wasting time with ideas that don't work being associated with a big failure lack of sufficient budget making things nobody wants - no clear path to applying method “translating” methods to boring own context content that's hard to work through too much Moderate - helps with promotion or pay raise home run value propositions buy-in from leadership + team leads to results (ideally quick wins) get recognized by team helps me communicate my ideas clearly help when stuck clear indicators to measure progress applicable ideas connect with like-minded people can apply with conidence leads to better collaboration easy to understand concrete tips (e.g., to reduce risk) lack of time theory Insignificant + Essential Nice to have - 21 STRATEGYZER.COM / VPD / CANVAS / 1.1 Job importance EXERCISE Step into Your Customers’ Shoes Instructions Map the profile of one of your currently existing customer segments to practice using the customer STRATEGYZER.COM / VPD / CANVAS / 1.1 22 OBJECTIVE OUTCOME profile. If you are working on a new idea, sketch out Visualize what matters to your One page actionable customer the customer segment you intend to create value for. customers in a shareable format profile 1. Download the Customer Profile Canvas. How good is your understanding of your customers’ jobs, pains, and gains? Map out a customer profile. 2. Grab a set of small sticky notes. 3. Map out your customer profile. + + + - - 1 2 3 4 5 Select customer Identify customer jobs. Identify customer Identify customer Prioritize jobs, pains, segment. Ask what tasks your pains. gains. and gains. Select a customer customers are trying to What pains do your What outcomes and Order jobs, pains, and segment that you want complete. Map out all of customers have? Write benefits do your custom- gains in a column, each to profile. their jobs by writing each down as many as you ers want to achieve? with the most import- one on an individual can come up with, Write down as many ant jobs, most extreme sticky note. including obstacles and gains as you can come pains, and essential risks. up with. gains on top and the moderate pains and nice-to-have gains at the bottom. Do this exercise online EXERCISE Customer Profile STRATEGYZER.COM / VPD / CANVAS / 1.1 23 Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Download the Customer Profile pdf Best Practices for Mapping Jobs, Pains, and Gains STRATEGYZER.COM / VPD / CANVAS / 1.1 24 Avoid frequently committed mistakes when profiling a customer, and instead follow these best practices. × Common Mistakes Mixing several Mixing jobs and Focusing on functional Listing jobs, pains, and Identifying too few jobs, Being too vague in customer segments outcomes. jobs only and forgetting gains with your value pains, and gains. descriptions of pains social and emotional proposition in mind. into one profile. and gains. jobs. √ Best Practices Make a Value Jobs are the tasks Sometimes social or When you map your A good customer profile Make pains and gains Proposition Canvas for customers are trying to emotional jobs are even customer, you should is full of sticky notes, tangible and concrete. every diferent customer perform, the problems more important than the proceed like an anthro- because most customers Rather than just writing segment. If you sell to they are trying to solve, “visible” functional jobs. pologist and “forget” have a lot of pains and “salary increase” in companies, ask yourself or the needs they are “Looking good in front of what you are ofering. expect or desire a lot of gains, specify how if you have diferent trying to satisfy, whereas others” might be more For example, a business gains. Map out all your much of an increase a types of customers gains are the concrete important than finding a publisher should not (potential) customers’ customer is seeking. within each company outcomes they want to great technical solution map jobs, pains, and important jobs, extreme Rather than writing (e.g., users, buyers). achieve—or avoid and that helps complete the gains merely related to pains, and essential “takes too long” in eliminate in the case of job efectively. books, because a reader gains. pains, indicate how long has the choice between “too long” actually is. business books, consul- This will allow you to tants, YouTube videos, or understand how exactly even completing an MBA customers measure program or training. Go success and failure. pains. beyond the jobs, pains, and gains you intend or hope to address with your value proposition. you might simply put the same ideas in pains and Ask “why” several times until you really understand your customers’ jobs to be done. gains as opposites of each other. For example, Another issue when you get started with the if one of the customers’ jobs to be done is “earn customer profile is that you might settle with more money,” you might start by adding “salary a superficial understanding of your customer’s increase” to gains and “salary decrease” to pains. jobs. To avoid this, you need to ask yourself why When you get started with the customer profile, a customer wants to perform a certain job to dig Here’s a better way to do it: ǃɲ Find out precisely how much more money the deeper toward the real motivations. For example, why might a customer want to customer expects to earn so it feels like a gain learn a foreign language? Maybe because the and investigate what decrease would feel like “real” customer job to be done is to improve his a pain. CV. Why does he want to improve his CV? Maybe ǃɲ In the pains, add the barriers that prevent or make it difficult to get a job done. In our exam- because he wants to earn more money. Don’t settle until you really understand the ple the pain might be “my employer doesn’t underlying jobs to be done that really drive give raises.” customers. ǃɲ In the pains, add the risks related to not getting the job done. In our example the pain could be “might not be able to aford my child’s future college tuition.” 25 STRATEGYZER.COM / VPD / CANVAS / 1.1 Pains vs. Gains 26 .2 Value Map 28 STRATEGYZER.COM / VPD / CANVAS / 1.2 Products and Services Your value proposition is likely to be composed of various types of products and services: Physical/tangible Goods, such as manufactured products. Intangible Products such as copyrights or services such as after-sales assistance. Digital Products such as music downloads or services such as online recommendations. Financial Products such as investment funds and Your list of products and services may also include supporting ones that help your customers perform the roles of buyer (those that help customers compare ofers, decide, and buy), co-creator (those that help customers co-design value propositions), and transferrer (those that help customers dispose of a product). insurances or services such as the financing of a purchase. Relevance It is essential to acknowledge that not all products and services have + Essential the same relevance to your customers. Some products and services are essential to your value proposition; some are merely nice to have. Nice to have - 29 STRATEGYZER.COM / VPD / CANVAS / 1.2 This is simply a list of what you ofer. Think of it as all the items your customers can see in your shop window —metaphorically speaking. It’s an enumeration of all the products and services your value proposition builds on. This bundle of products and services helps your customers complete either functional, social, or emotional jobs or helps them satisfy basic needs. It is crucial to acknowledge that products and services don’t create value alone— only in relationship to a specific customer segment and their jobs, pains, and gains. 30 STRATEGYZER.COM / VPD / CANVAS / 1.2 Pain Relievers The following list of trigger questions can help you Relevance think of diferent ways your products and services A pain reliever can be more or less may help your customers alleviate pains. valuable to the customer. Make sure you diferentiate between essential Ask yourself: Could your products and services… pain relievers and ones that are nice to have. The former relieve ǃɲ produce savings? In terms of time, money, or eforts. ǃɲ make your customers feel better? By killing frus- Great value propositions focus on pains that matter to customers, in particular extreme pains. You don’t need to come up with a pain reliever for every pain you’ve identified in the customer profile—no value proposition can do this. Great value propositions often focus only on few pains that they alleviate extremely well. + Essential extreme issues, often in a radical way, and create a lot of value. The latter merely relieve moderate pains. trations, annoyances, and other things that give customers a headache. ǃɲ fix underperforming solutions? By introducing new features, better performance, or enhanced quality. ǃɲ put an end to difficulties and challenges your customers encounter? By making things easier or eliminating obstacles. ǃɲ wipe out negative social consequences your customers encounter or fear? In terms of loss of face or lost power, trust, or status. ǃɲ eliminate risks your customers fear? In terms of financial, social, technical risks, or things that could potentially go wrong. ǃɲ help your customers better sleep at night? By addressing significant issues, diminishing concerns, or eliminating worries. ǃɲ limit or eradicate common mistakes customers make? By helping them use a solution the right way. ǃɲ eliminate barriers that are keeping your customer from adopting value propositions? Introducing lower or no upfront investment costs, a flatter learning curve, or eliminating other obstacles preventing adoption. Download trigger questions Nice to have - 31 STRATEGYZER.COM / VPD / CANVAS / 1.2 Pain relievers describe how exactly your products and services alleviate specific customer pains. They explicitly outline how you intend to eliminate or reduce some of the things that annoy your customers before, during, or after they are trying to complete a job or that prevent them from doing so. 32 STRATEGYZER.COM / VPD / CANVAS / 1.2 Gain Creators The following list of trigger questions can help fewer investments, lower risk, better quality, services may help your customers obtain improved performance, or better design. 33 required, expected, desired, or unexpected outcomes and benefits. Relevance A gain creator can produce more or Ask yourself: Could your products and services… less relevant outcomes and benefits + Essential for the customer just like we have ǃɲ create savings that please your customers? As with pain relievers, gain creators don’t need to address every gain identified in the customer profile. Focus on those that are relevant to customers and where your products and services can make a diference. ǃɲ help make adoption easier? Through lower cost, you think of diferent ways your products and In terms of time, money, and efort. ǃɲ produce outcomes your customers expect or seen for pain relievers. Make sure you diferentiate between essential and nice to have gain creators. that exceed their expectations? By ofering quality levels, more of something, or less of something. ǃɲ outperform current value propositions and delight your customers? Regarding specific features, performance, or quality. ǃɲ make your customers’ work or life easier? Via better usability, accessibility, more services, or lower cost of ownership. ǃɲ create positive social consequences? By making them look good or producing an increase in power or status. ǃɲ do something specific that customers are looking for? In terms of good design, guarantees, or specific or more features. ǃɲ fulfill a desire customers dream about? By helping them achieve their aspirations or getting relief from a hardship? ǃɲ produce positive outcomes matching your customers’ success and failure criteria? In terms of better performance or lower cost. Download trigger questions Nice to have - STRATEGYZER.COM / VPD / CANVAS / 1.2 Gain creators describe how your products and services create customer gains. They explicitly outline how you intend to produce outcomes and benefits that your customer expects, desires, or would be surprised by, including functional utility, social gains, positive emotions, and cost savings. STRATEGYZER.COM / VPD / CANVAS / 1.2 34 Mapping the Value Proposition of Value Proposition Design Remarkable value propositions focus on jobs, pains, and gains that matter to customers and achieve those exceedingly well. Again, you should not try to address all customer pains and gains. Focus on those that will make a diference for your customer. It’s okay to aggregate several value propositions into one. helps shape ideas helps create proven + products efective + services suite of busipeople want ness tools step-by-step helps undershared instructions stand what language to to get matters to communicate started customers + collaborate Value Proposition Canvas Book exclusive online companion online exercises, tools, templates, community Web app (upsell) online course (upsell) proposition builds on to target a specific customer access to advanced material + knowlege value proposition design minimizes risk of (big) failure “Naked” list of the products and services that your value share with and learn from peers brief, clear, + applicable content softwaresupported methodology enables practice + skills (self-) assessment practical, visual, + enjoyable format integrates with other business methods integrated with Business Model Canvas engaging online multimedia content segment. Pain relievers outline how exactly your products and services kill customer pains. Each pain reliever addresses at least one or more pains or gains. Don’t add products or services here. Gain creators highlight how exactly your products and services help customers achieve gains. Each gain more pains or gains. Don’t add products or services here. Formal Map of how we believe the products and services around this book create value for customers 35 STRATEGYZER.COM / VPD / CANVAS / 1.2 creator addresses at least one or EXERCISE STRATEGYZER.COM / VPD / CANVAS / 1.2 36 Map How Your Products and Services Create Value OBJECTIVE OUTCOME Describe explicitly 1 page map of value how your products creation The Value Map and services create value Instructions Sketch out the value map of one of your existing value propositions. For example, use one that targets the customer segment you profiled in the previous exercise. It’s easier to get started with an existing value proposition. However, if you don’t have one yet, sketch out how you intend to create value with a new idea. We will cover the creation of new value propositions more specifically later on in this book. For now: 1. Grab the customer profile you previously completed. 2. Download the value map. 3. Grab a set of small sticky notes. 4. Map out how you create value for your customers. Download the Value Map pdf Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer EXERCISE + + + - - 1 2 3 4 List products and services. Outline pain relievers. Outline gain creators. Rank by order of importance. List all the products and services of Outline how your products and Explain how your products and Rank products and services, pain your existing value proposition. services currently help customers alle- services currently create expected relievers, and gain creators accord- viate pains by eliminating undesired or desired outcomes and benefits for ing to how essential they are to outcomes, obstacles, or risks. Use one customers. Use one sticky note per customers. sticky note per pain reliever. gain creator. Do this exercise online STRATEGYZER.COM / VPD / CANVAS / 1.2 37 ? STRATEGYZER.COM / VPD / CANVAS / 1.2 38 Pain relievers vs. Gain creators Pain relievers and gain creators both create value What is the diference with the pains and gains in the customer profile? for the customer in diferent ways. The diference Pain relievers and gain creators are distinctly is that the former specifically addresses pains diferent from pains and gains. You have control in the customer profile, while the latter specifi- over the former, whereas you don’t have control cally addresses gains. It is okay if either of them over the latter. You decide (i.e., design) how you addresses pains and gains at the same time. intend to create value by addressing specific jobs, The main goal of these two areas is to make the pains, and gains. You don’t decide over which customer value creation of your products and jobs, pains, and gains the customer has. And no services explicit. value proposition addresses all of a customer’s jobs, pains, and gains. The best ones address those that matter most to customers and do so extremely well. Best Practices for Mapping Value Creation × Common Mistakes List all your products and services Add products and services to the pain Ofer pain relievers and gain creators Make the unrealistic attempt to rather than just those targeted at a reliever and gain creator fields. that have nothing to do with the pains address all customer pains and and gains in the customer profile. gains. specific segment. √ Best Practices Products and services create value Pain relievers and gain creators are Remember that products and services Realize that great value propositions only in relationship to a specific explanations or characteristics that don’t create value in absolute terms. customer segment. List only the make the value creation of your It is always relative to customers’ jobs, ing which jobs, pains, and gains to bundle of products and services that products and services explicit. Exam- pains, and gains. jointly form a value proposition for a ples include “helps save time” and proposition addresses all of them. specific customer segment. “well-designed.” If your value map indicates so, it’s are about making choices regardaddress and which to forgo. No value probably because you’re not honest about all the jobs, pains, and gains that should be in your customer profile. STRATEGYZER.COM / VPD / CANVAS / 1.2 39 40 .3 Fit Customers expect and desire a lot from products and services, yet they also know they can’t have it all. Focus on those gains that matter most to customers and make a diference. STRATEGYZER.COM / VPD / CANVAS / 1.3 42 Fit You achieve fit when customers get excited about your value proposition, which happens when you address important jobs, alleviate extreme pains, and create essential gains that customers care about. As we will explain throughout this book, fit is hard to find and maintain. Striving for fit is the essence of value proposition design. Fi Customers have a lot of pains. No organization can reasonably address all of them. Focus on those headaches that matter most and are insufficiently addressed. Are you addressing essential customer gains? Your customers are the judge, jury, and executioner of your value proposition. They will be merciless if you don’t find fit! Fit Are you addressing extreme customer pains? STRATEGYZER.COM / VPD / CANVAS / 1.3 43 Fit? STRATEGYZER.COM / VPD / CANVAS / 1.3 44 When we designed the value proposition for this book, we strived to address some of the most important jobs, pains, and gains that potential customers have and that are insufficiently addressed by current business book formats. √ helps shape ideas √ Value Proposition Canvas exclusive online companion Check marks signify that products and services relieve pains or create gains and directly address one of the customersˇ jobs, pains, or gains. Web app (upsell) √ √ step-by-step helps undershared instructions stand what language to to get matters to communicate √ started customers + collaborate √ Book √ √ √ √ helps create√ proven + √ share with products efective and learn + services suite of busifrom peers people want ness tools online exer-√ cises, tools, templates, community access to advanced material + knowlege value proposition design practical, visual, + enjoyable format √ online course (upsell) √ minimizes risk of (big) failure brief, clear, + applicable content √ integrates with other business methods integrated √ with Business Model Canvas √ √ softwaresupported methodology √ enables practice + skills (self-) assessment √ √ engaging √ online multimedia content √ clear indicators to measure get progress √ √ leads to recognized leads to √ by team results results can apply (ideally quick (ideally quick with wins) conidence √wins) √ look good buy-in from easy to connect with with help when leadership + understand like-minded colleagues, stuck team √ people boss, clients √ √ applicable helps me √ helps with √ make things leads to ideas communicate promotion or improve skill better my ideas people want pay raise collaboration set + advance clearly √ √ career home run convince concrete value √ improve √others about tips (e.g. to propositions ind, learn, preferred reduce risk) biz book or build apply methods reader a business methods √ √ (generic) √ make √ collaborate too much with others lack of time theory decisions communicate or help them getting stuck with + sell ideas in career or boring √ conidence √ jeopardizing content that's run making √ dealing it “day job” things hard to work with risk + stay well nobody through uncertainty up to date √ wants √ × × × 45 STRATEGYZER.COM / VPD / CANVAS / 1.3 × × × × × × lack of sufficient budget × going down wrong path × × × assess + × reduce risk management “not “translating” getting it” methods to √ wasting time own context √ with ideas no clear path that don't to applying work method Xs show which jobs, pains, and gains the value proposition does not address. EXERCISE STRATEGYZER.COM / VPD / CANVAS / 1.3 46 Check Your Fit OBJECTIVE OUTCOME Verify if you are Connection between addressing what mat- your products and ters to customers services and customer jobs, pains, and gains Do this exercise online 1 Instructions Bring in the Value Proposition Map and Customer Segment Profile you completed earlier. Go through pain relievers and gain creators one by one, and check to see whether they fit a customer job, pain, or gain. Put a check mark on each one that does. EXERCISE 2 Outcome If a pain reliever or gain creator doesn’t fit anything, it may not be creating customer value. Don’t worry if you haven’t checked all pains/ gains—you can’t satisfy them all. Ask yourself, how well does your value proposition really fit your customer? Download the Value Proposition Canvas pdf STRATEGYZER.COM / VPD / CANVAS / 1.3 47 3 Business Model Fit STRATEGYZER.COM / VPD / CANVAS / 1.3 48 Three Kinds of Fit Searching for Fit is the process of designing value propositions around products and services that meet jobs, pains, and gains that customers really care about. Fit between what a company ofers and what customers want is the number one requirement of a successful value proposition. Fit happens in three stages. The first occurs when you identify relevant customer jobs, pains, and gains you believe you can address with your value proposition. The second occurs when customers positively react to your value proposition and it gets traction in the market. The start-up movement calls these problemsolution fit and product-market fit, respectively. The third occurs when you find a business model that is scalable and profitable. Get “Fit” poster 2 Product-Market Fit 1 Problem-Solution Fit In the Market In the Bank 1. Problem-Solution Fit 2. Product-Market Fit 3. Business Model Fit Problem-solution fit takes place when you Product-market fit takes place when you Business model fit takes place when you ǃɲ Have evidence that customers care about ǃɲ Have evidence that your products and services, ǃɲ Have evidence that your value proposition certain jobs, pains, and gains. ǃɲ Designed a value proposition that addresses those jobs, pains, and gains. pain relievers, and gain creators are actually can be embedded in a profitable and scal- creating customer value and getting traction in able business model. the market. A great value proposition without a great At this stage you don’t yet have evidence that During this second phase, you strive to validate or business model may mean suboptimal financial customers actually care about your value invalidate the assumptions underlying your value success or even lead to failure. No value prop- proposition. proposition. You will inevitably learn that many osition—however great—can survive without a of your early ideas simply don’t create customer sound business model. This is when you strive to identify the jobs, pains, and gains that are most relevant to value (i.e., customers don’t care) and will have to customers and design value propositions accord- design new value propositions. Finding this second laborious back and forth between designing a The search for business model fit entails a ingly. You prototype multiple alternative value type of fit is a long and iterative process; it doesn’t value proposition that creates value for custom- propositions to come up with the ones that happen overnight. ers and a business model that creates value produce the best fit. The fit you achieve is not for your organization. You don’t have business yet proven and exists mainly on paper. Your next model fit until you can generate more revenues steps are to provide evidence that customers care with your value proposition than you incur costs about your value proposition or start over with to create and deliver it (or “them” in the case of designing a new one. platform models with more than one interdependent value propositions). 49 STRATEGYZER.COM / VPD / CANVAS / 1.3 On Paper Customer Profiles in B2B +Unbundled STRATEGYZER.COM / VPD / CANVAS / 1.3 50 Value propositions in business-tobusiness (B2B) transactions typically involve several stakeholders in the search, evaluation, purchase, and use of a product or service. Each one has a diferent profile with diferent jobs, pains, and gains. Stakeholders can tilt the purchasing decision in one direction or another. Identify the most important ones and sketch out a Value Proposition Canvas for each one of them. Value propositions to stakeholders within the business Influencers Recommenders Economic buyers Decision makers End users Saboteurs Profiles vary according to the sector and size of organization, but they typically include the following roles: Aggregated Value Proposition Business Segment Organizations are customers that are composed of diferent stakeholders who all have diferent jobs, pains, and gains. Consider making a Value Proposition Canvas for each one. Adapted from Steve Blank, The Four Steps to the Epiphany, 2006. Unbundling the Family Influencers End Users Individuals or groups whose opinions might count The ultimate beneficiaries of a product or service. Value propositions to the consumer may also and whom the decision maker might listen to, For a business customer, end users can either involve several stakeholders in the search, evalu- even in an informal way. be within their own organization (a manufacturer ation, purchase, and use of a product or service. buying software for its designers), or they can be For example, consider a family that intends to Recommenders external customers (a device manufacturer buying buy a game console. In this situation, there is The people carrying out the search and evalua- chips for the smartphones it sells to consumers). also a diference between the economic buyer, tion process and who make a formal recommen- End users may be passive or active, depending the influencer, the decision maker, the users, dation for or against a purchase. on how much say they have in the decision and and the saboteurs. It therefore makes sense to purchase process. sketch out a diferent Value Proposition Canvas Economic Buyers for each stakeholder. The individual or group who controls the budget Saboteurs and who makes the actual purchase. Their The people and groups who can obstruct or derail concerns are typically about financial perfor- the process of searching, evaluating, and purchas- mance and budgetary efficiency. ing a product or a service. In some cases, the economic buyer may sit outside an organization, such as a government Decision makers typically sit inside the customer’s paying for the basic medical supply in nursing organization, whereas Influencers, recommenders, homes for elderly citizens. economic buyers, end users, and saboteurs can sit inside or outside the organization. Decision Makers The person or group ultimately responsible for the choice of a product/service and for ordering the purchase decision. Decision makers usually have ultimate authority over the budget. STRATEGYZER.COM / VPD / CANVAS / 1.3 51 Multiple Fits STRATEGYZER.COM / VPD / CANVAS / 1.3 52 Some business models work only with a combination of several value propositions and customer segments. In these situations, you require fit between each value proposition and its respective customer segment for the business model to work. Intermediary When a business sells a product or service Chinese firm Haier sells home appliances and through an intermediary, it efectively needs to electronics to households globally. It does this cater to two customers: the end customer and largely through retailers such as Carrefour, the intermediary itself. Without a clear value Walmart, and others. To be successful, Haier proposition to the intermediary, the ofer might needs to craft an appealing value proposition not reach the end customer at all, or at least not both to households (the end customer) and to with the same impact. intermediary distributors. Two common illustrations of multiple fits are intermediary and platform business models. Haier Haier has a value proposition to the end customer, households. Haier has a value proposition to their intermediary customer, the retailers, who are also the main channel for the end customer. Platforms STRATEGYZER.COM / VPD / CANVAS / 1.3 53 Airbnb Platforms function only when two or more actors interact and draw value within the same interdependent business model. Platforms are called double-sided when there are two such actors and multisided when there are more than two. A platform exists only when all sides are present in the model. Airbnb is an example of a double-sided platform. It is a website that connects local residents with extra space to rent out and travelers looking for alternatives to hotels as a place to stay. In such a case, the business model needs to hold two value propositions, one for local residents (called hosts) and one for travelers. Stay Rent Going to the Movies Let us walk through the concepts of the Value Proposition Canvas with another simple example. Imagine the owner of a movie theater chain wants to design new value propositions for his customers. He could start with the value proposition’s features and get excited about the latest generation of big screens, state-of-the-art display technologies, tasty snacks, social happenings, urban 54 experiences, and so on. But, of course, those only STRATEGYZER.COM / VPD / CANVAS / 1.3 really matter if customers care about them. So he sets out to better understand what his customers truly want. Traditionally he’d sketch out psychodemographic profiles of his customer segments. But this time he decides to complement this type of What drives the moviegoer? segmentation with customer profiles that highlight a customer’s jobs, pains, and gains. comfortable friends' reviews ? What should the new value proposition look like? organized everything in advance long commute feeling included in the story not having missed something get entertained Tip: A (potential) customer exists independently of share with someone limited options crowded, long queues haven't spent much money your value proposition. relax When you sketch out your customer’s profile, waste of time expensive no convenient story too show times complex learn from another place not able to get babysitter bad parking don’t just focus on escape real life jobs, pains, and gains related to your value proposition. Keep it broad to understand hurts my eyes what really drives your customers. A Movie Theater’s Business Model Key Activities Value Propositions Source movies Movie distributors Run facilities 55 Moviegoers Channels Theaters (good location) Theaters Display equipment Cost Structure Online ticketing Revenue Streams Staf Movie rights Customer Segments Mass market Immersive storytelling experience Key Resources Food distributors Customer Relationships STRATEGYZER.COM / VPD / CANVAS / 1.3 Key Partnerships Food & drinks Rent Ticket sales Food & drinks (margins) The new approach: focusing on the jobs, pains, and gains that drive customers The traditional approach: psychodemographic profiles By sketching out a customer profile, you aim to Traditional psychodemographic profiles group uncover what really drives people, rather than just consumers into categories that have the same describing their socioeconomic characteristics. socioeconomic characteristics. You investigate what they’re trying to achieve, their underlying motives, their objectives, and JANE MOVIEGOER Movie Behavior: what’s holding them back. Doing so will broaden 20-30 years old ǃɲ Prefers action movies your horizon and likely uncover new or better Upper middle class ǃɲ Likes popcorn and soda opportunities to satisfy customers. Earns $100K/year ǃɲ Does not like waiting in Married, 2 children line ǃɲ Buys tickets online ǃɲ Goes once a month Same Customer, Diferent Contexts STRATEGYZER.COM / VPD / CANVAS / 1.3 56 Priorities change depending on a customer’s context. Taking this context into account before you think of a value proposition for that customer is crucial. With the jobs-to-be-done approach, you uncover the motivations of diferent customer segments. Yet, depending on the context, some jobs will become more important or matter less than others. In fact, the context in which a person finds himself or herself often changes the nature of the jobs that the person aims to accomplish. For example, the clientele of a restaurant is likely to use very diferent criteria to evaluate their dining experience at lunch versus at dinner. Likewise a mobile phone user will have diferent job requirements when using the phone in a car, in a meeting, or at home. Hence, the features of your value proposition will be diferent depending on which context(s) you are focusing. In our example, the context in which our moviegoer finds herself will influence which jobs matter more or less to her. Add contextual elements to your customer profiles if necessary. They might serve as constraints for designing value propositions later on. afordable for group 2 hr = right length of time noise in the room safe environment kids are happy and calm manage kids' attention occupy kids relax during busy weekend not all kids are happy leads to great conversation visual story is easy to remember both enjoyed moment share moment of fun connect with each other waiting in line not able to get babysitter not intimate enough accurate story deepen expertise can consult Internet for more info show of lack of light knowledge to take notes can't control with friends speed can't capture and share too shallow for serious learning The kids’ afternoon of Date night Personal research When? Wednesday afternoon When? Saturday evening When? Any time Where? Leaving from home Where? Leaving from home Where? Leaving from home With whom? Kids and maybe their friends With whom? Partner With whom? Alone Constraints? After school, before dinner time Constraints? Kids taken care of (if parents) Constraints? Needs to be able to take notes STRATEGYZER.COM / VPD / CANVAS / 1.3 57 Same Customer, Diferent Solutions In today’s hypercompetitive world, customers are surrounded by an ocean of tempting value propo- STRATEGYZER.COM / VPD / CANVAS / 1.3 58 sitions that all compete for the same limited slots of attention. Very diferent value propositions may address similar jobs, pains, and gains. For example, our movie theater chain competes for customer attention not only with other movie theaters but also with a broad range of alternative options: renting a movie at home, going out to dinner, visiting a spa, or maybe even attending an online virtual art exhibit with 3D glasses. Strive to understand what your customers really care about. Investigate their jobs, pains, and gains beyond what your own value proposition directly addresses in order to imagine totally new or substantially improved ones. Understand your customers beyond your solution. Unearth the jobs, pains, and gains that matter to them in order to understand how to improve your value proposition or invent new ones. home comfort movie website big screen & surround sound movies on big screen largest library movie home rentals control of experience both enjoyed moment ideal for conversation leads to great conversation Open slot for which potentially very diferent dinner in town value propositions are waiting in line competing intimate setting connect with each other not able to get babysitter not intimate enough home comfort ideal for conversation intellectually stimulating spa for couples online visual art exhibit stress relief choose time to go share moment of fun no babysitter needed instant access STRATEGYZER.COM / VPD / CANVAS / 1.3 duo seats 59 instant access advanced online booking STRATEGYZER.COM / VPD / CANVAS / 1.3 60 Lessons Learned Customer Profile Value Map Fit Use the customer profile to visualize what matters to customers. Specify their jobs, pains, and gains. Communicate the profile across your organization as a one-page actionable document that creates a shared customer understanding. Apply it as a “scoreboard” to track if assumed customer jobs, pains, and gains exist when you talk to real customers. Use the value map to make explicit how you believe your products and services will ease pains and create gains. Communicate the map across your organization as a one-page document that creates a shared understanding of how you intend to create value. Apply it as a “scoreboard” to track if your products actually ease pains and gains when you test them with customers. Problem-solution fit: Evidence that customers care about the jobs, pains, and gains you intend to address with your value proposition. Product-market fit: Evidence that customers want your value proposition. Business model fit: Evidence that the business model for your value proposition is scalable and profitable. The Value Proposition Canvas 61 Customer Segment Gain Creators Gains Products & Services Customer Job(s) Pain Relievers Pains strategyzer.com Download the Value Proposition Canvas pdf STRATEGYZER.COM / VPD / CANVAS / 1.3 Value Proposition Design, Test, Repeat STRATEGYZER.COM / VPD / CANVAS / 1.3 62 The search for value propositions that meet customer jobs, pains, and gains is a continuous back and forth between designing prototypes and testing them. The process is iterative rather than sequential. The goal of Value Proposition Design is to test ideas as quickly as possible in order to learn, create better designs, and test again. design test 63 STRATEGYZER.COM / VPD / CANVAS / 1.3 des sign 2 Kick-start value proposition design with Prototyping Possibilities p. 74 for one of your Starting Points p. 86. Shape your value propositions by Understanding Customers p. 104 , then select which ones you want to further explore by Making Choices p. 120 and Finding the Right Business Model p. 142. If you are an existing company, discover the particularities of Designing in Established Organizations p. 158. TION RVA E S OB M FROING T TES S OINT P G TIN STAR TONG TI TES T MEN SS SSE A S ON STI UE 7Q G YPIN T O T PRO ESS L DE MO IN US B ED FAIL Shaping Your Ideas STRATEGYZER.COM / VPD / DESIGN / 2.0 70 Design is the activity of turning your ideas into value proposition prototypes. It is a continuous cycle of prototyping, researching customers, and reshaping your ideas. Design may start with prototyping or with customer discovery. The design activity feeds into the testing activity that we explore in the next chapter (see section 3. Test, → p. 172). Ideas, Starting Points, and Insights Prototype Possibilities Understand Customers → p. 74 → p. 104 → p. 86 Shape your ideas with quick, cheap, and rough Inform your ideas and prototypes with early Starting points for new or improved value prototypes. Make them tangible with napkin customer research. Plough through available data propositions may come from anywhere. It could sketches → p. 80, ad-libs → p. 82, and Value → p. 108, talk to customers → p. 110, and immerse be from your customer insights → p. 116, from Proposition Canvases → p. 84. Don’t get attached yourself in their world → p. 114. Don’t show exploration of prototypes → p. 76, or from many to a prototype too early. Keep your prototypes customers your value proposition prototypes too other sources → p. 88. Be sure not to fall in love light so you can explore possibilities, easily early. Use early research to deeply understand with your early ideas, because they are certain throw them away again, and then find the best your customers’ jobs, pains, and gains. Unearth to transform radically during prototyping → p. 76, ones that survive a rigorous testing process with what really matters to them to prototype value customer research → p. 104, and testing → p. 172. customers → p. 240. propositions that are likely to survive rigorous testing with customers → p. 172. Prototyping Possibilities STRATEGYZER.COM / VPD / DESIGN / 2.0 71 Ideas and Starting Points Understanding Customers 10 Characteristics of Great Value Propositions STRATEGYZER.COM / VPD / DESIGN / 2.0 72 Stop for an instant and reflect on the characteristics of great value propositions before reading about how to design them in this chapter. We ofer 10 characteristics to get you started. Don’t hesitate to add your own. Great Value Propositions… . Get “10 Characteristics of Great Value Propositions” poster 1 2 3 4 5 Are embedded in great business models Focus on the jobs, pains, and gains that matter most to customers Focus on unsatisfied jobs, unresolved pains, and unrealized gains Target few jobs, pains, and gains, but do so extremely well Go beyond functional jobs and address emotional and social jobs STRATEGYZER.COM / VPD / DESIGN / 2.0 73 SCORE 6 7 8 9 Align with how customers measure success Focus on jobs, pains, and gains that a lot of people have or that some will pay a lot of money for Diferentiate from competition on jobs, pains, and gains that customers care about Outperform competition substantially on at least one dimension 10 Are difficult to copy 74 2. Prototyping Possibilities ING TYP O T PRO What’s Prototyping? STRATEGYZER.COM / VPD / DESIGN / 2.1 76 Use the activity of making quick and rough study models of your idea to explore alternatives, shape your value proposition, and find the best opportunities. Prototyping is common in the design professions for physical artifacts. We apply it to the concept of value propositions to rapidly explore possibilities before testing and building real products and services. DEF·I·NI·TION Prototyping Our ______ help(s) ______ who The practice of building quick, inexpensive, and rough study models to learn about the desirability, feasibility, and viability of alternative value propositions and business models. Quickly explore radically diferent directions for the same idea with the following prototyping techniques before refining one in particular. want to _______ by _______ and _______ . ( unlike _______ ) Napkin Sketches Ad-libs → p. 80 → p. 82 Make alternatives tangible with napkin sketches. Use a single sketch for every potential direction your idea could take. Pinpoint how diferent alternatives create value by filling in the blanks in short ad-libs. Tips ǃɲ Spend a maximum of 5 to 15 minutes on sketching out your early prototypes. ǃɲ Always use a visible timer and stick to a predefined time frame. ǃɲ Don’t discuss too long which one of several possible directions to prototype. Prototype an exploratory tool. Don’t spend time on the details of a prototype that is likely to change radically anyway. Value Proposition Canvases → p. 84 Representation of a Value Proposition Minimum Viable Product → p. 222 → p. 234 Flesh out possible directions with the Value Proposition Canvas. Understand which jobs, pains, and gains each alternative is addressing. Help customers and partners understand potential value propositions by bringing them to life without building them. Build a minimum feature set that brings your value proposition to life and allows testing it with customers and partners. More in section 3. Test, → p. 172 77 STRATEGYZER.COM / VPD / DESIGN / 2.1 several of them quickly and then compare. ǃɲ Remember constantly that prototyping is 10 Prototyping Principles STRATEGYZER.COM / VPD / DESIGN / 2.1 78 Unlock the power of prototyping. Resist the temptation of spending time and energy refining one direction only. Rather, use the principles described here to explore multiple directions with the same amount of time and energy. You will learn more and discover better value propositions. Get “10 Prototyping Principles” poster 1 2 3 4 5 Make it visual and tangible. Embrace a beginner’s mind. Feel comfortable in a “liquid state.” Start with low fidelity, iterate, and refine. These kinds of prototypes Prototype “what can’t be Don’t fall in love with first ideas— create alternatives. Early in the process the right Refined prototypes are hard spark conversations and done.” Explore with a fresh Refining your idea(s) too direction is unclear. It’s a to throw away. Keep them learning. Don’t regress into mind-set. Don’t let existing early prevents you from liquid state. Don’t panic and rough, quick, and cheap. the land of blah blah blah. knowledge get in the way creating and exploring alter- solidify things too early. Refine with increasing knowl- of exploration. natives. Don’t fall in love too edge about what works and quickly. what doesn’t. STRATEGYZER.COM / VPD / DESIGN / 2.1 79 6 7 Expose your work early —seek criticism. Use creativity techniques. Create “Shrek models.” Shrek models are extreme or Track learnings, insights, and progress. Seek feedback early and Learn faster by failing early, often, and cheaply. Use creativity techniques outrageous prototypes that Keep track of all your alter- often before refining. Don’t Fear of failure holds people to explore groundbreaking you are unlikely to build. Use native prototypes, learnings, take negative feedback back from exploring. Over- prototypes. Dare to break them to spark debate and and insights. You might use personally. It’s worth gold to come that with a culture of out of how things are usually learning. earlier ideas and insights improve your prototype. rough and quick prototyping done in your company or that keeps failure cheap and industry. leads to faster learning. 8 9 10 later in the process. PROCESS STRATEGYZER.COM / VPD / DESIGN / 2.1 80 Make Ideas Visible with Napkin Sketches OBJECTIVE OUTCOME Quickly visualize ideas for value Alternative prototypes in the form propositions of napkin sketches Napkin sketches are a rough representation of a value proposition or business model and highlight only the core idea, not how it works. They are rough enough to fit on the back of a napkin and still communicate the idea. Use them early in your prototyping process to explore and discuss alternatives. What is a napkin sketch? Napkin sketches are a cheap way to make your ideas more tangible and shareable. They avoid going into the details of how an idea works to steer The best napkin sketches… The Self-Service ___ Shop of ______ our clients get individual components from our shop and assemble the product later on themselves clear of getting hung up with implementation issues. What is it used for? Contain only one core idea or direction (ideas can be merged later). The Private Ba nk of ____ Use napkin sketches to quickly share and evaluate ideas during the early value proposition design process. Their roughness is deliberate so you can throw ideas away without regret and Explain what an idea is about, not how it will work (no processes or business models yet!). explore alternatives. You may also use them to gather early feedback from customers. Caveat Keep things simple enough to get it in a glance (details are for more refined prototypes later on). Make sure people understand that napkin sketches are an exploratory tool. You will kill or transform many of the sketched out ideas during the prototyping and testing process. Can be pitched in 10 to 30 seconds. every one of ou r clients has a personal advisor who of ers tailor-made advice and services Display All napkin sketches are exposed in a sort of PROCESS 4 gallery on the wall. You should now have a nice diversity of alternative directions. Pitch · 30 sec per group 5 One team member of each break-out group takes the stage and pitches the (large) napkin sketches. Dotmocracy · 10–15 min (ideally over a Each pitch should be no longer than 30 seconds— break) just enough to outline what the idea is about, Participants get 10 stickers to vote for their favor- not to explain how it works! Make sure there is ite ideas. They can give all votes to one idea or sufficient diversity across the groups or else send distribute them among several napkin sketches. everybody back to the drawing board. This is not a decision-making mechanism. It is a process that highlights the ideas that participants are most excited about. → p. 138 2 1 Draw · 12–15 min Brainstorm · 15–20 min Participants split into break-out groups, and each 6 Use diferent brainstorming techniques, such as group quickly picks three ideas for three alterna- Prototype trigger questions → p. 15, 17, 31, 33 or “what if” tive value propositions. They draw a napkin sketch Break-out groups continue by sketching out a questions to generate a large quantity of possi- for each one on a flip chart. Making two or three value proposition canvas for the one napkin ble directions for interesting value propositions. sketches increases diversity and reduces the risk sketch out of their three that got most votes. Don’t worry about choice at this stage. Quantity of endless discussions. Potentially redistribute the napkin sketches that is better than quality. These are quick and dirty prototypes that will change inevitably. got most votes among the different groups. 81 STRATEGYZER.COM / VPD / DESIGN / 2.1 3 EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.1 82 Create Possibilities Quickly with Ad-Libs OBJECTIVE OUTCOME Quickly shape potential value Alternative prototypes in the form proposition directions of “pitchable” sentences Ad-libs are a great way to quickly shape alternative directions for your value proposition. They force you to pinpoint how exactly you are going to create value. Prototype three to five diferent directions by filling out the blanks in the ad-lib below. Download the template Our ______ help(s) ______ who products and services customer segment want to _______ by _______ and jobs to be done _______ . ( your own verb (e.g., increasing, enabling) Tip Add at the beginning or end of sentence: your own verb (e.g., reducing, avoiding) unlike _______ ) competing value proposition EXERCISE business professionals book Our ____ help(s) ____ who improve or build a business making stuf nobody wants want to ____ by ______ and clear indicators to measure progress ______ . creating avoiding STRATEGYZER.COM / VPD / DESIGN / 2.1 83 PROCESS 84 OBJECTIVE OUTCOME Sketch explicitly how Alternative prototypes diferent ideas create in the form of Value customer value Proposition Canvases STRATEGYZER.COM / VPD / DESIGN / 2.1 Flesh out Ideas with Value Proposition Canvases Use the Value Proposition Canvas to sketch out quick alternative prototypes, just like you would with napkin sketches or ad-libs. Don’t just work with the canvas to refine final ideas, but use it as an exploratory tool until you find the right direction. PROCESS STRATEGYZER.COM / VPD / DESIGN / 2.1 85 Use a visible timer to constrain the time you spend working on a specific prototype. Keep early prototypes short. Don't be afraid to prototype radical directions, even if you know you are unlikely to pursue them. Explore and learn. 86 2.2 Starting Points S OINT P G TIN STAR Where to Start Zoom out STRATEGYZER.COM / VPD / DESIGN / 2.2 88 Contrary to popular belief, great new value propositions don’t always have to start with the customer. They do, however, always have to end with addressing jobs, pains, or gains that customers care about. Imitate and “import” a pioneering model from another sector or industry? Create value based on a new technology trend or turn a new regulation to your advantage? On this spread we ofer 16 trigger areas to get started with new or improved value propositions. Come up with a new value proposition They start from either the customer, your existing that your competitors can’t copy? value propositions, your business models, your environment, or business models and value propositions from other industries and sectors. Come up with a new value proposition based on a new partnership? Get “Innovation Starting Points” poster Build on your existing activities and resources, including patents, infra- Could you… structure, skills, user base? Dramatically alter your cost structure to lower your prices substantially? Create a new gain creator for a given customer profile? Imagine a new product or service? Create a new pain reliever for a given customer profile? Zoom in Your Business Model Environment new or underserved segment such as the rising middle class in emerging markets? Design a value proposition for a new macroeconomic trend such as rising healthcare costs in the Western hemisphere? Your Current Business Model(s) Leverage your existing relationships and channels to offer customers a new value proposition? Give away your core product for free or increase your prices by a multiple? Your Value Proposition(s) Focus on your customers’ most essential unrealized gain? Uncover a new unsatisfied job? Solve your customers' most extreme unresolved pain? 89 STRATEGYZER.COM / VPD / DESIGN / 2.2 Adapt your value proposition to a PROCESS STRATEGYZER.COM / VPD / DESIGN / 2.2 90 Spark Ideas with Design Constraints Use design constraints to force people to think about innovative value propositions embedded in great business models. We outline five constraints of businesses whose value proposition and business model you can copy into your own arena. Don’t hesitate to come up with other ones. OBJECTIVE OUTCOME Force yourself to think outside Ideas that difer from your “usual” of the box value propositions and business models Trendsetting activities Service + Activity +Subscription Revenues +Service Brand Recurring Revenues Base Product + Consumable Product +Innovative product Trendsetting Fashion conscious Servitization Razor Blade Trendsetter Constraint: Transform from selling a product- Constraint: Create a value proposition composed Constraint: Transform a technology (innovation) based value proposition to a service-based one of a base product and a consumable product that into a fashionable trend. that generates revenues from a subscription generates recurring revenues. model. Swatch conquered the world by turning a Nespresso transformed the sales of espresso plastic watch that could be made cheaply due Hilti shifted from selling machine tools to build- from a transactional business to one with recur- to a reduced number of pieces and innovative ers to leasing fleet management services to ring revenues based on consumable pods for its production technology into a global fashion managers at construction companies. espresso machine. trend. PROCESS STRATEGYZER.COM / VPD / DESIGN / 2.2 91 +Platform Reduced cost structure Low-cost VP New costConscious Customer VP A Customer A VP B Customer B Platform Cost Upsell VP Low-Cost Platform Constraint: Reduce the core value proposition to Constraint: Build a platform model that connects ent working groups if you have the its basic features, target an unserved or under- several actors with a specific value proposition for opportunity to do so. It allows you to served customer segment with a low price and sell each. explore alternatives in parallel. Tips ǃɲ Assign diferent constraints to difer- ǃɲ Use constraints that represent the everything else as an additional value proposition. Airbnb made private homes around the world challenges in your arena, such as Southwest became the largest low-cost airline accessible to travelers by connecting them with free value propositions, decreasing by stripping down the value proposition to its people who seek to rent out their apartments margins, and so on. bare minimum, travel from point A to point B, short term. and ofering low prices. They opened up flying to a new segment. Download Constraint Cards PROCESS 92 OBJECTIVE OUTCOME Broaden horizon and Ideas that build on generate fresh ideas relevant topics and STRATEGYZER.COM / VPD / DESIGN / 2.2 Invite Big Ideas to the Table with Books and Magazines integrate latest trends Use best-selling books and magazines to generate fresh ideas for new and innovative value propositions and business models. It’s a quick and efective way to immerse yourself in various relevant and popular topics and build on current trends. E-retailers Climate change grow in awareness afects Rise of the power consumer behavior “sharing economy” 2 Browse and extract. Mass-collab. Participants browse changes their book and capture how value the best ideas on sticky is created notes. (45 min) Bringing books into a workshop is like inviting the world’s best thinkers to brainstorm. This way you can aford a lot more of them at the same time. 1 Select books. Prepare a series of books and magazines representing a trend, important topic, or big idea Meet and on a large table. Ask exceed the workshop participants to basic needs pick up a book each. of every How the digital Surge of the human being generation ticks maker movement on the planet diferently PROCESS Tips ǃɲ Select books about society, technology, and environment that push participants outside of their comfort zone. ǃɲ Avoid complicated business theories or methods. ǃɲ Mix in YouTube videos of keynote ǃɲ Use napkin sketches to share your value proposition ideas. 3 Share and discuss. Participants share their highlights in groups of four or five people and capture their insights on 5 a board. (20 min) Pitch. Each group shares their alternative value propositions with the other groups. 4 Brainstorm possibilities. Each group generates three new value proposition ideas based on their discussions. (30 min) Download “Big Idea Book List” STRATEGYZER.COM / VPD / DESIGN / 2.2 93 talks by the authors. Push vs. Pull STRATEGYZER.COM / VPD / DESIGN / 2.2 94 The push versus pull debate is a common one. Push indicates that you’re starting the design of your value proposition from a technology or innovation you possess, whereas pull means you’re beginning with a manifest customer job, pain, or gain. These are two common starting points, many of which we outlined previously → p. 88. Consider both as viable options depending on your preferences and context. Key Partnerships Key Activities Technology Push Start from an invention, innovation, or (technological) resource for which you develop a value proposition that addresses a customer job, pain, and gain. In simple terms, this is a solution in search of a problem. Explore value proposition prototypes that are based on your invention, Key Resources innovation, or technological resource with potentially interested customer segments. Design a dedicated value map for each segment until you find problem-solution fit. Read more about the build, measure, learn cycle on → p. 186. technological resources Technology 1. Solution (invention, innovation, technology) Cost Structure learn build FIND A PROBLEM 3. Customer insights jobs, pains, gains measure 2. Value proposition prototype Value Propo si Market 1. Problem (jobs, pains, gains) Customer Relationships Customer Segments learn build FIND A SOLUTION 3. Adjust technology (and resource) needs 2. Value proposition prototype measure Channels Market Pull Start from a manifest customer job, pain, or gain for which you design a Revenue Streams value proposition. In simple terms, this is a problem in search of a solution. Learn what technologies and other resources are required for each value proposition prototype designed to address manifest customer jobs, pains, and gains. Redesign your value map and adjust resources until you find a viable solution to address customer jobs, pains, and gains. More about the build, measure, learn cycle on → p. 186. 95 STRATEGYZER.COM / VPD / DESIGN / 2.2 o sitions EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.2 96 Push: Technology in Search of Jobs, Pains, and Gains OBJECTIVE OUTCOME Practice the Improved skills technology-driven 2 3 ? ? Ideate. Segment. Come up with an idea for a Select a customer segment that could be value proposition using the interested in this value proposition and compressed air energy storage. would be ready to pay for it. The Business Model Canvas Key Partnerships Key Activities Value Propositions approach with no risk Customer Relationships Customer Segments This push exercise starts with the solution Key Resources compressed air energy storage 1 Design. Design a value proposition based on the technology outlined in the press excerpt from the Swiss Federal Institute of Technology in Lausanne (EPFL) by targeting a customer segment that might be interested in adopting this technology. Channels Cost Structure Revenue Streams “Solar and aeolian sources are great candi- EPFL has worked for over ten years on an orig- A spin-of has been created to develop this dates for the electricity generation of the inal storage system: compressed air. The use principle and create ‘turnkey’ electrical energy future… However, solar and wind sources’ of a hydraulic piston delivers the best system storage and retrieval units. In 2014, a 25 kW pilot peak availability takes place at times that do performance… The obtained high pressure will be installed at a photovoltaic park in Jura.… not usually correspond to peak demand hours. air can be safely stored in bottles without losses In the future, there will be 250 kW installations at Therefore, a way must be devised to store and until it is necessary to generate new electricity first and 2,500 kW ones afterwards.” later reuse the energy generated. by expanding the gas in the cylinder. One of the advantages of our system is that it does not require rare materials. ǃɲ Add design constraints to technology push exercises. Your organization might not want to address EXERCISE Tips certain customer segments (e.g., B2B, business-to-consumer [B2C], specific regions, etc.). Or you might for example, licensing rather than building solutions. ǃɲ Follow up on your customer assumptions by researching customers → p. 104 and producing evidence → p. 172 once you’ve 6 selected a potentially interested segment. Assess. Assess the fit between the customer profile ? and the designed value proposition. ? Zoom in ? ? 4 ? Profile. ? Sketch out the customer’s profile. Make assumptions 5 about jobs to be done, Sketch. pains, and gains. Refine the value proposition by sketching out how it will kill customer pains and create gains. The Value Proposition Canvas Continued on → p. 152 97 STRATEGYZER.COM / VPD / DESIGN / 2.2 prefer certain strategic directions, Pull: Identify High-Value Jobs STRATEGYZER.COM / VPD / DESIGN / 2.2 98 Great value proposition creators master the art of focusing on the jobs, pains, and gains that matter. How will you know which of these jobs, pains, and gains to focus on? Identify high-value jobs by asking if they are important, tangible, unsatisfied, and lucrative. High-value jobs are characterized by pains and gains that are… + + Important Tangible When the customer’s success or failure to get When the pains or gains related to a job can be the job done leads to essential gains or extreme felt or experienced immediately or often, not just pains, respectively. days or weeks later. ǃɲ Does failing the job lead to extreme pains? ǃɲ Can you feel the pain? ǃɲ Does failing the job lead to missing out on ǃɲ Can you see the gain? essential gains? + STRATEGYZER.COM / VPD / DESIGN / 2.2 99 = Unsatisfied Lucrative High-value jobs When current value propositions don’t help relieve When many people have the job with related Focus on the highest-value jobs pains or create desired gains in a satisfying way pains and gains or a small number of customers and related pains and gains. or simply don’t exist. are willing to pay a premium. ǃɲ Are there unresolved pains? ǃɲ Are there many with this job, pain, or gain? ǃɲ Are there unrealized gains? ǃɲ Are there few willing to pay a lot? Based on initial work by consultancy, Innosight. EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.2 100 Pull: Job Selection OBJECTIVE OUTCOME Identify high-value Ranking of customer customer jobs that jobs from your you could focus on perspective Customer Profile Synthesized customer profile of a CIO seat at the top management table the customer. Imagine your customers are chief information officers (CIOs) and you have to understand which jobs matter most to them. Do this exercise to prioritize their jobs or apply it to one of your own customer profiles. Tips ǃɲ This exercise helps you prioritize jobs from the customer’s perspective. It doesn’t mean you have to mandatorily address the most important ones in your value proposition; those might be outside your scope. However, make sure your value proposition does address jobs that are highly relevant to customers. ǃɲ Great value proposition creators often focus happy users integrated platforms (mobile, cloud, etc.) security breach infrastructure downtime projects on time and on budget employees following IT policy This pull exercise starts with fully integrated systems ability to provide business-critical information contribution to revenue growth uniied purchasing ability to invest in new systems assure compliance support innovation manage staf satisfy users create value for corporation manage legacy systems getting ired budget cuts antiquated legacy systems updating software mobile gadgets of employees budget overruns of +5 percent compliance breach overlowing requests of IT projects staying up to date with trends manage security design IT strategy manage budget complex IT infrastructure on only few jobs, pains, and gains, but do that extremely well. ǃɲ Complement this exercise with getting customer insights from the field → p. 106 and experiments that produce evidence → p. 216. Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer EXERCISE lead to extreme pains? ǃɲ Can you feel the pain? ǃɲ Can you see the gain? ǃɲ Does failing the job ǃɲ Are there unresolved pains? ǃɲ Are there unrealized lead to missing out on ǃɲ Are there many with this job, pain, or gain? ǃɲ Are there few willing gains? to pay a lot? Lucrative Focus on the highest value jobs and related pains and gains. essential gains? Jobs create value for corporation design IT strategy Important Tangible Unsatisfied ššš š ššš šš =9 šš š šš šš =7 Scoring scale: š (low) to šššš (high) High-value jobs Based on initial work by consultancy, Innosight. 101 STRATEGYZER.COM / VPD / DESIGN / 2.2 ǃɲ Does failing the job Six Ways to Innovate from the Customer Profile You’ve mapped your customer profile. What to do from here? Here are six ways to trigger your next value proposition move. STRATEGYZER.COM / VPD / DESIGN / 2.2 102 Can you… Address more jobs? Switch to a more important job? Go beyond functional jobs? Address a more complete set of jobs, including Help customers do a job that is diferent from Look beyond functional jobs and create new related and ancillary jobs. what most value propositions currently focus on. value by fulfilling important social and emotional With the iPhone, Apple not only reinvented the Hilti, the machine tool manufacturer, understood mobile phone but enabled us to store and play that construction managers needed to keep Mini Cooper created a car that became as music and browse the web on one device. schedules to avoid penalties, not only drill holes. much a means of transport as a statement of Their fleet management solution addressed the identity. jobs. former in addition to the latter. Download trigger questions Help a lot more customers get a job done? Get a job done incrementally better? Help a customer get a job done radically better? Help more people do a job that was otherwise too Help customers better do a job by making a This is the stuf of new market creation, when complex or too expensive. series of microimprovements to an existing value a new value proposition dramatically outper- proposition. forms older ways of helping a customer get a job done. High-end web data storage and computing power used to be reserved to big companies with German engineering and electronics multi- large IT budgets. Amazon.com made it avail- national Bosch improved on a wide range of The first spreadsheet called VisiCalc not only able to companies of any size and budget with features of its circular saw that really mattered introduced a new market for such tools but Amazon Web Services. to customers and outperformed competition. also ushered a whole new realm of possibilities across industries powered by easy, visual calculations. STRATEGYZER.COM / VPD / DESIGN / 2.2 103 104 2.3 Understanding Customers O ION VAT R E BS Six Techniques to Gain Customer Insights STRATEGYZER.COM / VPD / DESIGN / 2.3 106 Understanding the customer’s perspective is crucial to designing great value propositions. Here are six techniques that will get you started. Make sure you use a good mix of these techniques to understand your customers deeply. The Data Detective The Journalist The Anthropologist Build on existing work with (desk) research. Sec- Talk to (potential) customers as an easy way to Observe (potential) customers in the real world ondary research reports and customer data you gain customer insights. It’s a well-established to get good insights into how they really be- might already have provide a great foundation practice. However, customers might tell you one have. Study which jobs they focus on and how for getting started. Look also at data outside thing in an interview but behave diferently in the they get them done. Note which pains upset your industry and study analogs, opposites, or real world. them and which gains they aim to achieve. adjacencies. Difficulty level: ★★ Difficulty level: ★★★ Difficulty level: ★ Strength: quick and cheap to get started with first Strength: data provide unbiased view and allow Strength: great foundation for further research learnings and insights discovering real-world behavior Weakness: static data from a diferent context Weakness: customers don’t always know what Weakness: difficult to gain customer insights → p. 108 for more they want and actual behavior difers from inter- related to new ideas view answers → p. 114 for more → p. 110 for more STRATEGYZER.COM / VPD / DESIGN / 2.3 107 The Impersonator The Cocreator The Scientist “Be your customer” and actively use products and Integrate customers into the process of value Get customers to participate (knowingly or services. Spend a day or more in your customer’s creation to learn with them. Work with customers unknowingly) in an experiment. Learn from the shoes. Draw from your experience as an (unsatis- to explore and develop new ideas. outcome. fied) customer. Difficulty level: ★★★★★ Difficulty level: ★★★★ Difficulty level: ★★ Strength: the proximity with customers can help Strength: provides fact-based insights on Strength: firsthand experience of jobs, pains, and you gain deep insights real-world behavior; works particularly well for gains Weakness: may not be generalized to all custom- new ideas Weakness: not always representative of your real ers and segments Weakness: can be hard to apply in existing customer or possible to apply organizations because of strict (customer) policies and guidelines → p. 216 for more The Data Detective: Get Started with Existing Information Never before have creators had more access to readily available information and data inside and outside their companies before even getting started with designing value. Use available data sources as a launching pad to getting started with customer insights. STRATEGYZER.COM / VPD / DESIGN / 2.3 108 Google Trends senting three diferent trends related Government Census Data, World Bank, IMF, and more to your idea. Identify the (government) data that Compare three search terms repre- are relevant to your idea and at your fingertips via the web. Google Keyword Planner Third-Party Research Reports Learn what’s popular with potential Identify three readily available customers by finding the top five research reports that can serve you search terms related to your idea. as a starting point to prepare your How often are they searched for? own customer and value proposition research. Social Media Analytics Existing companies and brands should: ǃɲ Identify the shakers and movers related to their brand on social media? mentioned positive and negative things said about them on social media. Customer Relationship Management (CRM) ǃɲ List the top three questions, complaints, and requests that you are getting from your daily interactions with customers (e.g., support). Tracking Customers on Your Website ǃɲ List the top three ways customers reach your site (e.g., search, referrals). ǃɲ Find the 10 most and least popular destinations on your website. Data Mining Existing company should mine their data to: ǃɲ Identify three patterns that could be useful to their new idea. Source: Siegel & Davenport, Predictive Analytics: The Power to Predict Who Will Click, Buy, Lie, or Die, 2013. 109 STRATEGYZER.COM / VPD / DESIGN / 2.3 ǃɲ Spot the 10 most frequently EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.3 110 The Journalist: Interview Your Customers OBJECTIVE OUTCOME Gain a better customer First lightly validated customer understanding profile(s) 2 Create an interview outline. Talk to customers to gain insights relevant to your context. Use the Value Proposition Canvas to prepare interviews and organize the chaotic mass of information that will be coming at you during the interview process. Ask yourself what you want to learn. Derive the interview questions from your customer profile. Ask about the most important jobs, pains, and gains. 10 1 Create a customer profile. 5 Sketch out the jobs, Review the interview. pains, and gains you Assess if you need to believe characterize review the interview the customer you are questions based on targeting. Rank jobs, what you learned. pains, and gains in order of importance. insights from all the interviews. 3 7 Conduct the interview. Synthesize. Conduct the inter- Make a separate view by following the synthesized customer interview ground rules profile for every outlined on the next customer segment page. that emerges from all your interviews. Write down your most important insights on sticky notes. x 4 6 Capture. Search for patterns. Map out the jobs, Make sure you also Can you discover Why are they similar pains, and gains you capture business similar jobs, pains, or diferent? Can learned about in the model learnings. and gains? What you detect specific interview on an empty Write down your most stands out? What is (recurring) contexts customer profile. important insights. similar or diferent that influence jobs, among interviewees? pains, and gains? EXERCISE Capture your biggest 111 STRATEGYZER.COM / VPD / DESIGN / 2.3 Tip Ground Rules for Interviewing STRATEGYZER.COM / VPD / DESIGN / 2.3 112 Rule 1 It is an art to conduct good interviews that provide relevant insights for value proposition design. Make sure you focus on unearthing what matters to (potential) customers rather than trying to pitch them solutions. Follow the rules on this spread to conduct great interviews. Adopt a beginner’s mind. Listen with a “fresh pair of ears” and avoid interpretation. Explore unexpected jobs, pains, and gains in particular. Rule 2 Listen more than you talk. Your goal is to listen and learn, not to inform, Get “Ground Rules for Interviewing” poster impress, or convince your customer of anything. Avoid wasting time talking about your own beliefs, because it’s at the expense of learning about your customer. Rule 3 Get facts, not opinions. Don’t ask, “Would you…?” Ask, “When is the last time you have…?” Rule 4 Ask “why” to get real motivations. Ask, “Why do you need to do…?” Ask, “Why is ___ important to you?” Ask, “Why is ___ such a pain?” Rule 5 The goal of customer insight interviews is not selling (even if a sale is involved); it’s about learning. Tips ǃɲ Interviews are an excellent starting point to learn from customers, but typically they don’t Don’t ask, “Would you buy our solution?” Ask provide enough or sufficiently reliable insights “what are your decision criteria when you make a for making critical decisions. Complement your purchase of…?” interviews with other research, just like a good journalist does further research to find the real Rule 6 Don’t mention solutions (i.e., your prototype value proposition) too early. story behind what people tell. Add real-world observations of customers and experiments that produce hard data to your research mix. ǃɲ Conduct interviews in teams of two people. Don’t explain, “Our solution does…” Decide in advance who will lead the interview Ask, “What are the most important things you are and who will take notes. Use a recording device struggling with?” (photo, video, or other) if possible, but be aware that interviewees might not answer the same Rule 7 way with a recording device on the table. Follow up. Get permission to keep your interviewee’s contact information to come back for more questions and answers or testing prototypes. Rule 8 Always open doors at the end. Ask, “Who else should I talk to?” Fitzpatrick, The Mom Test, 2013. STRATEGYZER.COM / VPD / DESIGN / 2.3 113 The Anthropologist: Dive into Your Customer’s World Dive deep into your (potential) customers’ worlds to gain insights about their jobs, pains, and gains. What customers do on a daily basis in their real settings often difers from what they believe they do or what they will tell you in an interview, survey, or focus group. STRATEGYZER.COM / VPD / DESIGN / 2.3 114 B2C: Stay with the family. B2C: Observe shopping behavior. Stay at one of your potential customers’ home for Go to a store where your (potential) customers several days and live with the family. Participate in shop and observe people for 10 hours. Watch. daily routines. Learn about what drives that person. Can you detect any patterns? B2B: Work alongside/consult. B2C: Shadow your customer for a day. Spend time working with or alongside a (potential) customer (e.g., in a consulting engagement). Observe. What keeps the person up at night? Be your (potential) customer’s shadow and follow him B2B/B2C? or her for a day. Write down all the jobs, pains, and How could you immerse yourself in your (potential) gains you observe. Time stamp them. Synthesize. customer’s life? Be creative! Go beyond the usual Learn. boundaries. Time Activity (what I see) Notes (what I think) 7 pm brush kid's teeth before bed parents annoyed by water splashing everywhere EXERCISE A Day in the Life Worksheet 115 OBJECTIVE STRATEGYZER.COM / VPD / DESIGN / 2.3 Understand your customer’s world in more detail OUTCOME Map of your customer's day Capture the most important jobs, pains, and gains of the customer you shadowed. Tips ǃɲ Observe and take notes. Hold back with interpretation based on your own experience. Stay nonjudgmental! Work like an anthropologist and watch with “fresh” eyes and an open mind-set. ǃɲ Pay attention to both what you see and what you don't see. ǃɲ Capture not only what you can observe but also what is not talked about such as feelings or emotions. ǃɲ Develop customer empathy as a critical mind-set to perform this type of contextual inquiry efectively. Download “A Day in the Life” worksheet PROCESS Identify Patterns in Customer Research OBJECTIVE OUTCOME Crystallize your customer Synthesized Customer Profile(s) STRATEGYZER.COM / VPD / DESIGN / 2.3 116 Analyze your data and try to detect patterns once you have a good amount of customer research gathered. Search for customers with similar jobs, pains, or gains or customers that care about the same jobs, pains, or gains and make separate customer profiles. 4 3 Design. Get started with prototyping value propositions Synthesize. after finishing your first 2 Synthesize the profiles attempt at customer from each segment segmentation. Design 1 Group and segment. into a single master one or more value prop- Group similar customer profile. Identify the most osition prototypes with Display. profiles in to one or more common jobs, pains, and confidence, based on the Display all the customer separate segments if you gains and use separate newly identified patterns profiles from your can identify patterns in labels to describe them in the master profile. research on a large wall. the jobs, pains, and gains. in the master profile. PROCESS Synthesis Example: Master profile of a business professional / book reader To establish a master profile of book readers, we looked at the jobs, pains, and gains of the diferent customer profiles from our interviews. We synthesized the 117 grow business Tips ǃɲ Pay special attention to outlier profiles. They might be irrelevant, but they could represent a special create new business line learning opportunity. Sometimes the best discoveries lie at the edges. ǃɲ Ask yourself if an outlier might be improve or build a business open source online icon library lack of time grow by 5 percent annually in master profile no time limited amount of time a bellwether and a sign of things to come that you should pay attention to. Or maybe an outlier is diferent increase our product portfolio Outlier not retained lack of time because of job renovate our business takes a lot of time to learn Mentioned several times by positive deviance. It may simply be a better solution to jobs, pains, and gains than peers ofer. STRATEGYZER.COM / VPD / DESIGN / 2.3 most frequent ones into the master profile by using representative labels. Find Your Earlyvangelist 5 Has or can acquire a budget. The customer has committed or can quickly acquire a budget to STRATEGYZER.COM / VPD / DESIGN / 2.3 118 Pay attention to earlyvangelists when researching potential customers and looking for patterns. The term was coined by Steve Blank* to describe customers who are willing and able to take a risk on a new product or service. Use earlyvangelists to build a foothold market and shape your value propositions via experimentation and learning. purchase a solution. 4 Has put together solution out of piece parts. The job is so important that the customer has cobbled together an interim solution. HE LP 3 Is actively looking for a solution. The customer is searching for a solution and has a timetable for finding it. 2 Is aware of having a problem. The customer understands that there is a problem or job. 1 Has a problem or need. In other words, there is a job to be done. ! HELP ! STRATEGYZER.COM / VPD / DESIGN / 2.3 119 Steve Blank, Bob Dorf, The Start-up Owner's Manual, 2012. 120 2.4 Making Choices TONG TI S E T ENT SM SES AS STI UE 7Q S ON SS E SIN L DE MO BU ED FAIL EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.4 122 10 Questions to Assess Your Value Proposition OBJECTIVE OUTCOME Unearth potential to improve your Value proposition assessment value proposition Use the 10 questions of great value propositions we presented previously to constantly assess the design of your value propositions. Draw on them to integrate your customer insights. Integrate them when you decide which prototypes to explore further and test with customers. Do this exercise online 1 2 Is it embedded in a great business model? Does it focus on the most important jobs, most extreme pains, and most essential gains? 3 Does it focus on unsatisfied jobs, unresolved pains, and unrealized gains? 4 Does it concentrate on only a few pain relievers and gain creators but does those extremely well? 5 Does it address functional, emotional, and social jobs all together? EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.4 123 6 7 8 9 Does it align with how customers measure success? Does it focus on jobs, pains, or gains that a large number of customers have or for which a small number are willing to pay a lot of money? Does it diferentiate from competition in a meaningful way? Does it outperform competition substantially on at least one dimension? 10 Is it difficult to copy? PROCESS STRATEGYZER.COM / VPD / DESIGN / 2.4 124 Simulate the Voice of the Customer OBJECTIVE OUTCOME Stress-test your value proposition More robust value proposition “in the meeting room” before validating it “in the market” Use role-playing to bring the voice of the customer and other stakeholder perspectives “into the room” long before you test your value propositions in the real world. The success of your value proposition typically depends on a number of key Two workshop partic- stakeholders. Customers are the obvious one, but there are many others ipants engage in a (e.g., stakeholders inside your company). Pick the most important ones, and role-playing game organize role-plays to stress test your value proposition from the perspective in which one person of these stakeholders. plays a company sales rep and the other, a stakeholder, for example, the Tips customer. A third ǃɲ Make sure you choose the person who plays person takes notes. the stakeholder wisely. Who best represents the voice of the customer? Is it sales, customer support, field engineering, or somebody else who is close to the buyer? ǃɲ Role-plays don’t replace testing your value propositions in the real world with customers and stakeholders, but they help evolve your ideas by taking a stakeholder’s perspective into consideration. ǃɲ Role-plays can be an efective way to bring in the voice of the customer after you intensively analyzed customer behavior. The salesperson PROCESS The note taker Customers Strategic partners Take the customers’ point of view and Your value proposition may rely focus on customer jobs, pains, and on the collaboration with strategic gains and competing value proposi- partners. Are you ofering them tions. In a B2B context think of end value? users, influencers, economic buyers, decision makers, and saboteurs. Government officials What role does the government Chief executive officer (CEO), senior leaders, and board members play? Is it an enabler or a barrier? Take the company leadership’s point Will they support or resist your of view (e.g., CEO, chief financial ideas? Investors/shareholders officer [CFO], chief operations officer [COO]). Give feedback from the Local community perspective of the company’s vision, Are they afected by your ideas? direction, and strategy. The planet! Other internal stakeholders What efect does your value proposi- Who else's buy-in in the company do tion have on the environment? you need for your idea to succeed? Does production play a role? Do you need to convince sales or marketing? The (critical) customer STRATEGYZER.COM / VPD / DESIGN / 2.4 125 Quickly evaluate your ideas with role-playing by simulating the voices of key players. Understand the Context STRATEGYZER.COM / VPD / DESIGN / 2.4 126 Value propositions and business models are always designed in a context. Zoom out from your models to map the environment in which you are designing and making choices about the prototypes to pursue. The environment is made up of competition, technology change, legal constraints, changing customer desires, and other elements. Learn more with the illustration on this spread or read more in Business Model Generation. Zoom out Participatory TV Imagine you are a player in the movie Key Trends industry. So far, you have been making Key trends shaping your space, such movies and TV series with leading competitors, value chain actors, as technology innovations, regulatory actors for cinema and home viewers technology providers, and more constraints, social trends, and more globally. But you’d like to explore new Market Forces avenues. Industry Forces Key actors in your space, such as Macroeconomic Forces Macro trends, such as global market Key customer issues in your space, There is one idea that your inno- conditions, access to resources, such as growing segments; customer vation teams want to explore more commodities prices, and more switching costs; changing jobs, pains, closely: participatory TV—enabling and gains; and more viewers to crowdsource the plot of a Zoom in Osterwalder & Pigneur, Business Model Generation, 2010. TV series. Illustration: Participatory TV Sketch out your environment and ask which elements look like… Social media is a ǃɲ an opportunity that strengthens the case channel for passionate powerful marketing ǃɲ a threat or a constraint that undermines or limits it (in red) viewers. Integration of TV + - and web will enable User-generated high-engagement content is less prone experiences. to piracy. + + - Democratization of distribution Web tools make it Size doesn’t matter easier for anyone to anymore—anybody participate. can get access to + - millions of users. Connected TV + www 127 Piracy Piracy is on the rise. - Democratization of production Platform idelity User-led content can be a disruptor It is difficult to get viewers to leave established platforms such as Netflix or Apple. to professionally produced content. - Gaming industry Actors in the gaming Subscription pricing + Web generation The generation of industry might be + better equipped to Pricing models that with the Internet succeed with a partici- produce recurring participates online on a daily basis. patory value Cost of talent revenues (subscription) proposition. is dropping. fit well with a commu- + nity of cocreators. Cost of star talent users who grew up STRATEGYZER.COM / VPD / DESIGN / 2.4 for your value proposition (in green) Value Proposition Design vs. Competitors STRATEGYZER.COM / VPD / DESIGN / 2.4 128 Value Proposition (VP) Design Let’s focus on one element of your design and decision making environment: your competitors. Assess how your value proposition performs against those of your competition by comparing them on a Strategy Canvas, a graphical tool from the Blue Ocean Strategy book. This is a simple but powerful way to visualize and compare how the “benefits” of your value proposition perform. Value Proposition Canvas helps create products + services people want helps understand what matters to customers shared language to communicate + collaborate book exclusive online companion On this spread we compare the performance of Value Proposition Design to the performance of executive education and massive open online courses (so-called MOOCs). We do so by drawing a Strategy Canvas with a number of competitive factors on the x-axis and then plot how the diferent competitors perform on each one of these factors. We selected the competitive factors from our value map and complemented them with elements from our competitors’ value maps. online exercises, tools, templates, community minimizes risk of (big) failure integrates with other business methods practical, visual, + enjoyable format Select the most important features from your VP to use on the Strategy Canvas as factors of competition. Exec Ed MOOCs large choice networking exec ed classroom course material Kim & Mauborgne, Blue Ocean Strategy, 2005. live practice online curriculum video = edutainment certiicates reputation/ brand easy nav/ search free Strategy Canvas Value proposition of this book vs. executive education vs. MOOCs as compared with each other VP Design compares well to MOOCs and executive education. Factors of competition helps create products + services people want helps understand what matters to customers creates shared language to communicate minimizes risk of (big) failure integrates with other business methods practical, visual, + enjoyable format reputation/ brand free STRATEGYZER.COM / VPD / DESIGN / 2.4 129 EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.4 130 Compare Your Value Proposition with Competitors 2 3 Score your value proposition. Select factors of competition. Draw a vertical axis (y-axis) to repre- OBJECTIVE OUTCOME Draw a horizontal axis (x-axis). Pick sent the performance of a value prop- Understand how you Visual comparison the pain relievers and gain creators osition. Add a scale from low to high are performing com- with competitors you want to compare with competi- or from 0 to 10. Plot how your value tion. Place them on the axis. These proposition performs on each factor of pared to others Use the Strategy Canvas from the Blue Ocean Strategy book to plot the performance of your value proposition against those of your competitors. Then compare the curves to assess how you are diferentiating. Instructions Draw a Strategy Canvas step by step and compare your value proposition with those of your competitors. 1. Prepare or pick a value map for this exercise. 2. Grab a big sheet of paper or use a whiteboard. 3. Follow the steps. 1 Select a value proposition. Select the value proposition (prototype) you want to compare. are the factors of competition of your competition on the x-axis (i.e., the pain Strategy Canvas. relievers and gain creators you chose). Tip You can also add pains and gains if you feel like they better describe important factors of competition. EXERCISE 6 Analyze your sweet spot. Analyze the curves and uncover opportunities. Ask yourself if and 5 how you are diferentiating from 4 Score competing value propositions. proposition. Add competing value propositions. Plot how competing value propositions Tip Add competing value propositions to perform, just as you did for your own. Make sure the factors of competi- the Strategy Canvas. Choose those that competitors with your value tion that you compare align with are most representative of the compe- Tip the top jobs, pains, and gains in tition out there. Add pain relievers and Use this tool to compare the perfor- the customer profile. Normally that gain creators from their value proposi- mance of alternative value propositions should be the case, because pain tion to the factors of competition on the you might be considering. relievers and gain creators are x-axis if necessary. designed to match relevant jobs, pains, and gains. Tip Consider competing value propositions beyond traditional industry boundaries. Don’t just compare value propositions based on products and services that are similar to yours. STRATEGYZER.COM / VPD / DESIGN / 2.4 131 Avoid Cognitive Murder to Get Better Feedback Present your value proposition to others to gather feedback, get buy-in, and complement the more “analytical assessment” that we looked at up to this STRATEGYZER.COM / VPD / DESIGN / 2.4 132 point and the experiments we will study in the testing chapter. Make sure you get the best from presenting your ideas by explaining them with disarming simplicity and coherence. It would be a waste of time and resources to put all your energy into designing remarkable value propositions Use low-fidelity prototypes to make your ideas tangible. only to fail to present them in a convincing way when it matters. Presenting your ideas and canvases in a clear and tangible way is critical throughout the design process. Present early and rough prototypes before refining to get buy-in from diferent stakeholders. Only work on more refined presentations later in the design process. One of the most important aspects of presenting value propositions is to convey messages with customer jobs, pains, and gains in mind. Never just pitch features; instead, think about how your value proposition helps get important jobs done, kills extreme pains, and creates essential gains. Best Practices for Presenters √ DOS × DON’TS Simple Complex Tangible Abstract Presenting only what matters Presenting all you know Customer-centric Feature-centric 1 piece of info after the other All information at once The right media support No visual support Storyline Random flow of information Always refer back to customer jobs, pains, and gains in your presentation. Make sure listeners were Canvases to be implemented given at least a short introduction to the canvas. 2. Begin your presentation wherever it makes most High-fidelity prototypes Testing data sense. You can start with products or with jobs. Customer interviews and videos 3. Put up one sticky note after the other progressively to Tested Canvases explain your value proposition so your audience doesn’t experience cognitive murder. Untested Canvases Synchronize what you say and what you put up. Tell a story of value creation by connecting products and Low-fidelity prototypes (e.g., product box) services with customer jobs, pains, and gains. Napkin sketches What to present and when Present diferent types of prototypes depending on how far you are into the design and testing process. 133 STRATEGYZER.COM / VPD / DESIGN / 2.4 1. Start with an empty canvas. Master the Art of Critique Practice the art of feedback to help ideas evolve rather than stall. This goes for feedback receivers who present ideas, as well as for feedback providers who give input on ideas. Learn from the design professions, where people are trained to present STRATEGYZER.COM / VPD / DESIGN / 2.4 134 ideas early and feedback providers are trained to provide efective design In a great feedback culture… critiques. This contrasts with feedback providers in business who are often leaders in steering boards or advisory committees. They are trained to decide rather than to give feedback. If they cannot get to decisions fast, they often get nervous or become unsatisfied. Teach feedback providers how to help ideas evolve (rather than to decide on them). Get them to understand that value proposition prototypes are still rough and evolving during the design and testing phase. Prototypes may radically change, in particular based on market facts that matter more than the opinion of feedback providers. Teach feedback receivers that feedback providers are not as important as People feel comfortable presenting (bold) new ideas early, knowing that they will evolve substantially, maybe into something very diferent. customers, however powerful they might be. Listening to feedback providers more than to customers and market facts only postpones failure. Present early. Get “Master the Art of Critique” poster Distinguish between Three Types of Feedback + - OPINION Logical reasoning can help It can lead to pursuing pet improve ideas. ideas of people with more “If we added ___I believe we’d have a better chance to make it work.” power. EXPERIENCE (MARKET) FACTS “When we did ___ in our last project, we learned that…” Past experiences provide Failing to realize that valuable learning that can diferent contexts lead to help prevent costly mistakes. diferent results. “We interviewed people about this and learned that ___ percent This provides input that Measuring the wrong data struggled with…” reduces uncertainty and or simply bad data can lead (market) risk. to missing out on a big opportunity. Leaders and decision makers are trained to give feedback on early ideas to help them evolve. They know their opinion can be trumped by market facts and they’re comfortable with that. × Don’t judge. Don’t × STRATEGYZER.COM / VPD / DESIGN / 2.4 135 √ √ Listen. Evolve ideas. Shoot people Present only Have long, Allow for prolif- Create a Create nega- Foster culture in Just ask down for refined ideas to unstructured, eration of pure context that tive vibes that which feedback “why?” presenting new leadership and free-flowing, opinion. enables politics destroy positive destroys big (bold) ideas. decision makers. time-consuming and personal creative energy. ideas because discussions. agendas to they’re hard to supersede value implement. creation. Do √ Create a safe Foster a culture Run facilitated, Provide feed- Encourage Bring in fun and Draw a distinc- Ask, “Why environment in of early feed- structured feed- back based on a customer- productive feed- tion between not?” “What which people back on rapidly back processes. experience or centered back processes. hard to do and if?” and “What feel comfortable evolving ideas. (market) facts. feedback culture worth doing. else?” to present (bold) that neutralizes ideas. politics. PROCESS STRATEGYZER.COM / VPD / DESIGN / 2.4 136 Collect Efficient Feedback with de Bono’s Thinking Hats Collect feedback on ideas, value propositions, and business models using Edward de Bono’s thinking hats. This method is very efective—especially in large groups—and helps you avoid losing time in endless discussions. OBJECTIVE OUTCOME Collect feedback efectively and Understanding of what’s good or avoid lengthy discussions bad about ideas and how they can be improved Workshop participants put on a metaphorical colored hat that symbolizes a certain type of thinking. This technique allows you to quickly collect diferent types of feedback and avoid having an idea shot down for purely political reasons. Use four of de Bono’s six thinking hats to gather feedback. 1 2 3a Pitch White hat Black hat 3b 3–15 min depending on stage of idea Information and data; neutral and objective Difficulties, weaknesses, dangers; spotting the risks The design team presents their idea and value 2–5 min depending on stage of idea 1 min to write down 3 min to collect feedback proposition and/or Business Model Canvas. “Audience” members ask clarifying questions to Participants write down The facilitator rapidly fully understand the idea. why it’s a bad idea on collects one feedback a sticky note. after the other on a flip chart, while participants read it out loud. PROCESS Tips ǃɲ This exercise requires strong facilitation skills. Make sure people don’t voice opinions when it’s time for the white hat to ask clarifying questions. ǃɲ Make sure that regardless of whether people hate or love an idea, everybody puts on all hats, white, black, yellow, and green. 137 neutralize extremely negative people. Once they voiced their feedback, they might even think positively. ǃɲ De Bono’s Thinking Hats also works well in small groups or individually to help people come up with all the reasons why an idea might fail or succeed. 5 6 Yellow hat 4a 4b Green hat Evolve Positives, plus points; why an idea is useful Ideas, alternative, possibilities; The presenting team evolves their idea equipped with 1 min to write down 3 min to collect feedback solutions to black hat problems the white, black, yellow, and green hat feedback. Participants write down The facilitator rapidly 5–15 min of open discussion why it’s a good idea on collects one feedback The floor is opened to discussion. Participants a sticky note. after the other on a flip bring in suggestions regarding how to evolve the chart, while partici- ideas that were presented. pants read it out loud. Edward de Bono, Six Thinking Hats,1985. STRATEGYZER.COM / VPD / DESIGN / 2.4 ǃɲ Use the black hat before the yellow hat to PROCESS STRATEGYZER.COM / VPD / DESIGN / 2.4 138 Vote Visually with Dotmocracy OBJECTIVE OUTCOME Visualize the preferences of a group Quick selection of ideas and avoid lengthy discussions Use Dotmocracy to quickly visualize the preferences of a group, in particular in large workshop settings. This is a simple and speedy technique to prioritize among diferent value propositions and business model options. It helps to prevent lengthy discussions. 3 Criteria. The voting criteria are 2 defined. For example, Stickers. instructed to place a Each workshop partic- sticker on their favorite ipant gets the same ideas. 1 number of stickers (e.g., Idea gallery. counts as one vote. participants may be 10), and each sticker Ideas or canvases are exposed on a wall as a gallery of options. 5 Count. 4 Stickers are counted, Vote. are highlighted. Participants can put all their stickers on one idea or distribute them across several ideas. and preferred ideas PROCESS Value Propositions IDEAS GROWTH RISK Multicriteria Use a table when you want to use several criteria to select among alternative value propositions Free and business models. Partnership with Supplier Dotmocracy is used to select ideas based on Emerging Markets Push internal criteria, such as growth potential, risk, and diferentiation potential. Apply this technique during the design process to choose among Sustainability Focused several alternatives before you test them in the real world. STRATEGYZER.COM / VPD / DESIGN / 2.4 139 PROCESS Define Criteria and Select Prototypes OBJECTIVE OUTCOME Select among a range of alternatives Ranking of prototypes Competition and Environment How the idea allows the company to position itself related to the competition Provides Fits with tech Allows competitive and other diferentiaadvantage trends tion STRATEGYZER.COM / VPD / DESIGN / 2.4 140 Decide which criteria are most important to you and your organization and select value propositions and business models accordingly during the design process. You need to prioritize among (hopefully attractive) alternatives, even if your customer is the final judge of your ideas later on in the process. Relation to Current Business Model How the idea builds or doesn't build on the current business model Use the following themes and criteria as Fit with brand Fits current business model Builds on strengths Plugs weaknesses an input for your own selection criteria. Fit with Strategy How the idea fits with the overall direction Disrupts current cash cows of the company A A B D B C Financials and Growth D Aligns with strategy Good timing Fits with desired risk level What potential each idea has related to growth and financials C Can replace outdated business models Revenue potential Market size Market growth 1 Fit with Customer Insights Implementation Criteria How the idea relates to the first customer How difficult it is to implement the idea from Brainstorm criteria. insights gained during first market research design to market Margins Come up with as many criteria as you can to assess the attractive- Important job No good solution exists Visible and tangible pain Time to market Cost to build Do we have right team and skills ness of your prototypes. Strong customer evidence Technology risk Risk of Implementamanagement tion risk resistance Access to target customers A Select criteria. are most important for your team and A C D D C organization. 141 Prototype A: 36 Criteria Prototype B: 32 Prototype C: 12 A Prototype D: 42 Allows diferentiation D Builds on strengths 4 Market growth Evolve prototype and explore with market. Evolve your prototype (e.g., based on the scores it got), and test it 3 Score prototypes (0 [low] – 10 [high]). A A D Score each idea on the criteria you chose. B C B in the market to learn if C D it really has potential. B C D STRATEGYZER.COM / VPD / DESIGN / 2.4 Select the criteria that B B PROCESS 2 142 2.5 Finding the Right Business Model T MEN ESS ASS TONG TI TES S ON STI UE 7Q ESS L DE MO SIN BU G PIN OTY T O PR ED FAIL Create Value for Your Customer and Your Business STRATEGYZER.COM / VPD / DESIGN / 2.5 144 To create value for your business, you need to create value for your customer. A business that generates fewer revenues than it incurs costs will inevitably disappear, even with the most successful value proposition. This section shows how getting both the business model and the value proposition right is a process of back and forth until you nail it. To sustainably create value for your customer, you need to create value for your business. Are you creating value for your business? The Business Model Canvas makes explicit how you are creating and capturing value for your business. ? ? ? ? ? 145 ? Zoom out to the bigger picture to analyze if you can profitably create, deliver, and capture value around this particular customer value proposition. -Zoom +Zoom Are you creating value for your customer? The Value Proposition Canvas makes explicit how you are creating value for your customers. Zoom in to the detailed picture to investigate if the customer value proposition in your business model really creates value for your customer. STRATEGYZER.COM / VPD / DESIGN / 2.5 ? Azuri (Eight19): Turning a Solar Technology into a Viable Business 1 Initial idea An opportunity. Developing low-cost solar technology and providing low-income people with Azuri Business Model: version 0 STRATEGYZER.COM / VPD / DESIGN / 2.5 146 1.6 billion people in the world still live without electricity. Could innovative value propositions and business models around new technology ofer answers? Simon Bransfield-Garth founded Eight19 based on a printed plastic technology originating from Key Partnerships Key Activities Cambridge University Key Resources Cambridge University. The technology is designed access to electricity. Value Propositions help people light their home cheaply using solar power Customer Relationships rural African consumer Channels printed plastic technology designed to deliver low-cost solar cells to deliver low-cost solar cells. In 2012 Eight19 launched Azuri to commercialize the technology and bring electricity to of-grid customers in rural emerging markets. Finding the right value propositions and business models in such a context is not easy. We illustrate how it is a continuous back and forth between both on the following pages. Case adopted in accordance with Azuri. Cost Structure Customer Segments Revenue Streams STRATEGYZER.COM / VPD / DESIGN / 2.5 147 Zoom in $70 2 Azuri Value Proposition: version 0 FRE E lighting & charging Observe The Cost Barrier. “A rural farmer on $3 per day struggles to aford a $70 solar power system.” 3 Design What If? Give the solar installations away for free to eliminate the hurdle of Rural African consumer charging a cell phone lighting the house cheap solar-based electricity safe & easy installation lease the installation danger of oil-based lighting* buying installation upfront investment upfront investment. * An alternative for lighting is burning oil, which is dangerous and expensive. 4 Iteration 2 Idea for Business Model. Lease the solar instal- STRATEGYZER.COM / VPD / DESIGN / 2.5 148 Azuri Business Model: version 1 lations and collect regular subscription fees; Key Partnerships Key Activities Value Propositions it works just fine with conventional panels; get resources and partnerships for financing the Cambridge University installations. manufacturing partner Zoom out Customer Relationships distribution + installation development + manufacturing Key Resources license to use patented technology cheap solar installation rent rural African consumer Channels solar aid (NGO) local vendors solar energy installations Revenue Streams Cost Structure installation cost Customer Segments manufacturing cost regular payments STRATEGYZER.COM / VPD / DESIGN / 2.5 149 09 – 6 35–926208 09 6 Zoom in Azuri Value Proposition: version 1 5 Observe The no-banking barrier. How can regular lighting & charging 6 recovered without Design Low-tech solution. any efficient Combine mobile phone banking system? and solar technology payments be with scratch cards to access electricity over a period of time. Rural African consumer charging a cell phone lighting the house cheap solar-based electricity safe & easy installation lease the installation scratch card buying danger of installation oil-based lighting easy upfront payment investment (without bank) 7 Iteration 3 Idea for the Azuri Business Model. Azuri provides solar-as- STRATEGYZER.COM / VPD / DESIGN / 2.5 150 Azuri Business Model: version 2 a-service, with Indigo, a pay-as-you-go lighting Key Partnerships Key Activities Value Propositions and charging system for which customers purchase weekly scratch cards: adapt the revenue Cambridge University model accordingly. Zoom out manufacturing partner Customer Relationships distribution + installation development + manufacturing Key Resources license to use patented technology cheap solar installation Indigo kit rural African consumer Channels solar aid (NGO) local vendors solar energy installations Revenue Streams Cost Structure installation cost Customer Segments manufacturing cost 1x indigo kit deposit ($10) repetitive scratch cards ($1) Afordable scratch cards make it possible to slowly cover the installation fees. So… 151 1 2 3 4 5 6 STRATEGYZER.COM / VPD / DESIGN / 2.5 How does the Indigo value proposition look for a customer? 09 –6 35–926208 7 8 9 0 # * $10 $1 free upgrade Buy the Indigo kit (solar panel, lamps, charger). Buy scratch cards, use SMS from a mobile phone, enter the resulting passcode into the Indigo unit, and use the installation for a period of time (typically a week). Own your box after 80 scratch cards, or… Escalate to a larger system and access more energy; continue to buy scratch cards. Time EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.5 152 From Value Proposition to Business Model… OBJECTIVE OUTCOME Practice the connec- Improved skills tion between value A1 Front Stage. Prototype a revenue model, select distribution channels, and define the relationships that could be adopted with customers. ? The Business Model Canvas Key Partnerships Key Activities Value Propositions proposition and Customer Relationships Customer Segments business model with no risk Your Idea from page 96 Your idea from page 96 Key Resources Channels ← From p. 96 Revenue Streams Cost Structure Part A Design the Full Business Model. On page 96 you imagined a value proposition to commercialize an innovative compressed air energy storage technology. Now map out the remaining business model elements and sketch out the rough numbers (part A). A2 ? A3 Backstage. Assessment. Add the Key Resources, Key Activities, and Assess your prototype and detect possible weak- Partners required for the model to work and use nesses of the business model → p. 156. that to estimate the cost structure. EXERCISE …and Back Again B3 Refine or clear your profile? Part B Could you refine your customer profile, or do Assess the weaknesses of your first full business model prototype (from part A). Ask yourself how you could improve or change your initial value proposition, maybe by shifting to an entirely diferent segment by considering the following five questions: you need to describe an entirely new one customer segments? B4 Change or clear your benefits? Do you need to B5 change or clear the Got fit? benefits your value Do you have fit proposition created between your new because the customer customer profile and profile changed? the newly designed value proposition? → p. 40 on fit Zoom in The Value Proposition Canvas B1 New VP? Could there be another radically 153 because you switched diferent value prop- B2 osition for the same New segment? technology? Will you keep the same customer segment, or will you Tip shift to an entirely Follow up on your new customer assump- diferent, maybe tions by researching customers → p. 106 larger, market and producing evidence → p. 216. segment? ← Repeat Step A if required. STRATEGYZER.COM / VPD / DESIGN / 2.5 Revisiting the Value Proposition STRATEGYZER.COM / VPD / DESIGN / 2.5 154 Stress Testing with Numbers: A MedTech Illustration Medtech Prototype 1 Key Partnerships Key Activities Value Propositions manufacturing OEMs personal assistance medical diagnostic device primary care doctors Channels third-party sales force intellectual property $1M Cost Structure sales & marketing Revenue Streams $1.2M device production equipment Play with diferent business models and financial $5.5M 1x transactional $2.8M sales vs. assumptions to find the best one. We illustrate this with the medical technology illustration on this Customer Segments 110K sales & marketing Key Resources A great value proposition without a financially sound business model is not going to get you very far. In the worst case you will fail because your business model incurs more costs than it produces revenues. But even business models that work can produce substantially diferent results. Customer Relationships R&D Medtech Prototype 2 spread. We sketched out two models both starting Key Partnerships Value Propositions Customer Relationships ne and a profit of $0.5 million. Prototype 2 starts from the same technology but produces more than $30 OEMs a diferent value proposition and business model. sales & marketing Key Resources personal assistance medical diagnostic device r! manufacturing Prototype 1 generates $5.5 million in revenues Customer Segments in R&D cheap diagnostic device. million in revenues and a profit of $23 million with Key Activities W from the same technology that enables building a 110K primary care doctors Channels Only the market can judge if either model could work, but you certainly want to explore and intellectual property test the best options. testing strips third-party sales force www $1M Cost Structure sales & marketing Revenue Streams $1.2M device equipment $2.3M production production of strips $24.8M $5.5Mrecurring 1x transactional $2.8M sales sales test strips Model 1: Sales of Medical Diagnostic Device Profit ǃɲ 1× transactional sales of device to primary care A quick sketch of the doctors in the United States for $1,000/device numbers provides us ǃɲ 5 percent market share with a sanity check ǃɲ Sales via third-party sales force -50 percent that this model is not commission very profitable, so we ǃɲ Variable production costs of $225/device should go back and ǃɲ Fixed marketing expenses of $1 million explore changes to Value Prop Model 1 patients don't wait for results 155 medical diagnostic device immediate in-house testing the business model. Costs Revenues Primary Care Doctor Device Production, 1.2M Device Sales, 5.5M happy patients Sale & Marketing, 1M no need for follow-up with patients Sales Commission, 2.8M Profit 0.5M test patient's health risk send to laboratory Model 2: Recurring Revenues from Consumable Testing Strips Profit ǃɲ Each diagnosis requires a consumable The same technology testing strip Value Prop Model 2 with a diferent busi- ǃɲ Recurring revenues from selling an average of 5 strips/month/device for $75 each ǃɲ Variable production costs of testing strips of $7/strip a much larger potential profit. Although these numbers aren't validated, it's clearly Costs Revenues the more interesting Device Production, 1.2M Device Sales, 5.5M prototype to take to Sale & Marketing, 1M the testing stage. Testing Strip Sales, 24.8M Sales Commission, 2.8M Testing Strips Prod., 2.3M Profit, 23M patients don't wait for results ness model now yields $23M medical diagnostic device testing strips immediate in-house increased testing hygiene via consumable strips wait for results patients calling in for results cleaning diagnostic devices STRATEGYZER.COM / VPD / DESIGN / 2.5 $0.5M EXERCISE STRATEGYZER.COM / VPD / DESIGN / 2.5 156 Seven Questions to Assess Your Business Model Design OBJECTIVE OUTCOME 1. Switching Costs. 2. Recurring Revenues. Unearth potential to improve your Business Model Assessment How easy or difficult is it for Is every sale a new efort business model Great value propositions should be embedded in great business models. Some are better than others by design and will produce better financial results, will be more difficult to copy, and will outperform competitors. Score your business model design by answering these seven questions: customers to switch to another or will it result in quasicompany? guaranteed follow-up revenues and purchases? My customers are locked 100 percent of my sales lead in for several years. to automatically recurring revenues. 10 10 0 0 Nothing holds my customers 100 percent of my sales back from leaving me. are transactional. Apple’s iPod got people Nespresso turned the to copy their entire music transactional industry of library into the iTunes soft- selling cofee into one with ware, which made switching recurring revenues by sell- more difficult for customers. ing single-portioned pods that fitted only into their machines. Download “Seven Questions to Assess Your Business Model” EXERCISE How much does your business before you are incurring costs? Is your cost structure substan- model get customers or third tially diferent and better than parties to create value for you those of your competitors? for free? How easily can you grow 7. Protection from Competition. without facing roadblocks How much is your business (e.g., infrastructure, customer model protecting you from support, hiring)? your competition? I earn 100 percent of my reve- My cost structure is at My business model has My business model nues before incurring costs of least 30 percent lower than business model is created virtually no limits to provides substantial moats goods & services sold (COGs). my competitors. growth. that are hard to overcome. 10 10 5. Others Who Do the Work. 6. Scalability. All the value created in my for free by external parties. 10 10 10 ple of also ees. Credit s of users or WhatsApp that serve cebook able, as anchising ort. quires substantial wing my business moats. App Store provide powerful models like Apple with the imitators. Similarly, platform with. Ikea has found few are often hard to compete Powerful business models to competition. moats, and I’m vulnerable My business model has no that are hard to overcome. y no limits to growth. provides substantial moats del has My business model your competition? , customer adblocks sily can you grow model protecting you from How much is your business Competition 7. Protection from 0 I incur 100 percent of my 0 My cost structure is at 0 I incur costs for all the 0 0 Growing my business My business model has no costs of COGs before earning least 30 percent higher than value created in my model requires substantial moats, and I’m vulnerable revenues. my competitors. business model. resources and efort. to competition. Personal computers (PCs) Skype and WhatsApp Most of the value in Licensing and franchising Powerful business models used to be produced well disrupted the telecom indus- Facebook’s business model are extremely scalable, as are often hard to compete ahead of selling them at the try by using the Internet as are platforms like Facebook with. Ikea has found few risk of inventory depreciation a free infrastructure for calls for free by more than 1 billion or WhatsApp that serve imitators. Similarly, platform comes from content produced until Dell disrupted the indus- and messages, while tele- users. Similarly, merchants hundreds of millions of users models like Apple with the try, sold directly to consum- coms incurred heavy capital and shoppers create value with few employees. Credit App Store provide powerful ers, and earned revenue expenditures. for free for credit card card companies are also moats. companies. an interesting example of before assembling PCs. scalability. 157 STRATEGYZER.COM / VPD / DESIGN / 2.5 3. Earnings vs. Spending. 4. Game-changing Cost Structure. Are you earning revenues 158 2.6 Designing in Established Organizations M FROING T TES S OINT ING P T R A ST N ATIO ERV OBS M ESS ASS TONG TI TES ENT S ON STI UE 7Q G YPIN TOT O R P ESS L DE MO SIN BU ED FAIL Adopt the Right Attitude to Invent or Improve STRATEGYZER.COM / VPD / DESIGN / 2.6 160 invent Existing organizations need to improve existing value propositions and create new ones proactively. Make sure you understand on which end of the spectrum you are at the beginning of a particular project, because each requires a diferent attitude and process. Great companies will have a balanced portfolio of projects covering the entire spectrum from improve to invent. Objective Design new value propositions regardless of the potential constraints given by existing value propositions and business models (although leadership may define other constraints). Helps With ǃɲ Proactive bet on the future ǃɲ Take on a crisis ǃɲ Emergence of a game-changing technology, regulation, etc. ǃɲ Response to a disruptive value proposition of a competitor Financial Goals At least 50 percent annual revenue growth (caveat: company-specific) ǃɲ ǃɲ ǃɲ Risk and Uncertainty High Customer Knowledge Low, potentially nonexistent Business Model Attitude to Failure Requires radical adaptions or changes Part of learning and iteration process Mind-set Open to exploring new possibilities Design Approach Radical/disruptive change to value proposition (and business model) Main Activities Search, test, and evaluate Examples Amazon Web Services Design of a new IT infrastructure value proposition targeted at a new customer segment. Builds on existing key resources and activities but requires a substantial expansion of Amazon.com's business model. ǃɲ ǃɲ ǃɲ ǃɲ ǃɲ ǃɲ Improve your existing value proposition(s) without radically changing or afecting the underlying business model(s). ǃɲ Renew outdated products and services. ǃɲ Ensure or maintain fit. ǃɲ Improve profit potential or cost structure. ǃɲ Keep growth going. 161 In between: Extend A common situation in the ImproveInvent spectrum is the need to find new growth engines without investing in substantial changes to the existing business model. This is often required to monetize investments in existing models and platforms. ǃɲ Address customer complaints. 0 to15 percent annual revenue increase or more (caveat: company-specific) The objective is to search for new value prop- Low ositions that substantially extend the existing High underlying business model, without modifying too Little change many aspects of it. ǃɲ ǃɲ ǃɲ ǃɲ ǃɲ ǃɲ ǃɲ ǃɲ ǃɲ Not an option For example, with the introduction of the Focused on making one or several aspects better Kindle, Amazon created a new channel to extend Incremental change and tweaks to existing value proposition its digital ofering to Amazon.com customers. Refine, plan, and execute Although this presents a great new value proposi- Amazon Prime tion to its customers, it remains to a large extent Introduce a membership with special benefits targeted at frequent users within the parameters of its successfully estab- of Amazon.com. lished and well-mastered e-commerce business model. Tip Great companies manage a portfolio of value propositions and business models that cover the entire invent-improve spectrum and make synergies and competitive conflicts explicit. They are proactive and invent while they are still successful, rather than wait for a crisis. STRATEGYZER.COM / VPD / DESIGN / 2.6 improve The Business Book of the Future STRATEGYZER.COM / VPD / DESIGN / 2.6 162 Imagine if you were a business book publisher. How could you improve your present ofering and invent the business book of the future, which might not even be a book anymore? We sketched out three ideas along the invent-improve spectrum. invent The YouTube of business education The 1-800-Business-Book hotline An online platform matching videos from business A hotline number extending physical business experts with customers who are looking for answers books and ofering on-demand answers. This to their problems. This would require a substantial would build on the existing business model but extension or reinvention of the business model of require an extension from a sales to a service publishing books. model. access 24/7 online answers progress at own pace consulting hotline sharable content physical book online videos low pay-peruse This concept attract experts requires an service capabil- consulting ity adds a layer business model to the business IT Web original one obsolete. minimizes risk of wasting time An additional community entirely diferent and makes the customized answers to problems model but doesn’t call center transform it. infrastruc- community ture management percent on matchmaking service hourly charge The practical business book The more you move toward the invent Improve business books by making them more end of the spectrum, the more your visual and applicable without altering the core new value proposition will difer from business model behind it substantially. your existing ones. Inventing new value propositions provides an opportunity to more closely address jobs that really matter to customers (in more visuals links to Web this case, getting answers to business questions). Our three-tier value proposition consists of a physical book, sharable how-to guide practical content online, and advanced learning through our online course. It is physical book our attempt to push the boundaries of easy-tounderstand language fewer pages business learning and doing. The value proposition of this book combined with online exercises and material on Strategyzer.com is our Improvements attempt to more closely address the add to the value jobs we believe matter to our readers. proposition and require only minor tweaks to the business model. Web design STRATEGYZER.COM / VPD / DESIGN / 2.6 163 improve Key Partnerships Key Activities Value Propositions Key Resources Customer Relationships Channels Revenue Streams Rev Cost Structure ing tur ufac Man Many organizations aspire to regain a competitive advantage by transforming from a product manufacturer into a service provider. This requires a substantial reinvention. Builders safety triggers against mishandling An Expired Model Hilti’s old model focused mainly on selling high- ergonomic, holds in hand quality machine tools directly to builders. They safe employees work enjoyment were known for breaking less often, lasting longer, and overall being less costly by minimizing time quality tools loss. Hilti tools also have a reputation for being particularly safe and enjoyable to work with. Unfortunately, this old model was one of decreasing margins and subject to competition from lower-cost competitors. Read more about Hilti in Johnson, Seizing the Whitespace, 2010. Customer Segments nd STRATEGYZER.COM / VPD / DESIGN / 2.6 164 Construction equipment manufacturer Hilti reinvented its value proposition and business model by shifting from products to services. Its move from selling branded machine tools to guaranteeing timely access to them required a substantial overhaul not just of their value proposition but also of their business model. Let’s learn how Hilti did it. Old Br a Reinvent by Shifting from Products… long life makes overall cost cheaper over lifetime robustness means less maintenance get construction done time lost in maintenance expensive New Key Partnerships Key Activities Value Propositions Customer Relationships Customer Segments …to Services Channels Bo Boss Revenue Streams Reve u Man Br a uring fact nd Cost Structure e Servic A Fresh Start Hilti used its new service-based value proposition to create more value for construction companies Managers by ensuring that they had the right tools at the immediate convenient tool tool replacement procurement latest technology safe employees work enjoyment 100 percent right tool, right place, uptime right time predictable costs theft profitable. get construction done broken tools meet planning schedule Impact on the Business Model Moving from products to services sounds like an easy and obvious value proposition shift, but it requires substantially reengineering the business model. Hilti had to add substantial new service time lost in maintenance delays upfront investment inancial penalties New service created: “New” customer, more important monthly subscriptions to job identified: delivering on time! fleet management utility construction companies achieve a much more predictable cost management and keep operations proitability under control subscription based leet management no cost for repair and replacement right place at the right time. This would help resources and activities in addition to manufacturing. But it was worth it. With their new value proposition, Hilti achieves higher margins, recurring revenues, and better diferentiation. 165 STRATEGYZER.COM / VPD / DESIGN / 2.6 Key Resources Hilti focused on a new job to be done after discovering that its tools were related to a more important customer job: that of delivering projects on time to avoid financial penalties. They learned that broken, malfunctioning, or stolen tools could lead to major delays and penalties. From there, Hilti moved toward a new value proposition, ofering services around machine tools. The Perfect Workshop Setting STRATEGYZER.COM / VPD / DESIGN / 2.6 166 Workshops are an important part of value proposition design in established organizations. Great workshops can make a big diference in the design process and lead to better results. The questions below will help you create the perfect setting. Use thick markers so ideas Use wall-sized posters are visible from afar. to sketch out big ideas. Use sticky notes to move ideas around—ideally in several colors for color-coding. Who should join? Invite people with diferent backgrounds, especially when you know there will be a substantial efect on the business model. Their buy-in is crucial. Get customer-facing staf to participate to leverage their knowledge. Customers or partners may also be a good addition to help evaluate value propositions. What should the format be? How can space be used as an instrument? What tools and materials are needed? As a rule of thumb, more viewpoints are generally Great workshop spaces are an often-overlooked Prepare a self-service area with canvas posters, better than fewer at the early stages of value instrument to create outstanding workshops with sticky notes, paper, blue tack, markers, and other proposition design. With 10 participants or more, exceptional outcomes. Choose a space that is tools so participants can help themselves with you can explore several alternatives in parallel sufficiently large and ofers large walls or working what they need. by working in groups of five. Smaller teams need areas. Set up the space to support creation, to explore alternatives sequentially. At the later collaboration, and productivity. For breakthrough stages of developing and refining value proposi- results, choose an unusual and inspiring venue. tions, fewer participants are usually better. Check readily available workshop material Work-in-Progress Gallery/Inspiration Wall Projector and Screen Set up an area where you can expose canvases This is used to show slides or and other work in progress. Add an “inspiration customer videos. It should be wall” with content that participants can draw easily viewable by all. from, such as reference models, examples, and models of competitors. Room Control This is where work This space should gets done. Four or be set aside for the five people per group facilitator and team is best. Do not use to access computer, chairs or tables unless sound system, Wi-Fi, required for specific and maybe a printer. work. Keep working groups in the same room rather than a break-out room to retain high energy levels throughout the workshop. Stand Sit Walls Venue Size, Look, and Feel Large vertical surfaces are As a rule of thumb, calculate Plenary Space indispensable, whether 50m2 per 10 participants. Everyone can meet here for movable or part of the build- Favor inspiring venues over plenary presentations and ing. Make sure you can stick boring hotel meeting rooms. discussions. It can be set up large posters, sticky notes, and flip chart paper on them. with or without tables. STRATEGYZER.COM / VPD / DESIGN / 2.6 167 Small Group Areas Compose Your Workshop STRATEGYZER.COM / VPD / DESIGN / 2.6 168 A great workshop produces tangible and actionable outcomes. Use the tools and processes from this book to start designing a draft workshop outline that leads to great results. Day 1 Day 2 9 AM 9 AM 10 AM 10 AM 11 AM 11 AM 12 PM 12 PM 1 PM 1 PM 2 PM 2 PM 3 PM 3 PM 4 PM 4 PM 5 PM 5 PM Design Principles for a Great Workshop ǃɲ Create a workshop agenda with a clear thread that shows participants how the new or improved value proposition(s) or business model(s) will emerge. ǃɲ Take participants on a journey of many steps by focusing on one simple task (module) at a time. ǃɲ Avoid “blah blah blah” and favor structured interactions with tools like the canvases or processes like the thinking hats. ǃɲ Alternate between work in small groups (4–6 people) and plenary sessions for presentations and integration. ǃɲ Strictly manage time for each module, in particular for prototyping. Use a timer visible to all participants. ǃɲ Design the agenda as a series of iterations for the same value proposition (or business model). Design, critique, iterate, and pivot. ǃɲ Avoid slow activities after lunch. Use the modules below as a menu of options to draft a workshop agenda. Before Your Workshop After Your Workshop Get Online For: Do your homework and gather Get going with testing your ǃɲ sample agendas customer insights → p. 106. value propositions and busi- ǃɲ templates and instructions ness models in the real world ǃɲ all-in-one material package → p. 172. Trigger Questions — → p. 15, 17, 31, 33 CS Mapping — → p. 22 Making Choices Rank Jobs, Pains, and Gains — → p. 20 Preparing Tests Extracting Hypotheses — → p. 200 Check Your Fit — → p. 94 ‘Job’ Selection — → p. 100 Prioritizing Hypotheses — → p. 202 10 Questions — → p. 122 VP Mapping — → p. 36 Voice of Customer — → p. 124 Assess against Environment — → p. 126 Test Design — → p. 204 Diferentiate from Competition — → p. 128 Choose a Mix of Experiments — → p. 216 Napkin Sketches — → p. 80 Ad libs — → p. 82 De Bono's Hats — → p. 136 Dotmocracy — → p. 138 Flesh out Ideas with VPC — → p. 84 Selecting Prototype — → p. 140 Test Road Map — → p. 242–245 Constraints — → p. 90 Back and Forth with Business Model New Ideas with Books — → p. 92 Back and Forth Iteration — → p. 152 Breaks Lunch Push / Pull Exercise — → p. 94 Six Ways to Innovate — → p. 102 Numbers Projections — → p. 154 7 BM Questions — → p. 156 Cofee and snacks 169 STRATEGYZER.COM / VPD / DESIGN / 2.6 Prototype Possibilities STRATEGYZER.COM / VPD / DESIGN / 2.6 170 Lessons Learned Prototyping Possibilities Understanding Customers Rapidly prototype alternative value propositions and business models. Don’t fall in love with your first ideas. Keep your early models rough enough to throw away without regret so that they can evolve and improve. Imagine, observe, and understand your customers. Put yourself in their shoes. Learn what they are trying to get done in their work and in their lives. Understand what prevents them from getting this done well. Unearth which outcomes they are looking for. Finding the Right Business Model Search for the right value proposition embedded in the right business model, because every product, service, and technology can have many diferent models. Even the best value propositions can fail without a sound business model. The right business model can be the diference between success and failure. 171 STRATEGYZER.COM / VPD / DESIGN / 2.6 te st 3 Reduce the risk and uncertainty of your ideas for new and improved value propositions by deciding What to Test p. 188. Then, get started with Testing Step-by-Step p. 196 and drawing from the Experiment Library p. 214 before Bringing It All Together p. 238 and measuring your progress. HYP OTH E SIS SU CC ES S Start Experimenting to Reduce Risk Spending STRATEGYZER.COM / VPD / TEST / 3.0 178 When you start exploring new ideas, you are usually in a space of maximum uncertainty. You don’t know if your ideas will work. Refining them in a business plan won’t make them more likely to succeed. You are better of testing your ideas with cheap experiments to learn and systematically reduce uncertainty. Then increase spending on experiments, prototypes, and pilots with growing certainty. Test all aspects of your Value Proposition and Business Model Canvases, all the way from customers to partners (e.g., channel partners). $ $ Progress $ $ $ Uncertainty $ $ Search Execute Business Plans vs. Experimentation Processes ideas to learn what works and what doesn’t is readiness and often die along the way. You need a business plan. We now know better. Business a far better approach than writing a plan. One to experiment, learn, and adapt to manage this plans are great execution documents in a known might even argue that plans maximize risk. Their change and progressively reduce risk and uncer- environment with sufficient certainty. Unfortu- refined and polished nature gives the illusion that tainty. This process of experimentation, which we nately, new ventures often take place under high with great execution little can go wrong. Yet ideas will explore on the following pages, is known as uncertainty. Therefore, systematically testing dramatically change from inception to market customer development and lean start-up. Business Planning Experimentation Applied to New Ventures We know Business plan Planning Inside the building Execution of a plan Historical facts from past success Not addressed adequately Avoided Masked via detailed plan Granular documents and spreadsheets Assumptions Attitude Tools Process Where Focus Decision basis Risk Failure Uncertainty Detail Numbers Our customers and partners know Business Model and Value Proposition Canvas Customer development and lean start-up Outside the building Experimentation and learning Facts and insights from experiments Minimized via learnings Embraced as means to learn and improve Acknowledged and reduced via experiments Dependent on level of evidence from experiments Evidence-based 179 STRATEGYZER.COM / VPD / TEST / 3.0 The first step in any venture used to be writing 10 Testing Principles STRATEGYZER.COM / VPD / TEST / 3.0 180 Apply these 10 principles when you start testing your value proposition ideas with a series of experiments. A good experimentation process produces evidence of what works and what doesn’t. It also will enable you to adapt and change your value propositions and business models and systematically reduce risk and uncertainty. Get “10 Testing Principles” poster 1 2 3 4 5 Realize that evidence trumps opinion. Test early; refine later. Experiments ≠ reality. Gather insights with early Remember that experiments Balance learnings and vision. Whatever you, your boss, Learn faster and reduce risk by embracing failure. and cheap experiments are a lens through which you Integrate test outcomes your investors, or anybody Testing ideas comes with before thinking through or try to understand reality. without turning your back else thinks is trumped by failure. Yet failing cheaply describing your ideas in They are a great indicator, on your vision. (market) evidence. and quickly leads to more detail. but they difer from reality. learning, which reduces risk. STRATEGYZER.COM / VPD / TEST / 3.0 181 6 7 8 9 Identify idea killers. Make it measurable. Begin with testing the most Understand customers first. Good tests lead to measur- Accept that not all facts are equal. Test irreversible decisions twice as much. important assumptions: Test customer jobs, pains, able learning that gives you Interviewees might tell you Make sure that decisions that those that could blow up and gains before testing actionable insights. one thing and do another. have an irreversible impact your idea. what you could ofer them. Consider the reliability of are particularly well informed. your evidence. 10 STRATEGYZER.COM / VPD / TEST / 3.0 182 Introducing the Customer Development Process Customer development is a four-step process invented by Steve Blank, serial entrepreneur turned author and educator. The basic premise is that there are no facts in the building, so you need to test your ideas with customers and stakeholders (e.g., channel partners or other key partners) before you implement them. In this book we use the customer development process to test the assumptions underlying Value Proposition and Business Model Canvases. Pivot Customer Discovery Customer Validation Get out of the building to learn about Run experiments to test if customers your customers’ jobs, pains, and gains. value how your products and services Investigate what you could ofer them intend to alleviate pains and create to kill pains and create gains. gains. Search The goal of the search phase is to experiment and learn which value propositions might sell and which business models could work. Your canvases will radically change and constantly evolve during this phase while you test every critical hypothesis. Only when you have validated your ideas do you get into the execution mode and scale. At the early stages of the process, your canvases change rapidly; they will stabilize with increasing knowledge from your experiments. Customer Creation Company Building Tip Start building end user demand. Drive Transition from a temporary orga- Capture every hypothesis, every- customers to your sales channels and nization designed to search and thing you tested, and everything you begin scaling the business. experiment to a structure focused on learned. Use the Value Proposition executing a validated model. and Business Model Canvases to Execute track your progress from initial idea and starting point toward a viable value proposition and business model. Keeping track of your progress and evidence produced along the way allows you to refer back to it if necessary. Blank & Dorf ,The Startup Owner's Manual, 2012. 183 STRATEGYZER.COM / VPD / TEST / 3.0 Search vs. Execute Integrating Lean Start-up Principles STRATEGYZER.COM / VPD / TEST / 3.0 184 Eric Ries launched the Lean Startup movement based on Steve Blank’s customer development process. The idea is to eliminate slack and uncertainty from product development by continuously building, testing, and learning in an iterative process. Here we apply the three steps in combination with the canvases and customer development to test ideas, assumptions, and so-called minimum viable product (MVPs). Zoom in Pivot Search Customer Discovery Execute Customer Validation Customer Creation Company Building 1. Design/build. Design or build an artifact specifically conceived to test your hypotheses, gain insights, and learn. This could be a conceptual prototype, an experiment, or simply a basic prototype (MVP) of the 185 STRATEGYZER.COM / VPD / TEST / 3.0 products and services you intend to ofer. 0. Generate a hypothesis. Start with the Value Proposition and Business Model Canvases to define the critical hypotheses underlying your ideas in order to design the right experiments. 3. Learn. 2. Measure. Analyze the performance of the arti- Measure the performance of the fact, compare to your initial hypothe- artifact you designed or built. ses, and derive insights. Ask what you thought would happen. Describe what actually happened. Then outline what you will change and how you will do so. Ries, The Lean Startup, 2011. Apply Build, Measure, Learn Apply the Lean Startup circle to more than just products and services. Use the same three steps of designing/building, testing/measuring, and learning with all the artifacts you create in Value Proposition Design. Apply design/build, test/measure, learn to your… STRATEGYZER.COM / VPD / TEST / 3.0 186 Conceptual Prototypes Design rapid conceptual prototypes to shape your ideas, figure out what could work, and identify which hypotheses need to be true to succeed. Use these prototypes as a tangible way to clearly map, track, iterate, and share your ideas and hypotheses. Hypotheses Design and build experiments to test the hypotheses that need to be true for your idea to succeed. Start with the most critical hypotheses that could kill your idea. Products and services Build so-called MVPs to test your value propositions. These are prototypes with a minimum feature set specifically designed to learn rather than to sell. Measure Learn Business Model and/ Performance of If and why you need to or Value Proposition conceptual prototype: adapt your conceptual Canvases to shape fit between customer prototypes your ideas throughout profile and value map, Assumed financial the process ballpark figures, design performance of your assessment with 7 busi- business model ness model questions Assumed fit 187 I present Shrek models, that’s a Yiddish expression for making people nervous. Frank Gehry, Architect Which hypotheses you need to test Interviews, obser- What actually happens If and why you need vations, and exper- in your experiments to change any of the iments to test initial compared with what building blocks of value proposition you thought would your Business Model and business model happen (i.e., your or Value Proposition assumptions derived hypotheses) Canvas MVPs with the bene- If your products and If and why you need fits and features you service actually relieve to change the prod- want to test pains and create gains ucts and services in for customers your value proposition There are no facts in the building… So get the hell out and talk to customers. Steve Blank, Entrepreneur & Educator from conceptual prototyping Which pain relievers and gain creators work and which ones don’t Fail early to succeed sooner. David Kelley, Designer STRATEGYZER.COM / VPD / TEST / 3.0 Design/Build 188 3. What to Test Testing the Circle STRATEGYZER.COM / VPD / TEST / 3.1 190 Prove which jobs, pains, and gains matter to customer most by conducting experiments that produce evidence beyond your initial customer research. Only after this has been done should you get started with your value proposition. This will prevent you from wasting time with products and services customers don’t care about. Provide evidence showing what customers care about (the circle) before focusing on how to help them (the square). Start with jobs, pains, and gains Possessing evidence about customer jobs, pains, In the design section we looked at a series of and gains before you focus on your value propo- techniques to better understand customers. In sition is very powerful. If you start by testing your this chapter we go a step further. The objective value proposition, you never know if customers of “testing the circle” is to confirm with evidence are rejecting your value proposition or if you are that our profile sketches, our initial research, our simply addressing irrelevant jobs, pains, or gains. observations, and our insights from interviews This is less likely to happen if you have evidence were correct. We aim to know with more certainty about which jobs, pains, and gains matter to which jobs, pains, and gains customers really care customers. about. Of course, this means you need to find creative ways to test customer preferences without already drawing on the use of minimum viable products (MVPs). We show how to do so with the tools in the testing library → p. 214. ǃɲ Which gains matter to your customers? ǃɲ Which ones are most essential? ǃɲ Which jobs matter to your customers? ǃɲ Which ones matter most? ǃɲ Which pains matter to your customers? ǃɲ Which ones are most extreme? 191 STRATEGYZER.COM / VPD / TEST / 3.1 Do you have evidence showing… Testing the Square STRATEGYZER.COM / VPD / TEST / 3.1 192 ǃɲ Which one of your gain creators customers really need or desire? ǃɲ Which ones they crave most? Test if and how much your customers care about how you intend to help them. Design experiments that produce evidence showing that your products and services kill pains and create gains that matter to customers. Do you have evidence showing… ǃɲ Which one of your products and services customers really want? ǃɲ Which ones they want most? ǃɲ Which one of your pain relievers helps your customers with their headaches? ǃɲ Which ones they long for most? The Art of Testing Value Propositions Make sure your experiments allow you to It is an art to test how much your customers care understand which aspects of your products and about your value proposition because the goal services customers appreciate, so that you can is to do so as cheaply and quickly as possible avoid ofering anything unnecessary. In other without implementing the value proposition in its words, remove any features or eforts that don’t entirety. contribute directly to the learning you seek. You need to test your customers’ taste for your Always make sure you aim to find the simplest, products and services one pain reliever and gain quickest, and cheapest way to test a pain reliever creator at a time by designing experiments that or gain creator before you start prototyping prod- are measurable, provide insights, and allow you to ucts and services. learn and improve → p. 214. 193 STRATEGYZER.COM / VPD / TEST / 3.1 Provide evidence showing that your customers care about how your products and services kill pains and create gains. Testing the Rectangle STRATEGYZER.COM / VPD / TEST / 3.1 194 Test the most critical assumptions underlying the business model your value proposition is embedded in. Remember, even great value propositions can fail without a sound business model. Provide evidence showing that your business model is likely to work, will generate more revenue than costs, and will create value not only for your customers but for your business. Provide evidence showing that the way you intend to create, deliver, and capture value is likely to work. Don’t neglect testing your business model from revenue from those same customers won’t You can fail even with a successful value proposi- survive over the long term. Similarly, a company tion if your business model generates less revenue will obviously go out of business if resources and than it incurs costs. Many creators are so focused activities required to create value are more costly on designing and testing products and services than the value they capture. In some markets you that they sometimes neglect this obvious equation might need access to key partners who might not (profit = revenues - costs) resulting from the build- be interested in working with you. ing blocks of the Business Model Canvas. A value proposition that customers want is Design experiments that address the most important things that have to be true for your worth little if you don’t have the channels to reach business model to work. Testing such critical customers in a way they want to be reached. assumptions will prevent you from failing with a Likewise, a business model that spends more great value proposition that customers actually money on acquiring customers than it will earn want. ǃɲ That you will have access ǃɲ That you will be able to Key Partnerships ǃɲ How you will succeed in perform the activities acquiring and retaining required to create value? customers? Key Activities to the partners required Value Propositions Customer Relationships 195 Customer Segments for your model to work? Key Resources Channels ǃɲ That you will have access ǃɲ Through which channels to the resources required will you be able to reach to create value? customers? Cost Structure Revenue Streams ǃɲ That you can generate more revenue than costs incurred? ǃɲ How you will generate revenues from customers? STRATEGYZER.COM / VPD / TEST / 3.1 Do you have evidence showing… 196 3.2 Testing Step-by-Step HYP OTH E SIS Overview of the Testing Process STRATEGYZER.COM / VPD / TEST / 3.2 198 + Test Card - Design Testing Extract Hypotheses Prioritize Hypotheses Design Tests → p. 200 → p. 202 → p. 204 + Learning Card ! Prioritize Tests Run Tests Capture Learnings Make Progress → p. 205 → p. 205 → p. 206 → p. 242–245 Get “Testing Process Overview” poster STRATEGYZER.COM / VPD / TEST / 3.2 199 Extract Your Hypotheses: What Needs to Be True for Your Idea to Work? STRATEGYZER.COM / VPD / TEST / 3.2 200 Use the Value Proposition and Business Model Canvases to identify what to test before you “get out of the building.” Define the most important things that must be true for your idea to work. readers sign up for free online content we can produce a best seller Key Partnerships Key Activities Value Propositions Do the exercise online Wiley is the right publishing partner content creation Customer Segments book Wiley reader our dev team can handle the challenge platform Channels retail Web app Wiley strategyzer .com Cost Structure content cost structure can be supported by revenues percent royalties people will buy our book …your business model? course fee some people convert to paid services retailers will acquire, stock, and display book we can attract a top-tier publisher Revenue Streams IT people will ind our book retail online Key Resources To succeed, ask yourself what needs to be true about… Customer Relationships people are interested in this topic app subscription DEF·I·NI·TION Business Hypothesis Something that needs to be true for your idea to work partially or fully but that hasn't been validated yet. people want the Value Proposition Canvas people still buy business books readers sign up for free online content some people need services to go deeper Value Proposition Canvas book online course (upsell) exclusive online companion Web app (upsell) online exercises, tools, templates, community access to advanced material brief, clear, + applicable content people like our book format softwaresupported methodology practical, visual, + enjoyable format integrated with Business Model Canvas people already use Business Model Canvas …your value proposition? people need to produce quick results leads to results (ideally quick wins) make things nobody wants make things people want too much theory going down wrong path people fear making bad decisions value propositions are a real challenge applicable ideas improve ind, learn, + apply or build a methods business boring content that's hard to work through people think business books are broken …your customer? run “day job” well people look for methods to help with challenges STRATEGYZER.COM / VPD / TEST / 3.2 201 people value applicability Hypotheses Prioritize Your Hypotheses: What Could Kill Your Business STRATEGYZER.COM / VPD / TEST / 3.2 202 Not all hypotheses are equally critical. Some can kill your business, whereas others matter only once you get the most important hypotheses right. Start prioritizing what’s critical to survival. Identify the business killers. These are the hypotheses that are critical to the survival of your idea. Test them first! Rank all your hypotheses in order of how critical they are for your idea to survive and thrive: + There is no basis for our idea if people aren’t making or don’t fear making Critical to survival bad business decisions (in particular regarding products and services) or if them with such issues. People are interested in this topic duplicate hypothesis— eliminate one sticky note There is no foundation for our idea if people don’t buy business books anymore and we can’t produce a best seller in a format they like. 203 people fear making bad decisions people look for methods to help with challenges value propositions are a real challenge people want the Value Proposition Canvas people still buy business books people like our book format we can produce a best seller we can attract a top tier publisher retailers will acquire, stock, and display book use strategyzer.com so we can upsell people will ind our book some people convert to paid services to those interested in more services. ... Value Proposition Canvas as a helpful tool, there is no opportunity for our ideas. It’s critical that people like or love our can’t find it or don’t know about it, they won’t be able to buy it even if they potentially would have liked it. readers sign up for free online content cost structure can be supported by revenues Less critical to survival What priorities matter most? propositions and if they don’t see the book, but that’s only the start. If they people will buy our book It’s critical that we can get people to If people don’t struggle with value - STRATEGYZER.COM / VPD / TEST / 3.2 they aren’t looking for methods to help STRATEGYZER.COM / VPD / TEST / 3.2 204 Design Your Experiments with the Test Card Structure all of your experiments with this simple Test Card. Start by testing the most critical hypotheses. 1 Design an experiment. Download the Test Card and do the exercise online Test Card Name the test, set a due date, and list the AdWords campaign May 1, 2014 Natasha Hanshaw 2 weeks person responsible. step 1: hypothesis We believe that businesspeople are looking for methods Indicate how critical this hypothesis is to help them design better value propositions. for the entire idea to Critical: Describe the hypothesis work. that you want to test. step 2: test Outline the experiment To verify that, we will you are going to design to verify if the hypothesis launch a Google AdWords campaign around the search term “value proposition.” Test Cost: is correct or needs to be Indicate how costly this test will be to execute. Data Reliability: rejected and revised. Indicate how reliable step 3: metric Define what data you are going to measure. Define a target And measure how the advertising campaign performs the measured data are. in terms of clicks. Time Required: threshold to validate or invalidate the tested hypothesis. Caveat: Consider following up with additional experiments to increase certainty. How will I learn? Indicate how long it step 4: criteria We are right if takes until this test we can achieve a click-through rate (CTR) of at least 2 percent (number of clicks divided by total impressions of ad). 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Critica e will Model Foundry AG The makers of Busines s Model Generat ion and Strategy Test Card We are right if And measure Test Name Deadline Assigned to Duration Time Required: We believe that zer Data Reliability: We are right if Critical: Deadline Copyright Business Model Foundry AG To verify that, we will Test Name The makers of Business Model Generation and Strategyzer Duration will Test Cost: Assigned to Copyright Business Model Foundry AG Test Cost: Data Reliab ility: Data Reliability: And measure The makers of Business Model Generation and Strategyzer Test Card We believe that Time Required: Critical: And mea sure Test Name Deadline Assigned to Duration We are right if We believe that Critical: Time Requir ed: we will To verify that, Copyright Business Model Foundry AG To verify that, we will We are righ Test Cost: t if : Data Reliability t Business Model Foundry Test Cost: Test Card And measure Copyrigh The makers of Business Model Generation and Strategyzer Test Name Deadline Assigned to Duration The makers of Busines s Model Generat ion and Strategy And measure Time Required: We believe that : Critical: Time Required AG zer Data Reliability: We are right if To verify that, we will Copyright Business Model Foundry AG Test Cost: The makers of Business Model Generation and Strategyzer Data Reliability: We are right if And measure Time Required: 2 Copyright Business Model Foundry AG The makers of Business Model Generation and Test Card Strategyzer 3 Test Name Deadline Assigned to Duration We are right if We believe that Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Critical: To verify that, we will Test Cost: Design a series of experiments for the most critical hypotheses. Rank Test Cards. Tip most critical hypotheses highest, but Consider testing the most critical hypoth- prioritize cheap and quick tests to be eses with several experiments. Start with done early in the process, when uncer- cheap and quick tests. Then follow up tainty is at its maximum. Increase your with more elaborate and reliable tests if spending on experiments that produce necessary. Thus, you may create several more reliable evidence and insights Test Cards for the same hypotheses. with growing certainty. Repeat. Where can I get the most learning the fastest? Data Reliability: And measure Time Required: We are right if Prioritize your Test Cards. Rank the Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Less critical to survival - STRATEGYZER.COM / VPD / TEST / 3.2 Test Card And + Critical to survival Dead We be STRATEGYZER.COM / VPD / TEST / 3.2 206 Capture Your Insights with the Learning Card Structure all of your insights with this simple Learning Card. Download the Learning Card Learning Card Name the insight, the date of learning, and Demand for VP method May 1, 2014 the person responsible. Natasha Hanshaw step 1: hypothesis We believed that businesspeople are looking for methods Describe the hypothesis that you tested. to help them design better value propositions. Outline the outcomes step 2: observation of your experiment(s) We observed in terms of data and results. A Learning a strong demand during workshops and a 2.5 percent CTR in our Google AdWords campaign. Data Reliability: Card may aggregate the observations from several Test Cards. Explain what conclusions and insights you derived from the test Note how reliable the step 3: learnings and insights From that we learned that there is a suiciently data measured are. strong interest for the topic. Action Required: results. Describe what actions you will take based on your insights. Highlight how step 4: decisions and actions Therefore, we will dramatic the actions launch a LinkedIn campaign to explore interest by segment (e.g., product managers). Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer required are based on what you learned. Learn more Get back to the drawing board: pivot. For example, when you have inval- Find new alternative segments, value value proposition around a novel propositions, or business models to technology, search for new poten- make your ideas work when your tial customers, value propositions, tests invalidate your first attempts. and business models. Seek confirmation. For example, if interviews with Design and conduct further tests potential customers show a strong when quick and early experiments interest for a service that requires based on a small amount of data heavy investments to launch, follow indicate the need for drastic actions. up with research and experiments idated customer interest for your that produce more reliable data validating customer interest. Deepen your understanding. For example, if the quantitative Design and conduct further tests to data of an experiment show that understand why a trend is taking potential customers are not inter- place once you discovered that it is ested, follow up with qualitative taking place. interviews to understand why they are uninterested. Validated Expand to next building block. For example, when you have vali- Move on to test your next important dated customer interest for a prod- hypothesis when you are satisfied uct, follow up with experiments that with your insights and the data validate the willingness of channel reliability. partners to stock and promote your product. You experimented and learned. Now what? Execute. For example, when you have learned When you are satisfied with the qual- and validated exactly what it takes ity of your insights and the reliability to get channel partners interested of the data, you may directly start in reselling your value proposition, executing based on your findings. start scaling up sales eforts by hiring salespeople or designing dedicated marketing material. 207 STRATEGYZER.COM / VPD / TEST / 3.2 Invalidated How Quickly Are You Learning? STRATEGYZER.COM / VPD / TEST / 3.2 208 The only thing standing between you and finding out what customers and partners really want is the consistency and speed with which you and your team can propel yourself through the design/build, measure, learn cycle. This is called cycle time. + Quick learning Learning Instruments Napkin sketches ULTRA FAST Quickly shape your ideas to share, challenge, or iterate them and to generate hypotheses to test. BM & VP Canvases Interviewing Quickly gain first market insights. Keep the efort customers, partners, in-house so learnings remain fresh and relevant and stakeholders and so you can move fast and act upon insights. design. When you start out, uncertainty is at its Library of Use the whole range of experiments from the maximum. You don’t know if customers care experiments experiment library → p. 214. Start with quick FAST The speed at which you learn is crucial, especially during the early phases of value proposition about the jobs, pains, and gains you intend to ones when uncertainty is high. Continue with address, let alone if they’re interested in your more reliable, slower ones, when you have value proposition. evidence about the right direction. Therefore, it is critical that your early experiments be extremely fast and produce a maximum of learning so you can adapt rapidly. This is why Business plans are more refined documents and SLOW Business plan usually more static. Write one only when you writing a business plan or conducting a large third- have clear evidence and are approaching the party market study is the wrong thing to start with, execution phase. although it can make sense later in the process. VERY SLOW Outsourced Market studies are often costly and slow. market studies They are not an optimal search tool because they don’t allow you to adapt to circumstances rapidly. They make most sense in the context of incremental changes to a value proposition. VERY SLOW Pilot study A pilot study is often the default way to test an idea inside a corporation. However, they should be preceded by quicker and cheaper learning tools, because most pilots are based Slow learning - on relatively refined value propositions that involve substantial time and cost. 2 3 4 5 6 Risk Time Uncertainty Six rapid iteration cycles based on quick experiments produce more learning than three long iteration cycles based on slower experiments. The faster approach will produce knowledge more quickly and thus reduce risk and uncertainty more substantially than the latter. 1 2 3 Don’t waste your time! Imagine spending a week, a month, or more on refining and perfecting your idea. Imagine spending all that time thinking hard about what you’d need to do to produce great growth numbers only to find out that your Risk customers and partners don’t really care. That’s wasted time! Time 209 STRATEGYZER.COM / VPD / TEST / 3.2 Uncertainty 1 The faster you iterate, the more you learn and the faster you succeed. FalseNegative Trap Five Data Traps to Avoid You’re not pregnant. Risk: Not seeing things that are there. Occurs: When your experiment fails to REALITY detect, for example, a customer job it True was designed to unearth. Tips Make sure your test is adequate. Dropbox, a file hosting service, initially Accurate tested customer interest with Google Measurements FalsePositive Trap True False You’re pregnant! Accurate Measurements Risk: Seeing things that are not there. Occurs: When your testing data mislead you to conclude, for example, that your customer has a pain when in fact it is not true. Tips ǃɲ Test the circle before you test the square. Understand what’s relevant to customers to avoid being misled by positive signals for irrelevant value propositions. ǃɲ Design diferent experiments for the same hypothesis before making important decisions. False MEASURED/PERCEIVED STRATEGYZER.COM / VPD / TEST / 3.2 210 Avoid failure by thinking critically about your data. Experiments produce valuable evidence that can be used to reduce risk and uncertainty, but they can’t predict future success with 100 percent accuracy. Also, you might simply draw the wrong conclusions from your data. Avoid the following five traps to ensure you successfully test your ideas. AdWords. They invalidated their hypotheses, because the ads didn’t perform. But the reason people didn’t search was because it was a new market, not because there was a lack of interest. Risk: Overlooking limitations (e.g., of a market). Occurs: When you think an opportunity is larger than it is in reality. For example, when you think The “Local Maximum” Trap you are testing with a sample of a large population but the sample is actually the entire population. Tip B Design tests that prove the potential beyond the immediately addressed test subjects. The Wrong Data Trap a Risk: Searching in the wrong place. Occurs: When you abandon an opportunity because you are looking at the wrong data. For example, you might drop an idea because the customers you are testing with are not interested Risk: Missing out on the real potential. Tip and you don’t realize that there are people who Occurs: When you conduct experiments that opti- Focus on learning rather than optimizing. Don’t are interested. mize around a local maximum while ignoring the hesitate to go back to designing better alter- Tip larger opportunity. For example, positive testing natives if the testing data are positive but the Go back to designing other alternatives before feedback might result in you sticking with a much numbers feel like they should be better (e.g., you give up. less profitable model when a more profitable one larger market, more revenues, better profit). exists. 211 STRATEGYZER.COM / VPD / TEST / 3.2 The “Exhausted Maximum” Trap Test Card STRATEGYZER.COM / VPD / TEST / 3.2 212 Test Name Deadline Assigned to Duration step 1: hypothesis We believe that Critical: step 2: test To verify that, we will Test Cost: Data Reliability: step 3: metric And measure Time Required: step 4: criteria We are right if Copyright Business Model Foundry AG Download the Test Card The makers of Business Model Generation and Strategyzer Learning Card Insight Name Date of Learning step 1: hypothesis We believed that step 2: observation We observed Data Reliability: step 3: learnings and insights From that we learned that Action Required: step 4: decisions and actions Therefore, we will Copyright Business Model Foundry AG Download the Learning Card The makers of Business Model Generation and Strategyzer STRATEGYZER.COM / VPD / TEST / 3.2 213 Person Responsible 214 3.3 Experiment Library SU CC ES S Choose a Mix of Experiments STRATEGYZER.COM / VPD / TEST / 3.3 216 Every experiment has strengths and weaknesses. Some are quick and cheap but produce less reliable evidence. Some produce more reliable evidence but require more time and money to execute. Select a series of tests by drawing from our Consider cost, data reliability, and time required when you design your mix of experiments. As a rule of thumb, start cheap when uncertainty is high and increase your spending on experiments with increasing certainty. experiment library or by using your imagination to invent new experiments. Keep two things in mind when you compose your mix: DEF·I·NI·TION What customers say and do are two diferent things. Experiment Use experiments that provide verbal evidence A procedure to validate or invalidate a value proposition or business model hypothesis that produces evidence. from customers as a starting point. Get customers to perform actions and engage them (e.g., interact with a prototype) to produce stronger evidence based on what they do, not what they say. Customers behave diferently when you are there or when you are not. During direct personal contact with customers, you can learn why they do or say something and get their input on how to improve your value proposition. However, your presence might lead them to behave diferently than if you weren’t there. In an indirect observation of customers (on the web, for example) you are closer to a real-life situation that isn’t biased by your interaction with customers. You can collect numerical data and track how many customers performed an action you induced. Tip Use these techniques to verify whether customers really mean what they say. Produce evidence that the jobs, pains, and gains they mention are real and that they are seriously interested in your products and services. higher but produce concrete and actionable feedback. Tip Use these techniques at the early stages of the design process, because investment is low and they produce quick insights. INDIRECT OBSERVATION of customers Learn why and how to improve Learn how many and how much Sale actions ǃɲ Learning prototype/MVP → p. 222 ǃɲ Mock sales → p. 236 ǃɲ Life-size prototypes → p. 226 ǃɲ Presales → p. 237 ǃɲ Wizard of Oz → p. 223 ǃɲ Crowdfunding → p. 237 Anthropologist → p. 114 Tracking actions For field studies ǃɲ Ad and link tracking → p. 220 ǃɲ Landing page → p. 228 ǃɲ Split testing → p. 230 Participatory design and evaluation Detective → p. 108 For data analysis ǃɲ Illustrations, storyboards, and scenarios → p. 224 ǃɲ Speedboat → p. 233 ǃɲ Product box → p. 234 ǃɲ Buy a feature → p. 235 Journalist → p. 110 For interviews Inspired by the work in user experience by Christian Rohner (NN). STRATEGYZER.COM / VPD / TEST / 3.3 prototypes. Investments are usually Observe their behaviors how customers interact with your DIRECT CONTACT with customers Lab studies Observe their attitudes Use these techniques to understand WHAT CUSTOMERS SAY Tip WHAT CUSTOMERS DO 217 Produce Evidence with a Call to Action STRATEGYZER.COM / VPD / TEST / 3.3 218 Use experiments to test if customers are interested, what preferences they have, and if they are willing to pay for what you have to ofer. Get them to perform a call to action (CTA) as much as possible in order to engage them and produce evidence of what works and what doesn’t. The more a customer (test subject) has to invest to perform a CTA, the stronger the evidence that he or she is really interested. Clicking a button, answering a survey, providing a personal e-mail, or making a prepurchase are diferent levels of investments. Select your experiments accordingly. CTAs with a low level of investment are appropriate at the beginning of value proposition design. Those requiring a high level of investment make more sense later in the process. DEF·I·NI·TION Call to Action (CTA) Prompts a subject to perform an action; used in an experiment in order to test one or more hypotheses. Use experiments to test… Prove that potential customers and partners are genuinely interested and don’t just tell you so. Show that your ideas are relevant enough to them to get them to perform actions that go beyond lip service (e.g., e-mail sign-ups, meetings with decision makers and budget holders, letters of intent, and more). priorities and preferences Show which jobs, pains, and gains your potential customers and partners value most and which ones they value least. Provide evidence that indicates which features of your value proposition they prefer. Prove what really matters to them and what doesn’t. willingness to pay Provide evidence that potential customers are interested enough in the features of your value proposition to pay. Deliver facts that show they will put their money where their mouth is. STRATEGYZER.COM / VPD / TEST / 3.3 219 interest and relevance Ad Tracking STRATEGYZER.COM / VPD / TEST / 3.3 220 Use ad tracking to explore your potential customers’ jobs, pains, gains, and interest—or lack of it—for a new value proposition. Ad tracking is an established technique used by advertisers to measure the efectiveness of ad spending. You can use the same technique to explore customer interest even before a value proposition exists. Google Test customer interest with Google AdWords We use Google AdWords to illustrate this technique because it’s particularly well suited for testing based on its use of search terms for advertising (other services such as LinkedIn and Facebook also work well). 1. Select search terms. Select search terms that best represent what you want to test (e.g., the existence of a customer job, pain, or gain or the interest for a value proposition). 2. Design your ad/test. Design your test ad with a headline, link to a landing page, and blurb. Make sure it represents what you want to test. 3. Launch your campaign. Define a budget for your ad/testing campaign Where to apply? and launch it. Pay only for clicks on your ad, which represent interest. 4. Measure clicks. Learn how many people click on your ad. No clicks may indicate a lack of interest. Test interest early in the process to learn about the existence of customer jobs, pains, gains, and interest for a particular value proposition. Unique Link Tracking Where to apply? Set up unique link tracking to verify potential customers’ or partners’ interest beyond what they might tell you in a meeting, interview, or call. It’s an extremely simple way to measure genuine interest. 1 2 “Fabricate” a unique link. Pitch and track. Make a unique and trackable link to more detailed Explain your idea to a potential customer or part- information about your ideas (e.g., a download, ner. During or after the meeting (via e-mail), give landing page) with a service such as goo.gl. the person the unique link and mention it points to more detailed information. 0 0 0 0 0 3 Learn about genuine interest. Track if the customer used the link or not. If the link wasn’t used, it may indicate lack of interest or more important jobs, pains, and gains than those that your idea addresses. 221 STRATEGYZER.COM / VPD / TEST / 3.3 This works anywhere but is particularly interesting in industries where building MVPs is difficult, such as in industrial goods and medical devices. MVP Catalog STRATEGYZER.COM / VPD / TEST / 3.3 222 MVP stands for minimum viable product, a concept popularized by the lean start-up movement to efficiently test the interest in a product before building it entirely. Rather than coining a new term we stick to this established one and adapt it to testing value propositions. Make it “real” with a representation of a value proposition. What’s an MVP in this book? A representation or prototype of a value proposition designed specifically to test the validity of one or more hypotheses/ assumptions. Tip Start cheaply, even in large companies with big budgets. For example, use your The goal is to do so as quickly, cheaply, and efficiently as possible. MVPs are mainly used to explore potential customer and partner interest. smartphone to make and test reactions to a video before you bring in a video crew to “professionalize” videos and expand Use the following techniques to make your testing. value propositions feel real and tangible before implementing anything when you test them with potential customers and partners. Data Sheet Brochure Storyboard Specs of your imagined Mocked-up brochure Illustration of a customer value proposition of your imagined value scenario showcasing your Requirements: proposition imagined value proposition Word processor Requirements: Requirements: Word processor Sketch artist and design skills (mostly with a CTA). Use prototypes designed specifically to learn from Requirements: experiments with potential customers and partners. Website outlining your My Product Web designer Learning Prototype Functioning prototype of your value proposition with the most basic feature set required for learning Product Box Requirements: Prototype packaging Product development of your imagined value proposition Requirements: Packaging designer and prototype implementation Wizard of Oz Video Set up a front that looks Video showcasing your like a real working value imagined value proposition proposition and manually or explaining how it works carry out the tasks of a Requirements: normally automated prod- Video crew uct or service Requirements: Getting your hands dirty 223 STRATEGYZER.COM / VPD / TEST / 3.3 imagined value proposition Learn with Functional MVPs Landing Page Illustrations, Storyboards, and Scenarios STRATEGYZER.COM / VPD / TEST / 3.3 224 Share illustrations, storyboards, and scenarios related to your value proposition ideas with your potential customers to learn what really matters to them. These types of Illustrations are quick and cheap to produce and make even the most complex value propositions tangible. 1 Prototype alternative value propositions. Come up with several alternative prototypes for Tips the same customer segment. Go for diversity (i.e., ǃɲ In a business-to-business (B2B) context think of 8-12 radically diferent value propositions) and value propositions for each important customer variations (i.e., slightly diferent alternatives). segment, such as users, budget owners, decision makers, and so on. ǃɲ For existing organizations, make sure to 2 include customer-facing staf in the process, Define scenarios. notably to get buy-in and gain access to Sketch out scenarios and storyboards that customers to present the illustrations. describe how a customer will experience each ǃɲ Complement the illustrations with mock data value proposition in a real-world setting. sheets, brochures, or videos to make your ideas even more tangible. ǃɲ Run A/B tests with slightly diferent scenarios to capture which variations get most traction. ǃɲ Four or five meetings per customer segment 3 Create compelling visuals. Use an illustrator to consolidate your sketches are typically sufficient to generate meaningful into compelling visuals that make the customer feedback. experience clear and tangible. Use single illus- ǃɲ Leverage the customer relationship and repeat the process later on with more sophisticated prototypes. Process adapted from Christian Doll, bicdo.de. trations for each value proposition or entire story boards. STRATEGYZER.COM / VPD / TEST / 3.3 225 Questions to ask customers: Which value propositions really create value for you? Which ones should we keep and move forward with, and which ones should we abandon? 4 Dig deeper for each value proposition; pay attention to jobs, pains, and gains; and inquire: Test with customers. Meet customers and present the diferent illustrations, scenarios, and storyboards to start a conversation, provoke reactions, and learn what · What is missing? matters to them. Get customers to rank value propositions from most valuable to least helpful. · What should be left aside? · What should be added? 5 Debrief and adapt. · What should be reduced? Use the insights from your meetings with customers. Decide which value propositions you will · Always ask why to capture qualitative feedback. continue exploring, which ones you will abandon, and which ones you will adapt. Life-Size Experiments STRATEGYZER.COM / VPD / TEST / 3.3 226 Get your customers to interact with life-size prototypes and real-world replicas of service experiences. Stick to the principles of rapid, quick, and low-cost prototyping to gather customer insights despite the more sophisticated set-up. Add a CTA to validate interest. Concept Cars and Life-Size Prototypes These are cars made to showcase new designs and technologies. Their purpose is get reactions from customers rather than to go into mass production directly. Lit Motors used lean start-up principles to prototype and test a fully electric, gyroscopically stabilized two-wheel drive with customers. Because this type of vehicle represents a completely new concept, it was essential for Lit Motors to understand customer perception and acceptance from the very beginning. In addition, Lit Motors added a CTA to validate customer interest beyond initial interactions with the prototype. Customers can prereserve a vehicle with a deposit ranging from $250 to $10,000. Deposits go into a holding account until vehicles are ready, with higher deposits moving customers to the front of the waiting list. Prototype Spaces These are spaces to cocreate products and observe their behavior to gain new insights. Invite potential customers to create their own perfect experience. Include industry experts to help build and test new concepts and ideas. Hotel chain Marriott built a prototyping space in its headquarters’ basement called the Underground. Guests and experts are invited to create the hotel experience of the future by cocreating hotel rooms and other spaces. Guests are invited to add furniture, electricity outlets, electronic gadgets, and more, to hotel room replicas that can easily be reconfigured. Tips ǃɲ Make sure you validate life-size prototypes and service experiences with a CTA. Customers will always be tempted to create the perfect experience in a prototype setting, whereas they might not be willing to pay for it in real life. ǃɲ Use quicker and cheaper validation methods before you draw on life-size prototypes and real-world replicas of service experiences. ǃɲ Don’t let the costs for this type of prototyping get out of hand. Stick to the principles of rapid, quick, and low-cost prototyping as much as possible, while ofering a close-to-life experience to test subjects. 227 STRATEGYZER.COM / VPD / TEST / 3.3 service experiences with customers and/or Landing Page STRATEGYZER.COM / VPD / TEST / 3.3 228 The typical landing page MVP is a single web page or simple website that describes a value proposition or some aspects of it. The website visitor is invited to perform a CTA that allows the tester to validate one or more hypotheses. The main learning instrument of a landing page MVP is the conversion rate from the number of people visiting the site to visitors performing the CTA (e.g., e-mail sign-up, simulated purchase). “The goal of a landing page MVP is to validate one or more hypotheses, not to collect e-mails or sell, which is a nice by-product of the experiment.” Traffic Generate traffic to your landing page MVP with ads, social media, or your existing channels. Make sure you address the target customers you want to learn about, not just anybody. Use your value map to craft the Headline headline and text that describes Craft a headline that speaks to your your value proposition on the potential customers and introduces landing page. the value proposition. Value Proposition Use the previously described techniques to make your value proposi- Test Card Test Name Deadline Assigned to Duration customers. We believe that Critical: Call to Action Get website visitors to perform an To verify that, we will action that you can learn from (e.g., Test Cost: When? tion clear and tangible to potential Data Reliability: e-mail sign-up, surveys, fake purchase, prepurchase). Limit your CTAs to And measure optimize learning. Test early to learn if the jobs, pains, and gains Time Required: you intend to address and/or your value proposition are sufficiently important to your customer Outreach We are right if Reach out to people who performed for them to perform an action. Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer your CTA and investigate why they were motivated enough to perform the Variations Combine with split testing to investigate pref- Design your landing page, traffic action. Learn about their jobs, pains, erences or alternatives that work better than generation, and CTA based on your and gains. Of course, this requires others. Measure click activity with so-called heat learning goals. collecting contact information during maps to learn where visitors click on your page. the CTA. Total audience addressed My Product What percentage of people were interested enough to visit your page? Visitors to website What percentage of people were interested to perform the Tips ǃɲ Consider building a landing page MVP that gives the illusion that a value proposition exists even if doesn’t yet. Your insights from action? Visitors who performed action a CTA closer to reality (e.g., simulated sales) will provide more realistic evidence than, for example, the e-mail sign-up to a planned value proposition or a prepurchase of it. What percentage ǃɲ Be transparent with your test subjects after a of people were willing concluded experiment if you, for instance, “fake” Visitors who to invest time to talk the existence of a value proposition. Consider are willing to to you? ofering them a reward for participating in the talk to you experiment. ǃɲ A landing page MVP can be set up as a standalone web page or within an existing website. STRATEGYZER.COM / VPD / TEST / 3.3 229 Split Testing STRATEGYZER.COM / VPD / TEST / 3.3 230 Split testing, also known as A/B testing, is a technique to compare the performance of two or more options. In this book we apply the technique to compare the performance of alternative value propositions with customers or to learn more about jobs, pains, and gains. Send the same amount of people to the diferent options you want to test. Control Compare how each Challenge option performs regarding your CTA. 8% 20% Conducting Split Tests What to Test? Call to Action The most common form of split test is to test Here are some elements that you can easily test How many of the test subjects perform the CTA? two or more variations of a web page or a with A/B testing ǃɲ Purchase purpose-built landing page (e.g., the variations ǃɲ Alternative features ǃɲ E-mail sign-up may have design tweaks or outline slightly ǃɲ Pricing ǃɲ Click on button or entirely diferent value propositions). This ǃɲ Discounts ǃɲ Survey technique was popularized by companies ǃɲ Copy text ǃɲ Completion of any other task such as Google and LinkedIn, as well as the ǃɲ Packaging 2008 Obama campaign. Split tests can also be ǃɲ Website variations conducted in the physical world. The main learn- ǃɲ . . . ing instrument is to compare if conversion rates regarding a specific call to action difer between competing alternatives. Split testing the title of this book For this book we performed several split tests. For example, we redirected traffic from businessmodelgeneration.com to test three diferent book titles. We tested the titles with more than 231 STRATEGYZER.COM / VPD / TEST / 3.3 120,000 people over a period of 5 weeks. There were several CTAs. The first one was to simply click on a button labeled “learn more.” Then people could sign up with their e-mail for the launch of the book. In the last CTA, we asked them to fill out a survey to learn more about their jobs, pains, and gains. As a small reward we showed people a video explaining the Value Proposition Canvas. Tips ǃɲ Test a single variation in the challenging option if you want to clearly identify what leads to a better performance. ǃɲ Use so-called multivariate testing to test several combined elements to figure out which combination creates the highest impact. ǃɲ Use Google AdWords or other options to attract test subjects. ǃɲ Make sure you reach a statistical significance of greater than 95 percent ǃɲ Use tools such as Google Website Optimizer, Optimizely, or others to easily perform split tests. You’re holding more than a book, it’s the first step to design, test and deliver what really matters for your customers. You’re holding more than a book, it’s a toolkit for how to create compelling value propositions. So go ahead, start a... You’re holding more than a book, its one part of everything you need to make what your customers want. You’re holding the… Value Proposition Design Customer Stampede Value Proposition Toolkit By Alex Osterwalder, Yves Pigneur, Greg Bernarda, & Alan Smith Designed by Trish Papadakos By Alex Osterwalder, Yves Pigneur, Greg Bernarda, & Alan Smith Designed by Trish Papadakos By Alex Osterwalder, Yves Pigneur, Greg Bernarda, & Alan Smith Designed by Trish Papadakos From the team behind Business Model Generation, the global bestseller of over 1 million copies in 30+ languages Conversion rates: 8.51 percent From the team behind Business Model Generation, the global bestseller of over 1 million copies in 30+ languages 6.62 percent From the team behind Business Model Generation, the global bestseller of over 1 million copies in 30+ languages 8.21 percent Innovation Games® STRATEGYZER.COM / VPD / TEST / 3.3 232 Innovation Games is a methodology popularized by Luke Hohmann to help you design better value propositions by using collaborative play with your (potential) customers. The games can be played online or in person. We present three of them. All three Innovation Games we present can be used in various ways. We outline three specific tasks they can help us with when it comes to the Value Proposition Canvas and related hypotheses. Buy a Feature Product Box Speed Boat Task: Prioritize which Task: Understand your Task: Identify the most features customers customers’ jobs, pains, extreme pains holding want most. and gains and the value customers back from propositions they’d like. completing their jobs to be done. Hohmann, Innovation Games, 2006. Speed Boat 1 Set-up. Prepare a large poster with a speedboat floating at sea. 2 Identify pains. Invite customers to identify the problems, obstacles, and risks that are preventing them from successfully performing their jobs. Each issue should go on a large sticky note. Ask them to place each sticky as anchors to the boat—the lower the anchor, the more extreme the pain. 3 Analysis. Compare the outcomes of this exercise with your previous understanding of what is holding customers back from performing their jobs to be done. Tips ǃɲ This exercise can be used during the design phase to identify customer pains or during testing to verify your existing understanding. ǃɲ Use a sailing boat with anchors and sails if you want to work on pains and gains simultaneously. The sails allow you to ask, “What makes the boat faster,” in addition to using the anchors to symbolize what holds people back. 233 STRATEGYZER.COM / VPD / TEST / 3.3 This is a simple but powerful game to help you verify your understanding of customer pains. Get your customers to explicitly state the problems, obstacles, and risks that are holding them back from successfully performing their jobs to be done by using the analogy of a speed boat held back by anchors. Product Box In this game, you ask customers to design a product box that represents the value proposition they’d want to buy from you. You’ll learn what matters to customers and which features they get excited about. STRATEGYZER.COM / VPD / TEST / 3.3 234 2 1 Pitch. Design. Ask your customers to imagine they’re Invite customers to a workshop. selling your product at a tradeshow. Give them a cardboard box and ask Pretend you’re a skeptical prospect them to literally design a product and get your customer to pitch the box that they would buy. The box box to you. should feature the key marketing messages, main features, and key benefits that they would expect from your value proposition. 3 Capture. Observe and note which messages, features, and benefits customers mention on the box and which particular aspects they highlight during the pitch. Identify their jobs, pains, and gains. Buy a Feature This is a sophisticated game to get customers to prioritize among a list of predefined (but not yet existing) value proposition features. Customers get a limited budget of play money to buy their preferred features, which you price based on real-world factors. $35 $35 Price Total Required Bought? $35 20 0 10 -5 No $50 5 0 0 -45 No $70 10 35 25 0 Yes 1 2 3 4 Select and price features. Define the budget. Have the participants buy. Analyze outcomes. Select the features for which you Participants buy features as a group, Invite participants to allocate their Analyze which features get most want to test customer preferences. but each participant gets a personal budget among the features they traction and are bought and which Price each one based on develop- budget that he or she can allocate want. Instruct them to collaborate ones are not. ment cost, market price, or other individually. Make sure the personal with others to get more features. factors that are important to you. budget forces participants to pool resources, and the overall budget forces them to make hard choices among the features they want. STRATEGYZER.COM / VPD / TEST / 3.3 $35 Features 235 Mock Sales STRATEGYZER.COM / VPD / TEST / 3.3 236 A great way to test sincere customer interest is to set up a mock sale before your value proposition even exists. The goal is make your customers believe they are completing a real purchase. This is easily done in an online context but can also be done in a physical one. Online Physical World Test diferent levels of customer commitment with Mock sales are not limited to online. Here’s what these three experiments: retailers do to test customer interest and pricing Learn about customer interest by measuring how in the real world: many people click on a simple “buy now” button. BUY NOW » Learn how pricing influences customer interest. Combine with A/B testing (see p. 230) to learn more about demand elasticity and the optimal price point. » Get hard data by simulating a transaction with the customer’s credit card information. This is the strongest evidence of customer demand (see tips to manage customer perception, p. 237). $ Enter credit card number Introduce products Sell a product in one that don’t exist yet in a retail location only for limited number of (mail a limited amount of time order) catalogs. (diferent from a pilot, which typically covers » an entire market). Presales Tips Don’t fear that mock sales might The main objective of this type of presales is to explore customer interest; it is not to sell. Customers make a purchase commitment and are aware of the fact that your value proposition does not yet fully exist. In case of a lack of interest, the sale is canceled and the customer reimbursed. 237 STRATEGYZER.COM / VPD / TEST / 3.3 alienate customers and negatively afect your brand. Manage customer perception well, and mock sales can be turned into an advantage. Build on these best practices: ǃɲ Explain that you were performing a test after the customer completes the mock purchase. ǃɲ Be transparent about which information you keep or erase. ǃɲ Always erase credit card information in a fake purchase. ǃɲ Ofer a reward for participating in the test (e.g. goodies, discounts). You will turn test subjects into advo- X cates for your brand rather than alien- » ate them if you manage customer perception well. Online Attention Physical World Remember that successful presales Platforms such as Kickstarter made preselling are only an indicator. Ouya, an popular. They allow you to advertise a project, Pledges, letters of intent, and signatures, even if Android-based video game console, and if customers like it, they can pledge money. not legally binding, are a powerful technique to raised millions on Kickstarter but Projects receive funds only if they reach their test potential customers’ willingness to buy. This is later failed to attract a large base predefined funding goals. If you are up for building also easier to apply in a B2B context. of customers or design a scalable the required infrastructure you can also set up business model. your own presales process. 238 3.4 Bringing It All Together N ATIO ERV OBS TO G TIN TES T EN SSM E ASS UE 7Q S ON STI M FROING T TES TS POIN TING STAR G YPIN TOT PRO ESS L DE MO SIN BU ED FAIL SU CC ES S HYP OTH E SIS The Testing Process Use all the tools you learned about to describe what you need to test and how you will do so in order to turn your idea into reality. STRATEGYZER.COM / VPD / TEST / 3.4 240 What to Test With the Value Proposition and Business Model Canvases, you map out how you believe your idea could become a success. This foundation allows you to easily make the hypotheses explicit that need to be true for your idea to work. Start by testing the most important ones with a series of experiments. How to Test With the testing card, you describe how exactly you will verify your most important hypotheses and what you will measure. After one or more completed experiments, you use the learning card to capture your insights and indicate whether you need to learn more, iterate, pivot, or move on to test the next important hypothesis. Whatˇs Next Keep your eyes on the prize, and make sure you are progressing. Track whether you are advancing from your initial idea toward a profitable and scalable business via problem-solution fit, product-market fit, and business model fit. 1 2 (re)Shape your ideas. Extract your hypotheses. (6) 5A 5B UNCERTAIN INVALIDATED test more iterate or pivot Learning Card Test Card 5 4 Capture learnings and next actions. 3 Enter the learning loop. Design your tests. 5C VALIDATED Learn progress toward Measure next element 6 Measure progress. Pivot Customer Discovery Customer Validation Customer Creation Company Building STRATEGYZER.COM / VPD / TEST / 3.4 241 Build Measure Your Progress STRATEGYZER.COM / VPD / TEST / 3.4 242 The testing process allows you to continuously reduce uncertainty and gets you closer to turning your idea into a real business. Measure your progress toward this goal by tracking the activities you’ve done and the results you’ve achieved. We designed this spread that allows you to understand if you’re progressing based on Steve Blank’s Investment Readiness Thermometer. Idea Designed Customer Assumptions Validated Problem-Solution Fit Download Progress Indicators Business Model and Value Proposition Prototyped Blank, Investment Readiness Thermometer, 2013, http://steveblank.com/2013/11/25/its-time-to-play-moneyballthe-investment-readiness-level/. Assessed with Competitors Customer Discovery Value Proposition Validated Product-Market Fit Interest Validated Preference Validated Business Model Validated Business Model Fit Business Model Monitoring Customer Creation Company Building Willingness to Pay Validated Customer Validation STRATEGYZER.COM / VPD / TEST / 3.4 243 The Progress Board Use the progress board to manage and monitor your tests and assess how much progress you are making toward success. STRATEGYZER.COM / VPD / TEST / 3.4 244 Get Progress Board poster What did I test already? What am I testing, and what did I learn? How much progress did I make? Use the Value Proposition and Business Model Canvases to track which elements you have tested, validated, or invalidated. Track the tests you are planning, building, measuring, and digesting to learn and make your insights and follow-up actions explicit. Keep score of how much progress you are making. 1 2 (re)Shape your ideas. Extract your hypotheses. (6) 5A board: iterate or pivot 3 your design Design your tests. Learning Card 4 Learning Card Tests INVALIDATED backlog 5 Insights and Actions build measure learn done Test Card Test Card Learning Card 5B Learning Card Learning Card Test Name Deadline Assigned to Duration Test Card Test Card Test Card Test Card Critical: To verify that, we will Test Cost: LEARN MORE Test Card We believe that Data Reliability: And measure Time Required: We are right if Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Test Card Test Card Test Name Assigned to Deadline Duration We believe that Critical: Learning Card 5C Learning Card To verify that, we will Test Cost: Data Reliability: And measure Time Required: We are right if VALIDATED Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Test Card Test Card Test Name Assigned to Deadline Duration We believe that Critical: To verify that, we will advance to next step: Test Cost: Data Reliability: And measure Time Required: move on in your quest to turn your idea into reality 6 Measure progress. We are right if Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Test Card STRATEGYZER.COM / VPD / TEST / 3.4 245 Test Card back to the drawing STRATEGYZER.COM / VPD / TEST / 3.4 246 Owlet: Constant Progress with Systematic Design and Testing Owlet Business Model: version 0 Key Partnerships Key Activities Value Propositions Customer Relationships Customer Segments Wireless monitoring of babies’ blood oxygen, heart rate, and sleep data.* nurses pulse oximetry monitor Key Resources Channels hospitals sales force Cost Structure Revenue Streams 1 Initial idea An opportunity Monitoring pulse oximetry could be easier without the cord between the device and the monitor display. Watch Owlet presentation online * Case adopted in accordance with Owlet. Owlet was the winner of the 2013 International Business Model Competition. hospitals Test Card Nurses STRATEGYZER.COM / VPD / TEST / 3.4 247 Test 1A: Nurse Interviews ankle-worn tracking HYPOTHESIS: Wireless pulse oximetry is more convenient shortest time METRIC: Percentage of positive feedback TEST: Interview nurses DATA: Of 58 nurses interviewed, 93 percent prefer the wireless monitoring. pulse oximetry monitor monitoring patients Validated: 1 week, $0 wireless cord between device and monitor display Test Card Hospital administrators Test 1B: Hospital Administrator Interviews HYPOTHESIS: Wireless pulse oximetry is more convenient. METRIC: Percentage of positive feedback TEST: Interview hospital administrators DATA: 0 percent ready to pay more for wireless buying materials pulse oximetry monitor managing budgets “ease of use is not a pain, if not cost-efective.” Unvalidated: 1 week, $0 wireless cost Pivot: change the customer segment Owlet Business Model: version 2 STRATEGYZER.COM / VPD / TEST / 3.4 248 Key Partnerships Key Activities Value Propositions Customer Relationships Customer Segments parents baby alarm Key Resources Channels baby stores Cost Structure Revenue Streams <$200 price 2 Iteration Peace of mind for parents DATA: Sudden infant death syndrome (SIDS) is the leading cause of infant deaths. a first pivot after one week A wireless monitor that collects the baby’s heart Pivot: Change the customer segment from nurses and hospitals to worried parents. rate, oxygen level, and sleep pattern and sends them via Bluetooth to the parents’ smartphone with alerts; distributed by baby stores. Test Card Test 2: Parent interviews HYPOTHESIS: Parents are ready to adopt and buy a wireless baby alarm. METRIC: Percentage of adopting parents Parents TEST: Interview mothers 249 adopt the wireless monitoring. “Awesome. I want to buy now!” smart bootie STRATEGYZER.COM / VPD / TEST / 3.4 DATA: Of 105 mothers interviewed, 96 percent peace of mind wireless monitoring Validated mobile app Test Card Test 3: MVP Landing page pulse oximetry monitor taking care of babies HYPOTHESIS: A smart bootie is convenient and easy to use for monitoring. METRIC: Number of positive comments TEST: An MVP, with a video on a website convenience baby alarm sudden infant death syndrome (SIDS) DATA: 17,000 views, 5,500 shares of Facebook, 500 positive comments by parents, distributors, and research organizations Validated, 2 weeks, $220 Test Card Test 4: A/B Price test HYPOTHESIS: Rental versus sale at $200+ sale price METRIC: Percentage for a sale price TEST: A/B testing, 3 rounds, on the website DATA: 1,170 people tested, $299 the best price Validated, 8 weeks, $30 seems to be a promising business but… Owlet Business Model: version 3 STRATEGYZER.COM / VPD / TEST / 3.4 250 Key Partnerships Key Activities Value Propositions Customer Relationships Customer Segments worried parents baby alarm Key Resources FDA clearance 130 Channels infant health tracker Cost Structure baby stores baby stores Revenue Streams <$200 price after 24 weeks, and $1,150 for the tests, including a technical proof of concept Running lean based on experts, a Food and Drug Administration (FDA) clearance for a baby alarm is one year, $120,000–$200,000 3 Iteration Peace of mind, but for less worried parents With a more minimal, less risky product, an infant health tracker (heart rate, oxygen levels, and sleep patterns), but without alarm, for another customer segment: the less worried parents. Need to be revalidated… less worried parents Test Card Test 5: Interview/Proposition: “Owlet Challenge” smart bootie peace of mind wireless monitoring HYPOTHESIS: Less worried parents are ready to mobile app adopt and buy a wireless baby health tracker, without alarm. METRIC: Percentage of parents adopting the no-alarm tracker convenience pulse oximetry monitor taking care of babies TEST: Interview at retail locations, having to choose between the Owlet tracker and other similar systems (video, sound, and movement) DATA: Of 81 people interviewed, 20 percent baby alarm a slight anxiety for baby sleep adopted the Owlet tracker. Validated, 3 weeks, $0 Owlet decided to start first with the baby health tracker and to come later with the baby alarm, after FDA clearance. 251 STRATEGYZER.COM / VPD / TEST / 3.4 Less worried parents Professions (excluding non-responses): data from 1119 responses STRATEGYZER.COM / VPD / TEST / 3.4 252 Lessons Learned Testing Step-by-Step Experiment Library Bringing It All Together Your customers are the judge, jury, and executioner of your value proposition, so get outside of the building and test your ideas with the customer development and lean start-up process. Make sure you start with quick and cheap experiments to test the assumptions underlying your ideas when uncertainty is at its maximum. What your customers say might wildly difer from what they do in reality. Go beyond talking to customers and conduct a series of experiments. Get them to perform actions that provide evidence of their interest, their preferences, and their willingness to pay. Launching ideas without testing is wishful thinking. Testing ideas without launching is just a pastime. Launching tested ideas can change your life as an entrepreneur. Measure your progress from idea to real business step by step. 253 STRATEGYZER.COM / VPD / TEST / 3.4 evo olve 4 Use the Value Proposition and Business Model Canvas as a shared language to Create Alignment p. 260 throughout every part of your organization while it continuously evolves. Make sure you constantly Measure and Monitor p. 262 your value propositions and business models in order to Improve Relentlessly p. 264 and Reinvent Yourself Constantly p. 266. Create Alignment STRATEGYZER.COM / VPD / EVOLVE 260 The Value Proposition Canvas is an excellent alignment tool. It helps you communicate to diferent stakeholders which customer jobs, pains, and gains you are focusing on and explains how exactly your products and services relieve pains and create gains. Packaging Advertising Explainer Videos 20 4 Slide Decks > Hello, Craft aligned messages. ? Sales Scripts Marketing Align internal and external stakeholders. Craft marketing messages based on the jobs, pains, and gains your products and services are helping with. Align customer-facing messaging all the way from advertising to package design. Point out which pain relievers and gain creators to focus on. (Channel) Partners Employees Bring (channel) partners on board, and explain Help all employees understand which custom- your value proposition. Help them understand why ers you are targeting and which jobs, pains, customers will love your products and services by and gains you are addressing, and outline how highlighting pain relievers and gain creators. exactly your products and services will create value for customers. Explain how the value proposition fits into the business model. Sales Shareholders Help sales understand which segments to target Explain to your shareholders how exactly you and what customers’ jobs, pains, and gains are. intend to create value for your customers. Clarify Highlight which attributes of your value proposi- how the (new or improved) value proposition will tion are most likely to sell by relieving pains and bolster your business model and create a compet- creating gains. Align sales scripts and pitch decks. itive advantage. STRATEGYZER.COM / VPD / EVOLVE 261 Measure and Monitor Business Model Performance Value Proposition Performance Customer Satisfaction (Quantitative Facts) (Perception) BUILD indicators Investigate Change Δ MONITOR indicator/target Track MEASURE (continuously) Performance STRATEGYZER.COM / VPD / EVOLVE 262 Use the Value Proposition and Business Model Canvases to create and monitor performance indicators once your value proposition is operational in the market. Track the performance of your business model, your value proposition, and your customers’ satisfaction. Threshold Indicator Time Target ★★★★☆ 50% 80% satisfied with balance Indicator # workshop guide rating on downloads by readers Amazon.com who signed up online # of readers who feel conversion rate from theory/practice is book to online sign-up good Building Block applicable ideas downloadable templates, and guides engaging multimedia content too much theory 263 STRATEGYZER.COM / VPD / EVOLVE 25% Improve Relentlessly 5C Customer Satisfaction (Quantitative Facts) (Perception) Build INVALIDATED 5A no impact on UNCERTAIN customer satisfaction test more Learning Card Test Card 5B VALIDATED Learn improved customer Use the same tools and processes from testing and monitoring to improve your value proposition once it’s in the market. Continuously test “what if” improvement scenarios, and measure their impact on customer satisfaction. Measure measure causal efect on satisfaction customer satisfaction Performance STRATEGYZER.COM / VPD / EVOLVE 264 Value Proposition Performance Customer Satisfaction Time Hilti Construction Companies Test Card Test Name Deadline Assigned to Duration step 1: hypothesis if we decrease the response time to replace broken tools, customers feelCritical: like they are getting a better service. We believe that step 2: test To verify that, we will by 25% on average. decrease replacement response time feels like better service change satisfaction 265 decrease response time for one client Test Cost: STRATEGYZER.COM / VPD / EVOLVE subscriptionbased leet management Data Reliability: step 3: metric customer satisfaction at the beginning and the end of the experiment. And measure Time Required: step 4: criteria We are right if customer satisfaction increases by x%. causes Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Test Card Value Proposition Design Readers Test Name Deadline Assigned to Duration step 1: hypothesis if we increase the number of “wizard” features, more people will complete exercises. Critical: We believe that step 2: test To verify that, we will exercise. online exercises add a wizard feature to one Test Cost: Data Reliability: step 3: metric And measure add “wizard” features for online exercises completion of exercise increases change satisfaction if more people completed that exercise than before. Time Required: step 4: criteria We are right if there is an increase of x% causes Copyright Business Model Foundry AG The makers of Business Model Generation and Strategyzer Reinvent Yourself Constantly STRATEGYZER.COM / VPD / EVOLVE 266 Successful companies create value propositions that sell embedded in business models that work. Outstanding companies do so continuously. They create new value propositions and business models while they are successful. Five things to remember when you build transient Today’s enterprise must be agile and develop · Invest in continuously experimenting with new value propositions and business models rather than making big bold uncertain bets. what Columbia Business School Professor Rita McGrath calls transient advantages in her book The End of Competitive Advantage. She argues advantages: · Take the exploration of new value propositions and business models just as seriously as the execution of existing ones. that companies must develop the ability to rapidly and continuously address new opportunities, rather than search for increasingly unsustainable long-term competitive advantages. · Reinvent yourself while you are successful; don’t wait for a crisis to force you to. Use the tools and processes of Value Proposition Design to continuously reinvent yourself and create new value propositions embedded in great business models. · See new ideas and opportunities as a means to energize and mobilize employees and customers rather than a risky endeavor. · Use customer experiments as a yardstick to judge new ideas and opportunities rather than the opinions of managers, strategists, or experts. STRATEGYZER.COM / VPD / EVOLVE 267 Continuously ask yourself… What elements in your environment Is your business model expiring? Do Is your value proposition still compel- are changing? What do market, tech- you need to add new resources or ling to your customers? How are your nology, regulatory, macroeconomic, activities? Do the existing ones ofer an customer's jobs, pains, and gains or competitive changes mean for opportunity to expand your business evolving? Can you build on your exist- your value propositions and business model? Could you bolster your existing ing value proposition or do you need models? Do those changes ofer an business model or should you build to revisit it entirely? Is there a new opportunity to explore new possibil- completely new ones? Is your business potential customer or a new segmen- ities or could they be a threat that model portfolio fit for the future? tation emerging? What is happening might disrupt you? in your business that creates the basis for new value propositions to existing or new customers? Taobao: Reinventing (E-)Commerce STRATEGYZER.COM / VPD / EVOLVE 268 Taobao is the Chinese e-commerce phenomenon, part of the Alibaba Group. It is credited with ushering in a new wave of commerce in China by using the Internet to create an ecosystem where trusted commercial exchanges could take place. In 10 years it evolved its business models three times. It proactively embraced the changes taking place on its platform and in the wider Chinese economy and turned them into an opportunity. Check out the full Taobao case online 2003 A new Consumer-to-Consumer (C2C) Platform Alipay (payment system) Key Activities Value Propositions Customer Relationships Developing commerce infrastructure Online customer service Web retail with choice + trust + price/ quality Banks Key Resources Expert Logistics Two-way review system Customer Segments 269 Channels Retail sales platform Taobao.com Chinese speaking sellers Revenue Streams Cost Structure 2 Chinese speaking consumers STRATEGYZER.COM / VPD / EVOLVE Key Partnerships Creation of a new value prop- Creation of a trusted platform osition for buyers and sellers Launch of a payment and Introduction of a review logistics infrastructure system creates trust among with partners to facilitate buyers and sellers that did commercial transactions and not exist in the physical shipment of goods economy 1 Sell used and new goods Can't process payments Obstacles to commerce in the Chinese economy Consumers discouraged by Lack of infrastructure to do high prices, low quality, and business lack of trust. Find and acquire goods High prices Low quality Poor access to consumers Lack of trust 2006 Taobao — Small Business-to-Consumer (B2C) Key Partnerships Alipay (payment system) STRATEGYZER.COM / VPD / EVOLVE 270 Banks Helping businesses succeed Key Activities Developing commerce infrastructure Value Propositions Customer Relationships Online customer service App Devs + Fashion Models Two-way review system Chinese speaking consumers Training and Empowerment Web retail with choice + trust + price/ quality Key Resources Expert Logistics Customer Segments Micro + Small Businesses Channels Grow Business Taobao.com Chinese speaking sellers Revenue Streams Cost Structure Premium for advanced shop features Ads 2 1 Pivot toward microentrepreneurs Birth of microentrepreneurs Taobao shifts focus and The Taobao platform builds on this trend by cater- becomes so popular that ing to micro-entrepreneurs millions of sellers see an Sell products opportunity to become Inclusion of third-party micro-entrepreneurs service providers to Make a living strengthen the value proposition Creation of the ‘Taobao University’ to help entrepreneurs navigate the platform and learn about business Fulill a passion 2008 2013 Taobao — Big Business-to-Consumer (B2C) Taobao — ? Alipay (payment system) Helping businesses succeed Key Activities Developing commerce infrastructure Banks Millions Key Resources Expert Logistics App Devs + Fashion Models of Chinese consumers 2-way review system Value Propositions Customer Relationships Online customer service One-stop presence Training and Empowerment Web retail with choice + trust + price/ quality Customer Segments Chinese speaking consumers ? Micro + Small Businesses Channels Tmall.com Grow Business Big brands Taobao.com Revenue Streams Premium for advanced shop features Cost Structure Membership fees Ads 2-5% Sales commission Creation of new Revenue Streams Taobao went from a simple e-commerce platform to complex 2 ecosystem in 10 years. Launch of a new business It achieved this by The “new” asset becomes the basis of a new value proposition Returning consumers …for a new customer (big brands)… 1 …helping them reach Chinese A new asset is revealed consumers much faster than Taobao realizes that its through the opening of physical business model possesses an incredible asset: hundreds of millions of Chinese consumers. stores. cost of customer acquisition time to establish physical presence Reach improving and reinventChinese mass ing its value propositions consumers and business models on the way. With new Develop developments in mobile, brand loyalty gaming, messaging, and more, however, the company can’t rest on Grow sales its laurels. Taobao is constantly challenged to continue its evolution. 271 STRATEGYZER.COM / VPD / EVOLVE Key Partnerships STRATEGYZER.COM / VPD / EVOLVE 272 Lessons Learned Create Alignment Measure, Monitor, Improve Reinvent While Successful The Value Proposition and Business Model Canvases are excellent alignment tools. Use them as a shared language to create better collaboration across the diferent parts of your organization. Help every stakeholder understand how exactly you intend to create value for your customers and your business. Track the performance of your value propositions over time to make sure you continue to create customer value while market conditions change. Use the same tools and processes to improve your value propositions, which you used to design them. Don’t wait with reinventing your value propositions and business models. Do so before before market conditions force you to, because it might be too late. Create organizational structures that allow you to improve existing value propositions and business models and invent new ones at the same time. after word Glossary STRATEGYZER.COM / VPD / AFTERWORD 276 (Business) Hypothesis Customer Insight Something that needs to be true for your idea to Minor or major breakthrough in your customer work partially or fully but that hasn't been vali- understanding helping you design better value dated yet. propositions and business models. Business Model Customer Pains Rationale of how an organization creates, delivers, Bad outcomes, risks, and obstacles that custom- and captures value. ers want to avoid, notably because they prevent them from getting a job done (well). Business Model Canvas Strategic management tool to design, test, build, Customer Profile and manage (profitable and scalable) business Business tool that constitutes the right-hand side models. of the Value Proposition Canvas. Visualizes the jobs, pains, and gains of a customer segment (or Call to Action (CTA) stakeholder) you intend to create value for. Prompts a subject to perform an action; used in an experiment in order to test one or more Environment Map hypotheses. Strategic foresight tool to map the context in which you design and manage value propositions Customer Development and business models. Four-step process invented by Steve Blank to reduce the risk and uncertainty in entrepreneur- Evidence ship by continuously testing the hypotheses Proves or disproves a (business) hypothesis, underlying a business model with customers and customer insight, or belief about a value proposi- stakeholders. tion, business model, or the environment. Customer Gains Experiment/Test Outcomes and benefits customers must have, A procedure to validate or invalidate a value expect, desire, or dream to achieve. proposition or business model hypothesis that produces evidence. Minimum Viable Product (MVP) Value Map When the elements of your value map meet A model of a value proposition designed specifically Business tool that constitutes the left-hand side relevant jobs, pains, and gains of your customer to validate or invalidate one or more hypotheses. of the Value Proposition Canvas. Makes explicit segment and a substantial number of customers how your products and services create value by “hire” your value proposition to satisfy those jobs, Pain Relievers pains, and gains. Describes how products and services alleviate alleviating pains and creating gains. customer pains by eliminating or reducing bad Value Proposition Gain Creators outcomes, risks, and obstacles that prevent Describes the benefits customers can expect Describes how products and services create gains customers from getting a job done (well). from your products and services. benefits they require, expect, desire, or dream of Products and Services Value Proposition Canvas by getting a job done (well). The items that your value proposition is based Strategic management tool to design, test, on that your customers can see in your shop build, and manage products and services. Fully window—metaphorically speaking. integrates with the Business Model Canvas. Progress Board Value Proposition Design and help customers achieve the outcomes and Jobs to Be Done What customers need, want, or desire to get done in their work and in their lives. Strategic management tool to manage and The process of designing, testing, building, and Lean Start-up monitor the business model and value proposi- managing value propositions over their entire Approach by Eric Ries based on the Customer tion design process and track progress toward a lifecycle. Development process to eliminate waste and successful value proposition and business model. uncertainty from product development by continu- Get Glossary pdf ously building, testing, and learning in an iterative Prototyping (low/high fidelity) fashion. The practice of building quick, inexpensive, and rough study models to learn about the desirabil- Learning Card ity, feasibility, and viability of alternative value Strategic learning tool to capture insights from propositions and business models. research and experiments. Test Card Strategic testing tool to design and structure your research and experiments. 277 STRATEGYZER.COM / VPD / AFTERWORD Fit Core Team 278 Yves Pigneur Trish Papadakos Supervising Author Designer Greg Bernarda Alex Osterwalder Alan Smith Author Lead Author Strategyzer Cofounder Author + Creative Director Strategyzer Cofounder Tegan Mierle Sarah Kim Brandon Ainsley Matt Mancuso Pilot Interactive Illustration Team Strategyzer Content Team Strategyzer Product Team Benson Garner, Nabila Amarsy Dave Lougheed, Tom Phillip, Joannou Ng, Chris Hopkins, Matt Bullock, Federico Galindo Prereaders We practice what we preach and tested our ideas before releasing them. More than 100 selected people from around the world participated as prereaders to scrutinize our raw creations. More than 60 actively contributed by reviewing ideas, concepts, and spreads. They ofered suggestions, meticulously proofread, and pointed out flaws and inconsistencies without pity. We iterated the book title several times with prereaders before testing various alternatives in the market. Gabrielle Benefield Jay Jayaraman Johan Rapp Phil Blake Shyam Jha Christian Saclier Jasper Bouwsma Greg Judelman Andrea Schrick Frederic Briguet James King Gregoire Serikof Karl Burrow Hans Kok Aron Solomon Manuel Jose Carvajal Ryuta Kono Peter Sonderegger Pål Dahl Jens Korte Lars Spicker Olesen Christian Doll Jan Kyhnau Matt Terrell Joseph Dougherty Michael Lachapelle James Thomas Todd Dunn Ronna Lichtenberg Paris Thomas Reinhard Ematinger Justin Lokitz Patrick Van Der Pijl Sven Gakstatter Ranjan Malik Emanuela Vartolomei Jonas Giannini Deborah Mills-Scofield Mauricio Claus Gladyszak Nathan Monk Reiner Walter Boris Golob Mario Morales Matt Wanat Dave Gray Fabio Nunes Lu Wang Gaute Hagerup Jan Ondrus Marc Weber Natasha Hanshaw Aloys Osterwalder Judith Wimmer Chris Hill Matty Paquay Shin Yamamoto Luke Hohmann Olivier Perez Kennedy 279 Bios 280 Alex Osterwalder Yves Pigneur Dr. Alexander Osterwalder is the lead author Dr. Yves Pigneur is coauthor of Business Model of the international bestseller Business Model Generation and a professor of management and Generation, passionate entrepreneur, and information systems at the University of Lausanne. demanded speaker. He cofounded Strategyzer, He has held visiting professorships in the United a software company specializing in tools and States, Canada, and Singapore. Yves is a frequent content for strategic management and inno- guest speaker on business models in universities, vation. Dr. Osterwalder invented the Business large corporations, entrepreneurship events, and Model Canvas, the strategic management tool to international conferences. design, test, build, and manage business models, which is used by companies like Coca Cola, GE, P&G, Mastercard, Ericsson, LEGO, and 3M. He is a frequent keynote speaker in leading organizations and top universities around the world, including Stanford, Berkeley, MIT, IESE, and IMD. Follow him online @alexosterwalder. Greg Bernarda Alan Smith Trish Papadakos Greg Bernarda is a thinker, creator, and facilitator Alan is obsessed with design, business, and the Trish is a designer, photographer, and entre- who supports individuals, teams, and organiza- ways we do them. A design-trained entrepre- preneur. She holds a Masters in Design from tions with strategy and innovation. He works neur, he has worked across film, television, print, Central St. Martins in London and Bachelor of with inspired leaders to (re)design a future which mobile, and web. Previously, he cofounded The Design from the York Sheridan Joint Program in employees, customers, and communities can Movement, an international design agency with Toronto. She teaches design at her alma mater, recognize as their own. His projects have been offices in London, Toronto, and Geneva. He helped has worked with award-winning agencies, with the likes of Colgate, Volkswagen, Harvard create the Value Proposition Canvas with Alex launched several businesses, and is collaborat- Business School, and Capgemini. Greg is a Osterwalder and Yves Pigneur, and the break- ing for the third time with the Strategyzer team. frequent speaker; he cofounded a series through design for Business Model Generation. Follow her photography on Instagram of events on sustainability in Beijing; and is an He cofounded Strategyzer, where he builds @trishpapadakos. advisor at Utopies in Paris. Prior to that, he was tools and content with an amazing team; helping at the World Economic Forum for eight years businesspeople make stuf customers want. setting up initiatives for members to address Follow him online @thinksmith. global issues. He holds an MBA (Oxford Saïd) and is a Strategyzer certified business model coach. 281 Index 282 A brainstorming defining criteria with, 140 A/B testing, 230–231 possibilities for, 92–93 ad-libs, for Prototyping, 76, 82–83 See also Starting Points Ad Tracking (Experiment Library), 220 Bransfield-Garth, Simon, 146 AirBnB, 91 brochures, creating, 222 Alibaba Group, 268–271 Build, Measure, Learn Circle, 94, 95 alignment, creating, 260–261 Business Hypothesis Anthropologist, 106, 114–115, 217 defined, 201 Apple, 156, 157 extracting, 200–201 App Store (Apple), 157 Lean Startup and, 185, 186–187 assessment prioritizing, 202–203 Business Model and, 156–157 Business Model, 142–157 of competitors, 128–129, 130–131 assessing, 156–157 of skills for Value Proposition Design, xxii–xxiii Azuri example, 146–151 of Value Proposition, 122–123 compressed air energy storage example, 152–153 Azuri, 146–151 creating value for customers and, 144–145 Fit and, 48–49, 52–53 platform Business Models, 52–53 B best practices for mapping customers’ jobs, pains, and gains, 24–25 (See also Customer Gains; Customer Pains; Jobs to be Done) for mapping value creation, 30 stress testing, 154–155 testing, 194–195 Business Model Canvas defined, xv illustrated, xvii Business Model Generation (Osterwalder), xiv, xvi business plans, experimentation processes versus, 179 Blank, Steve, 118, 182–183 business-to-business (B2B) transactions, 50–51 Blue Ocean Strategy, 130 Buy a Feature (Experiment Library), 235 books, as Starting Points, 92–93 Buyer of Value (customer role), 12 C colleagues, Value Proposition Design for, xxiv–xxv Company Building (Customer Development process), 183 Call to Action (CTA), 218–219 competitors, assessing, 128–129, 130–131 Canvas compressed air energy storage example Customer Profile and, 3–5, 9, 10–25 Fit and, 3–5, 40–59 identifying stakeholders with, 50–51 moviegoing example, 54–55 observing customers, 7 Business Model, 152–153 Prototyping, 96–97 context Jobs to be Done, 13 understanding, 126–127 summarized, 60 cost structure, defined, xvi Value Map and, 3–5, 8, 26–39 Creation (Customer Development process), 183 Value Proposition, defined, 6 criteria, defining, 140–141 See also Business Model Canvas; Customer Profile; Fit; Value Map; Value Customer Development process, 182–183 Proposition; Value Proposition Canvas Customer Gains change. See Evolve best practices for mapping, 24–25 channels, defined, xvi checking Fit and, 46–47 characteristics, of customers, 14–15 defined, 16–17 Choices, 120–141 psychodemographic profile approach versus, 54–55 competitors and, 128–129, 130–131 ranking, 20–21 context and, 126–127 as Starting Point, 88–89 defining criteria and selecting prototypes, 140–141 Testing the Circle objective, 190–191 feedback and, 132–133, 134–135, 136–137 role-playing and, 107, 124–125 tips for, 124, 131, 137 See also Gain Creators Customer Insight, 104–119 Anthropologist, 106, 114–115, 217 Value Proposition assessment, 122–123 choosing mix of experiments for, 216–217 (See also Experiment Library) visualization and, 138–139 Cocreator, 107 Circle, Testing the, 190–191 creating value for, 144–145 (See also Business Model) Cocreator (for Customer Insight), 107 customer relationship management (CRM), xvi, 109 Cocreator of Value (customer role), 12 Data Detective, 106, 108–109, 217 283 284 gaining, 106–107 understanding customer perspective for, 22–23 identifying patterns in, 111, 116–119 use of, 60–61 Impersonator, 107, 124–125 See also Jobs to be Done; Starting Points Journalist, 106, 110–113, 217, 225 Scientist, 107 shaping ideas and, 70–71 tips for, 113, 115, 117 Customer Pains D Data Detective, 106, 108–109, 217 best practices for mapping, 24–25 data mining, 109 checking Fit and, 46–47 data sheets, creating, 222 defined, 14–15 data traps, avoiding, 210–211 psychodemographic profile approach versus, 54–55 Day in the Life, A (worksheet), 115–116 ranking, 20–21 de Bono, Edward, 136–137 as Starting Point, 88–89 decision makers, 50–51 Testing the Circle objective, 190–191 Dell, 157 See also Pain Relievers Design, 64–170 Customer Profile, 10–25 characteristics of great Value Propositions, 72–73 best practices for mapping jobs, pains, and gains, 24–25 constraints, 90–91 business-to-business (B2B) transactions, 50–51 design/build (Lean Startup), 185, 186–187 Customer Gains, defined, 16–17 in established organizations, 158–187 (See also established organizations) Customer Pains, defined, 14–15 finding the right Business Model, 142–157 (See also business model) customer’s context and, 56–57 making choices for, 120–141 (See also Choices) customer segments, xvi, 116 overview, 67 defined, 9 Prototyping possibilities, 70–71, 74–85 (See also Prototyping) diferent solutions for same customers, 58–59 shaping ideas with, 70–71 identifying high-value jobs, 100–101 Starting Points, 70–71, 86–103 (See also Starting Points) innovating from, 102–103 summarized, 170 jobs, pains, and gains as new approach, 54–55 understanding customers, 70–71, 104–119 (See also Customer Insight) Jobs to be Done, defined, 12–13 discovery (Customer Development process), 182 ranking jobs, pains, and gains, 20–21 Dotmocracy, 138–139 sketching, 18–19 Dropbox, 210 E Call to Action (CTA), 218–219 choosing mix of experiments, 216–217 Earlyvangelists, 118 experiment, defined, 216 economic buyers, 50–51 experiment design and, 204–205 Eight19 (Azuri), 146–151 experimenting to reduce risk, 178–179 emotional jobs, of customers, 12 Illustrations, Storyboards, and Scenarios, 222, 224–225 end users, 50–51. See also Customer Insight Innovation Games, 232 Environment Map, v, xv Landing Page MVP, 228–229 EPFL, 96–97 Life-Size Experiments, 226–227 established organizations, 158–169 Minimum Viable Product (MVP), 222–223, 228–229 inventing and improving, 160–161, 162–163 Mock Sales, 236–237 reinventing, 164–165 Pre Sales, 237 Value Proposition Design for, xix Product Box, 234 workshops for, 166–167, 168–169 Speed Boat, 233 Evidence Split Testing, 230–231 Call to Action (CTA) and, 218–219 tips for, 217, 222, 224, 227, 229, 231, 233, 237 need for, 190–195 Unique Link Tracking, 221 producing, 97, 216 See also Test See also Test Evolve, 254–272 creating alignment and, 260–261 improvement and, 264–265 F measuring and monitoring, 262–263 Facebook, 157 overview, 257 facts, as feedback, 134 reinventing and, 266–267, 268–271 false-negative/false-positive traps, 210 summarized, 272 Federal Institute of Technology (Switzerland), 96–97 “exhausted maximum” trap, 211 feedback, 132–133, 134–135, 136–137 experience, as feedback, 134 financial issues Experiment Library, 214–237 cost structure, defined, xvi Ad Tracking, 220 generating revenue, 144–145 Buy a Feature, 235 profit, defined, xvi 285 286 revenue streams, defined, xvi stress testing, 154–155 testing customers’ willingness to pay, 219 (See also Experiment Library) See also Business Model H Hilti, 90 Hohmann, Luke, 232 hypothesis. See Business Hypothesis Fit, 40–59 addressing customers’ jobs, pains, and gains with, 44–45 checking for, 46–47 Customer Profile and customer context, 56–57 I Customer Profile and Value Map as two sides of, 3–5 Ikea, 157 Customer Profile versus psychodemographic profile approach, 54–55 Illustrations, Storyboards, and Scenarios (Experiment Library), 222, 224–225 diferent solutions for same customers, 58–59 Impersonator, 107 multiple Fit, 52–53 improvement stages of, 48–49 for established organizations, 160–161, 162–163 striving for, 42–43 as relentless, 264–265 use of, 60–61 See also Evolve functional jobs, of customers, 12 Indigo, 150–151 influencers, 50–51 G Gain Creators Innovation Games, 232 intermediary Fit, 52–53 interviewing, of customers, 106, 110–113, 217, 225 iPod (Apple), 156 Fit and, 9, 47 Pain Relievers versus, 38 Products and Services as, 33 Value Map and, 33–34 gains. See Customer Gains Google J Jobs to be Done best practices for mapping, 24–25 AdWords, 220 defined, 12–13 searches, 108 identifying high-value jobs, 98–99, 100–101 government census data, 108 psychodemographic profile approach versus, 54–55 ranking, 20–21 measurement as Starting Point, 88–89 Evolve and, 262–263 Testing the Circle objective, 190–191 Lean Startup feature, 185, 186–187 Journalist, 106, 110–113, 217, 225 See also Test MedTech, 154–155 K key activities, defined, xvi key partnerships, defined, xvi Minimum Viable Product (MVP) Lean Start-up with, 184 Prototyping and, 77 testing with, 222–223, 228–229 Mock Sales (Experiment Library), 236–237 key resources, defined, xvi L N napkin sketch, for Prototyping, 76, 80–81 Landing Page MVP (Experiment Library), 228–229 Nespresso, 90, 156 Lean Startup, 184–185, 186–187 new ventures, Value Proposition Design for, xviii Learning Cards, 206–207, 213 learning (Lean Startup), 185, 186–187 Life-Size Experiments (Experiment Library), 226–227 listening, 112 Lit Motors, 226 “local maximum” trap, 211 O observation, of customers, 106, 114–115, 216–217. See also Experiment Library obstacles, of customers, 14–15. See also Customer Pains M magazines, as Starting Points, 92–93 market pull, 95 Marriott, 227 opinion, as feedback, 134 Osterwalder, Alexander, xiv, xvi outcomes Customer Gains as, 16–17 undesired, by customers, 14–15 Owlet, 246–251 287 288 P Pain Relievers napkin sketch for, 76, 80–81 packaging and, 223, 234 principles of, 78–79 Fit and, 9, 47 selecting prototypes, 140–141 Gain Creators versus, 38 shaping ideas with, 70–71 Products and Services as, 31–32 spaces for, 227 Value Map and, 33–34 tips for, 77 “participatory tv,” for understanding context, 126, 127 patterns, identifying, 111, 116–119 Value Proposition Canvas for, 77, 84–85 See also Experiment Library personal jobs, of customers, 12 psychodemographic profiles, as traditional approach, 54–55 perspective, of customers, 22–23. See also Customer Insight push versus pull debate, 94–95, 96–97, 98–99, 100–101 platform Business Models, 52–53 Pre Sales (Experiment Library), 237 prioritization, 202–203, 219. See also Experiment Library problems, of customers, 14–15. See also Customer Pains R ranking, for customer jobs/pains/gains, 20–21 recommenders, 50–51 Problem-Solution Fit, 48–49 Rectangle, Testing the, 194–195 Product Box (Experiment Library), 234 reinventing, to Evolve, 266–267, 268–271 Product-Market Fit, 48–49 required gains, of customers, 16 Products and Services research, about customers. See Customer Insight meeting customer expectations with, 31–32 revenue streams, defined, xvi multiple Fit for, 52–53 Ries, Eric, 184–185 Testing the Square objective, 192–193 risks, customers and, 14–15 types of, 29–30 role-playing, 107, 124–125 value of, to customers, 31–32 profit, defined, xvi Progress Board, 242–243, 244–245 Prototyping, 74–85 S ad-libs for, 76, 82–83 saboteurs, 50–51 defined, 76 Scientist, 107 segmentation, xvi, 116 Strategy Canvas, 129, 130 services. See Products and Services Strategyzer logo, explained, x Skype, 157 stress testing, 154–155 social jobs, of customers, 12 supporting jobs, of customers, 12 social media analytics, 109 Swatch, 90 Southwest, 91 synthesis, 116, 117 Speed Boat (Experiment Library), 233 Split Testing (Experiment Library), 230–231 Square, Testing the, 192–193 stakeholders T identifying, 50–51 Taobao, 268–271 role-playing and, 107, 124–125 technology push, 94, 96–97 Starting Points, 86–103 Test, 172–252 addressing customer concerns with, 88–89 Customer Development process, 182–183 books and magazines for, 92–93 experimenting to reduce risk, 178–179 design constraints and, 90–91 Experiment Library for, 214–237 innovation with Customer Profile, 102–103 (See also Experiment Library) push versus pull debate, 94–95, 96–97, 98–99, 100–101 Lean Startup, applying, 186–187 shaping ideas with, 70–71 Lean Startup movement, 184–185 tips for, 93, 97 principles, 180–181 start-ups, Value Proposition Design for, xviii Progress Board, 242–243, 244–245 Step-by-Step Testing, 196–213 step-by-step, 196–213 avoiding data traps, 210–211 (See also Step-by-Step Testing) extracting hypothesis, 200–201 systematic design and testing example, 246–251 Learning Cards for insight, 206–207, 213 testing process, summarized, 240–241, 252 learning speed and, 208–209 Testing the Circle objective, 190–191 overview, 198–199 Testing the Rectangle objective, 194–195 prioritizing hypothesis, 202–203 Testing the Square objective, 192–193 Test Cards for experiment design, 204–205, 212 tips for, 210 tips for, 183 Test Cards, 204–205, 212 289 thinking hats (de Bono), 136–137 290 third-party research reports, 108 Transferrer of Value (customer role), 12 for Prototyping, 77, 84–85 Value Proposition Design book organization and online companion, x Business Model Canvas, defined, xv (See also Business Model U unique link tracking (Experiment Library), 221 Canvas) competitors versus, 128–129 Environment Map and, v, xv for established organizations, xix to overcome problems, vi–vii V validation (Customer Development process), 182 Value Map, 26–39 selling colleagues on, xxiv–xxv skills needed for, xxii–xxiii for start-ups, xviii successful use of, viii, xi tools and process of, xii–xiii (See also Canvas; Design; Evolve; Test) best practices for mapping value creation, 30 uses of, xx–xxi Gain Creators and, 33–34 Value Proposition Canvas, defined, xiv, xv (See also Value Proposition mapping how products and services create value, 36–38 mapping value propositions, 34–35 Canvas) visualization, 138–139 Pain Relievers, 31–32 Products and Services, 29–30 use of, 60–61 Value Proposition assessing competitors and, 128–129, 130–131 W website assessment, 122–123 tracking customers on, 109 Business Model connection to, 152–153 Value Proposition Design Online Companion, explained, x defined, vi, xvi, 6 See also Value Proposition Canvas; Value Proposition Design Value Proposition Canvas characteristics of great value propositions, 72–73 (See also Design) websites landing pages of, 223, 228–229 WhatsApp, 157 workshops, for established organizations, 166–167, 168–169 Don't risk wasting your time, energy, and money working on products and services nobody wants— Flip the book over! WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA.