Put simply, one’s “value proposition” is the reason why your product works. When an enterprise or consumer initially encounters your product, their immediate reaction will tell you if you have something that is special or just another interesting idea.
Here are some questions we like to ask startup teams:
- What is the current pain point for the customer?
- How is the customer hacking this pain point to find a solution?
- How does the product destroy the hack and solve the problem?
- How is the product different than others in the market trying to solve this similar pain point?
- Where can this hack be applied to different industries and verticals?
When talking to a startup’s pilot customers, it is crucial we hear their immediate reaction to the product and why they need this yesterday. If customers jump over the desk and ask for the product however poor the current architecture, it’s clear the value proposition resonates high on the chart. If they hem and haw to tell us how the startup’s product will help them, it’s most likely going to be a long slog forward trying to sell users on the concept.
Just as we leave valuation to the end during our due diligence process, pricing should be left to the end of the value prop. The solution should be so great in a customer’s eyes that he or she should consider price as a secondary factor. We find that the best solutions start at generating 50%+ in efficiency and saving 50%+ in price. These can be defined in a variety of ways (it’s not just market price but human capital and hours than adds up). Delivering the price punchline should be the kicker after the initial positive reaction to the core product thesis.
Value props should inherently be simple to understand but complex to build. Founding teams must succinctly state what their product does in ten seconds or less. If you can’t communicate the power of your product with excitement and conviction, go back to the drawing board.
Building a company from nothing is hard enough — don’t make it harder by not starting with a compelling thesis that solves a major pain point in large markets. You’ll know it when you see others react to it, so keep iterating until people start falling out of their chair. Usually that’s a good sign.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.
