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The value proposition is a key component for the success of startups and SMEs. It is is defined as the unique set of benefits that a product or service offers to its target customers. A clear and compelling value proposition makes it easier to reach early adopters. Conversely, a vague or simply “nice to have” value proposition can lead to difficulties in attracting and retaining customers, resulting in fierce competition and significant financial uncertainty. To succeed, it is essential for entrepreneurs to focus on offerings that create considerable value for their customers and key stakeholders.
E. Krieger
The success of a startup or traditional SME largely depends on its value proposition: if it is weak or inconsistent, there is little chance that anyone will endorse your offer. Without value created for your customers, your business is likely to suffer in terms of its economic and financial performance.
My colleague Frédéric Iselin devoted his PhD in management science to this essential concept for businesses. He defines the value proposition as « the unique set of benefits that a product or service offers to its target customers, thus meeting their specific needs compared to the competition. » He calculates the perceived utility value by the customer in terms of perceived benefits minus perceived sacrifices from your new offering. This perceived utility is assessed in relation to the reference offer, i.e., your most dangerous competitor.
This particularly enlightening approach allows us to target early adopters first, those who are willing « to pay the most and the fastest » because they value your solution the most in relation to the acute needs they express.
Calculate the benefits for key stakeholders
Among clear value propositions, we can cite the example of the Point Vision Group, whose rapid development was based on two simple observations:
- On the patient’s side: waiting times of several months for an ophthalmology appointment. This aberration had become a public health issue, reported by numerous media and political leaders.
- On the side of ophthalmologists: the realization that more than half of their time was consumed by administrative tasks and/or technical manipulations that could be performed by other employees.
Armed with this double observation, Dr. François Pelen and his two partners undertook to reorganize the operation of traditional ophthalmology practices to facilitate appointment scheduling, now possible within a week in a clinic generally close to your home, thanks to a territorial network of over 50 ophthalmology clinics in France.
Ophthalmologists working in these clinics also benefit from a reduced workload, as Point Vision ophthalmology centers bring together multidisciplinary teams, including orthoptists and medical assistants, allowing each individual to focus on their area of expertise and optimize the resources required to provide quality consultations.
The strength of this value proposition lies in its apparent simplicity. However, the implementation of such a network required considerable effort, as it was necessary to carry out this strategic project. But François Pelen’s initial thesis was absolutely robust.
In contrast to « Point Vision, » we still see too many companies whose created or developing value is not immediately apparent. These are the companies that suffer the most from market reversals, when economic actors become more demanding.
The dangers of an inconsistent value proposition
However, a vague value proposition can have serious consequences:
- Difficulty in attracting and retaining customers: If your potential customers do not clearly understand the benefits of what you offer, they are unlikely to take the risk of changing their habits to adopt a new offer. These benefits must be substantial, and perceived sacrifices must be reduced, although they are often underestimated by entrepreneurs.
- Fierce competition: A vague value proposition will result in low differentiation from your competitors and will require significant marketing and sales budgets. These « customer acquisition costs » (CAC) will be disproportionate to your margins (the famous « Customer Lifetime Value ») and will jeopardize the viability of your business. The same applies to your R&D budgets, which may be spent in vain if they do not contribute to genuine value creation for your customers.
- Financial uncertainty: Investors and/or other funders will be reluctant to finance a startup with an unclear value proposition for the reasons mentioned earlier, increasing their financial risk.
We could have added the exhaustion of internal resources due to frequent and erratic strategic pivots, inexorably turning your company into an energy-draining machine, which is critical in times of capital scarcity.
As a central element of the business model, the value proposition is clearly at the heart of the entrepreneurial reactor. If it is inconsistent, even the best entrepreneurs will wear themselves out… but exceptional entrepreneurs precisely focus on offerings that create considerable value for their customers.
