Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, What is Your Start-up Company’s “Value-Added” Proposition?

Simple questions from venture capitalists can be the most difficult to answer for entrepreneurs. Why, because they often require both a strategic vision and specific insights to the long-term nature of all aspects of the market, your competitors, and your customers.  This requirement often eludes entrepreneurs as more often than not they are tactically focused and do not really have a strategic vision for their start-up company and the long term business opportunity their investment represents to their customers and to these same investors.  Therefore, when asked “What is the value-added proposition of your start-up company?” they often stumble and in some instances cannot answer this most simple of probing questions.  Why, because they have not taken the time to really evaluate what they are trying to offer the market and their end customers. That is, “Why are customers going to buy your product?”  As an entrepreneur, there are four tenants that you need to address, which will provide you the necessary insight to address the issue of defining the “value-added” proposition for your start-up company.  This article addresses each of these tenants and their ultimate importance to the potential success of your start-up company’s product offering to the market and its end-customers.

What are the Strategic Opportunistic Needs of the Market?

When developing a product offering you need to start from the markets.  Specifically, you need to address the “strategic opportunistic needs” of the market.  That is, what is the “problem” or “need” you are solving.  If there is no “problem” or “need” to solve, then there is no particular reason for customers to buy your product.  Whether it is lower costs, lower power consumption, higher efficiencies, or better service, etc., there needs to be a strategic opportunistic customer need that you are addressing with your start-up company’s product offering. Therefore, to determine your value-added proposition to the market place and the end customer, you need to definitively identify and solve a market or customer need that is currently not being addressed in the market.  The basis of this strategic opportunistic requirement needs to be based on a real assessment of the customers and the market. Anything less, will not cut it, as customers are very discerning, and if they do not see a definitive need to buy your technology, product or service offer they won’t.  Therefore, take the time to define the needs of the market place. Write these needs down on paper, and verify them by talking to a number of potential customers. You will then be able to appropriately define the “strategic opportunistic needs” of the market and one important tenant of the value-added proposition of your product offering.

 Do You Have a Long-Term Competitive Advantage?

Investors need to know that as a start-up company that you have a long-term competitive advantage in the market. This is usually accomplished through the development and subsequent patenting of certain intellectual property as it relates to your start-up company’s technology, product or service offering. This intellectual property, as defined, needs to differentiate your start-up company’s product offering in the market, and at the same time provides significant value to the long-term competitiveness of your technology, product or service offering.  Remember, investors are looking to create long term value, so that they can ultimately cash-in by either selling your company to a third party or going public (not too often these days).  Therefore, you need to create and protect your value-added proposition with patented intellectual property.  Doing so, will provide your start-up company with a long-term sustainable competitive advantage and allow your investors to earn substantial returns on their investment.

What is the Competitive Positioning of Your Start-up Company?

Do you know the competitive position of your start-up company? More often than not, entrepreneurs do not really understand the value of creating a “unique” competitive position in the market.  By creating this competitive position in the market you are differentiating your start-up company in the market and at the same time creating a value-added proposition to your customer base.  Whether it is a lower cost solution, or a unique service offering, you need position your start-up company and its technology, product or service offering as differentiated from your competitors. Apple does this well with their entire line of product offerings.  By offering unique operating systems and value-added user interfaces, they provide a differentiated end-user experience.  Hence, Apple has developed a “value-added” and unique competitive position in the market.  As such, they are able to charge more for their products, as the customers believe that there is value in the Apple product offerings and the overall end-user experience. Therefore, as a start-up company you need to develop a unique position in the market, such that your customers believe there is significant and unique added value in your product offerings when compared to your competitors.

How Do You Define your Start-up Company’s Product Offering?

How you define your start-up company’s product offering can add significant value to your customers and their needs. As an example, many times there is significant value to your customer base in how you deliver your product to the market.  For example, take Netflix and the movie rental industry. By developing a new delivery channel for a “generic” product offering, the home movie rental market, they have been able to provide substantial “value” to their end-customers, and at the same time differentiate themselves in the market.  Therefore, take the time to properly define your start-up company’s product offering. Make sure you are doing this in the context of developing a differentiated product offering for your target customers and the market.  This will allow you to develop a product offering that is defined by market and the end customer needs.  Solving a customer’s problem by appropriately defining your product offering to the market can be a key to adding significant value to your end customer and at the same time differentiate your product offering in the market.

Creating a “value added” proposition for your target market and its customers requires vision and specific insight to the long-term nature of all aspects of the market, your competitors, and your customers. To do this, as an entrepreneur you need to address four tenants, including: identifying the strategic opportunistic needs of the market, determining your long-term competitive advantages, developing a defendable competitive position, and determining your unique product configuration.  These items together will allow you to develop a “value added” proposition to the markets you are addressing and your end customers.  This will also provide your potential investors with the necessary insight to develop a quick understanding of potential for success of your start-up company and its product offering in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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October 12, 2009 - Posted by | Business Planning, Venture Capital, venture finance, Venture Funding | , , , , , ,

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