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.

October 12, 2009 Posted by | Business Planning, Venture Capital, venture finance, Venture Funding | , , , , , , | Leave a comment

Knowing Your Customers Can Help Drive Your Start-up Company to Success in the Market

Every year over 500,000 would be entrepreneurs in the United States prepare and present their business propositions in front of angel investors and venture capitalists. Many of these same entrepreneurs often over look one important item, knowing their customer base. This faux pes can be detrimental to their start-up company, as investors need to understand that you know your customers and their needs, intimately.  Also, by not engaging with their potential customers early on, start-up companies can miss the market by developing the “right” product with the “wrong” features, functions, and capabilities.  In addition, these same internally focused start-up companies may miss the best benefit of all, developing a strong strategic relationship with a customer that is a market leader. This article addresses some of the reasons it is always beneficial to engage with your customer base early and often.

Do You Know Your Customers?

As a potential entrepreneur interested in taking your technology, product or service offering to market, you need to “know” your customers. This includes identifying the market leaders, market laggards, and the up and coming rising “stars” in all of your target markets of interest. This type of familiarity with your customer base will allow you to develop an appropriate go-to- market strategy and associated tactics when addressing your targeted market space.  Market leaders of today are not necessarily the market leaders of tomorrow.  Therefore, doing your diligence on the various competitors in your market and understanding their status, product portfolio, market position, etc. is invaluable when presenting your technology, product or service offering to these same customers. What is important to one customer will not necessarily be important to the next. So, by familiarizing yourself with your customer base and you will be much more comfortable when you call on them and ultimately present your product offering to them.  Remember, Apple was not even in the cell phone market a few years ago, now they are a major player in the “smart phone” segment of the market.  Therefore, anticipating this and familiarizing yourself with your potential customers puts you and your start-up company in the driver’s seat when engaging with your potential customers.

 What Segments of the Market Are You Addressing?

Most markets can be broken up into several market segments.  This generally includes the following:

  • High tier segment,
  • Medium tier segment, and
  • Low tier segment.

These segments are often based on price, but also as such, usually have many different sets of features, functions, and capabilities for each product offering to each market segment.  Often, start-up companies entering a new market cannot afford to address all market segments of a given market space.  Therefore, as a new company entering the market you need to familiarize your company with the various sub-segments within a given market and then determine the product features, functions, and capabilities that are necessary to address these market segments and also at the same time have an understanding regarding those same features, functions and capabilities that are “nice to have”.  This market segment familiarity will drive the features, functions and capabilities of your technology, product or service offering.  Not trying to be everything to every market segment is often a key attribute of successful start-up companies.  When entering a market for the first time, it is much better to be focused on a given market segment than trying to do everything for every potential customer.  Therefore, knowing what market segment or segments you are addressing up front will provide you with focus and allow your start-up company to be successful when entering a new market.  Later on, after you are successful in your target market segment, you can expand your product offering.  This strategy worked very well for the Japanese car companies entering the US market in the late 1960’s and early 1970’s. Originally, they entered the low-end segment of the US car market. Today, these same Japanese car makers are dominant players in all US car market segments.

Develop A Strategic Alliance with a Key Customer

Historically, the most successful start-up companies have often had the good fortune of developing a strategic alliance or “close relationship” with a market leader in their target market space. This relationship can be mutually beneficial to both the start-up company and the market leader. From the start-up company’s point of view developing a strong relationship with a key strategic partner will allow them to focus their product features and develop a first product offering that has a guaranteed market.  This is invaluable to the start-up company, as this key strategic alliance partner knows the end market application better than they do, and at the same time will help them focus their development efforts to a product offering that will be market driven and as a result successful in the market. From the market leader’s perspective, developing a relationship with a start-up company with a unique technology, product or service offering, will often allow them to differentiate their end-product in the market, gain market share, and address new emerging market opportunities, much faster than they would be able to by developing the technology, product or service offering on their own. This mutually beneficial relationship results in a win-win opportunity for the start-up company as well as the market leader.

Allow Customers to Drive Your Strategic Road Map

Many start-up companies do not have a well defined product road map. This is generally seen by investors as a gaping hole within their business plan, as only presenting a single product offering often indicates to investors a lack of familiarity with the market, and the long-term general market trends.  Seldom are start-up companies successful with their first product offering. Often, given market competition and the rapid pace of a changing market, these same start-up companies only become successful, gaining significant market share, after their second or third generation product offering.  So, only presenting a single product offering to your investors is a recipe for disaster.  This is where your customers can have a large impact on the future product offerings of your start-up company.  By engaging early with your customers and listening carefully to their needs and the market requirements, you can allow these same customers drive your product strategic road map. This will provide you with a basis to move forward and although it may change over time, a customer driven product road map is invaluable when presenting to you potential investors.  Nothing is more valuable to an investor presentation than having real customer input, based on actual conversations with your target customers. This provides instant credibility and market expertise not available by any other means.

Develop Valued Customer Relationships for Your Future Success

Developing valued customer relationships is a key to the success of any start-up company. Doing so allows you to gather invaluable input, vet new ideas, and at the same time stay close to the market trends.  Remember a “market driven” company will have much more long term success in their targeted market than that of a “technology driven” company. So, as a start-up company you need to value your customers, listen to their input, and reflect this invaluable information in your product development plans and associated product road map.  Too often, companies tend to believe they know more about the market than that of their customers. This is not the case.  Since your customers are one step closer to the end market application they are the ones to drive the technology, product or service features for your current and next generation product offerings.  Remember to use these same customers as a basis for your decision making and learn to value this relationship, as it will provide you with invaluable insight to both the near term and long term trends in the market.   

Knowing your customers will help drive your start-up company to success in the market.  By knowing your customers, determining your target market segments, developing strong strategic alliances, presenting a customer driven product roadmap and ultimately valuing your customers, you as an entrepreneur will be miles ahead when presenting to potential investors.  This customer familiarity will help you develop successful product offerings, both near term and long term, and at the same time allow your start-up company to secure significant market share, ensuring your long term success in the market.  So get out there and talk to your customers, you can only benefit from such one-on-one interaction ant it will help drive your start-up company to success in the market place.

June 29, 2009 Posted by | Customers, Strategic Alliance, Target Markets, Venture Capital, venture finance, Venture Funding | , , , , | 1 Comment