1. Must-read for founders: A VC explains how to build a killer value proposition
April 28, 2012 9:45 AM
Michael Skok
On the surface, value propositions seem incredibly straightforward. I’d argue that this is
why, in practice, they’re often given such short shrift.
In reality, getting a value proposition right requires some focused thinking and
structured analysis, some of which I’ll preview here. Given my particular background,
much of what I recommend will have a bias to B2B startups — though, in many
instances, I think that you’ll find applicability to virtually any endeavor.
I recently lectured to a group of students and aspiring entrepreneurs as part of my series
of talks at the Harvard Innovation Lab (feel free to presentation slides). For this
particular session, we examined the DNA of a value proposition by stripping it down to
its foundational elements and reassembling it, workshop-style, around a variety of new
business ideas.
But before we dig in, let’s define a value proposition.
In its simplest terms, a value proposition is a positioning statement that describes
for whom you do what uniquely well. It describes your target buyer, the problem
you solve, and why you’re distinctly better than the alternatives.
One of the classic mistakes of building a value proposition is diving headlong into the
solution definition phase before really understanding the problem you’re looking to
solve. To understand whether it’s a problem worth solving, I recommend exercising four
U’s:
 Is the problem unworkable? Does your solution fix a broken business process
where there are real, measureable consequences to inaction?
 Is fixing the problem unavoidable? Is it driven by a mandate with implications
associated with governance or regulatory control? For example, is it driven by a
fundamental requirement for accounting or compliance?
 Is the problem urgent? Is it one of the top three priorities? In selling to
enterprises, you’ll find it hard to command the attention and resources to get a
deal done if you fall below this line.
 Is the problem underserved? Is there a conspicuous absence of valid solutions
to the problem you’re looking to solve? Focus where there’s whitespace, not
scorched earth.
Problems worth solving yield a decisive “yes” to the majority of these questions.
Next, ask yourself whether the problem is blatant and critical. Problems that are
blatant and critical are far more acute that those that are latent and aspirational. Blatant
and critical problems stand in the way of business. They put careers and reputations at
risk and whiten knuckles. Latent problems are unacknowledged, which means they

2. often require costly missionary selling. Aspirational problems are optional, which is the
hardest of places for a B2B startup to sell. Though in B2C, they can be drivers as people
look for things like status or fashion.
Now that you’ve determined what problem you’re solving and validated its criticality, it’s
time to define your solution. The most urgent question to ask is: What is your
compelling breakthrough?
Think of 3D. What unique combination of discontinuous innovation, defensible
technology, and disruptive business model are you bringing to bear and what makes it
truly compelling — not just to you and your colleagues, but to your most skeptical
customer?
Discontinuous innovations are the opposite of marginal improvements; they offer
transformative benefits over the status quo by looking at a problem differently.
Defensible technology offers intellectual property that can be protected to create a
barrier to entry and an unfair competitive advantage. Disruptive business models, which
are discussed in depth here, yield value and cost rewards that help catalyze the growth
of a business.
Groupon is a good example of a disruptive business model that has changed the face of
price-based promotions by using crowdsourcing principles to aggregate demand around
deals.
As an investor, I look for non-disruptive disruptions — that is, technologies that offer
game-changing benefits without requiring any modification to existing processes or
environments.
When VMware popularized the hypervisor, it did so with a non-disruptive disruption—
all benefit without much in the way of adoption hurdles. The same is true for Akiban,
one of my more recent investments that’s innovating in database technology to yield 10-
100x improvements in the speed of relational data access without any changes to
applications or risk to data. That’s a non-disruptive disruption.
Non-disruption is critical because the gain you deliver will be discounted by the pain of
adopting your solution, plus the inertia of vendor risk that every startup levies by virtue
of being small. This means that you must deliver an order of magnitude improvement
over the status quo to make the cut.
If you can’t deliver a 10x promise, customers will typically default to “do nothing” rather
than bearing the risk of working with a startup. That’s the harsh truth.
Now that you’ve defined the problem you’re solving, evaluated the gain/pain ratio and
discovered a problem truly worth solving, you’re in a good position to build your value
proposition.

3. At the center of that value proposition is you. What problems do you understand
uniquely well? What can you deliver uniquely well? What sort of disruptive business
model can you bring to bear? Be true to yourself and play from a position of strength. A
little self-awareness can go a long way in crafting a value proposition with power.