Lesson: Customer Development with Steve Blank

Step #10 Market: Startup’s value propositions are either market or technology insights

So an additional help in thinking about your value proposition comes from a great VC Ann Miura-Ko at FLOODGATE, and Ann said, "We can think of startups value propositions of having two forms. Do they have technology insights or are they market insights? And typically technology insights come from technology driven products.

Are you building chips that follow Moore's Law? That is, they're now doubling in density every year and therefore new functions can be embedded in them? Are these based on scientific discoveries or new algorithms? Typically this applies to hardware or clean tech and biotech but it also could be big data algorithms, etc.

Do you have some insight about technology? And again, the gains and pains that they will provide for customers? Or do you have some insight about the market or consumer behavior? Are you going to disrupt the value chain because you now understand how to do something overseas where you can slash the cost by 80%?

Is there something that government regulation or deregulation is going to change and now make an entire industry available in a way that it never was before?

So these are about changes in how people work and live and interact and what they expect and these are very different than technology insights. But remember, they both need to solve pains and gains for your customer.

So there's another way to look at this, types of value propositions kind of as a Venn diagram. So what comes from technical insights, or making things more efficient or smaller or faster, and sometimes lower cost and simpler. What comes from market insights are better distribution and bundling and branding.

But sometimes, what you have is this sweet spot in the middle that actually is a combination of technological and market insights that makes for a killer value proposition.

So let's look at some examples of technical insights. There's a company called Ayasdi that was an outgrowth of the Stanford math department where a PhD student said "Listen, we could do a topological analysis of highly dimensional data to be analyzed without predetermining the number of feature sets."

Boy, that's a mouthful, but it turns out that this is the world's best way to go through big data sets, huge data sets in a way that was just computationally not possible before. And in fact once they had their technical insight, they started to talk to customers about pains and gains and it was an enormously effective product to solve problems that were so painful that they just couldn't be approached before.

Another example was a startup called Inscopix that mass produced components to create a miniaturized fluorescence microscope. It turns out that this technical insight allowed them to reduce the size of a device that took up a tabletop that could now fit in your hand.

And in fact they created an entirely new market that solved problems that customers didn't even imagine until they actually saw this new device.

On the other hand, there's some examples of market insight. Zynga was one of the first companies to realize that people wanted to play games online that were more involved than what were currently offered.

They not only wanted to play solitaire, but they actually wanted to play games that involved interaction with other people and their big insight was Facebook at the distribution channel for those games.

Twitter, another example of market insight. Masses of people are more likely to write 140 characters than 1,000 words. Everybody was skeptical but it turns out, it plugs into something that was both a market and a human nature insight, it solved a need.

Zipcar's insight was actually kind of interesting is that instead of renting cars just on business trips it might be that people in urban areas or college campuses no longer wanted to own cars but wanted to be able to get them with incredible flexibility, a lot more than the whole traditional rental car companies offered.

Zipcar actually had a market insight that made it a successful public company.

So let's take a look at some value proposition examples. Now I've selected some to just give you an idea of how other startups have approached articulating their value proposition.

Here was a company that was actually trying to develop a bio based replacement to surfactants. And they actually went out, understood the problem, came up with some solutions, and were trying to explain the pains and gains of their value proposition.

Another example was a robotics agricultural weeding device. I mean, you notice here they're not talking about their device at all, they're talking about the problem, is hand weeding of farm fields for organic crops is a nightmare.

Another example, company that was actually trying to figure out a better way to do cancer tests. And they actually try to understand what the problem was.

The problem was that cancer cells get detached and are circulating in the blood stream. Oncologists and pathologists are trying to figure out whether their patients have circulating cancer tumor cells. Their features match the pain and the gain.

These rest of the slides give you some examples of value propositions in medical devices, in dental care, etc. You could click on the link below for additional examples.