When modelling out any idea or business, there are various layers – from concept through to execution – that must be tested.
Once a new or novel Value Proposition is established, it must be tested against one or more possible Customer Segments. The Value Proposition Canvas is a great tool for Customer Validation.
Testing Product-Market Fit
Often times ideas start as thoughts that require some refinement as we try to bring them to reality in the form of a new business idea, strategy, or otherwise. Once articulated, we need to validate them in the market in some way, shape, or form to demonstrate Product-Market Fit.
This is where the challenge sets in, as the market is littered with anecdotes of companies who either made it big or spiraled into bankruptcy around exactly this phase in the Innovation Life Cycle.
The most common synthesis when looking at multiple examples over time is the ’10-year overnight success.’
The Business Model Canvas has become one of the leading methods over the last decade to flesh out an idea. Its cousin – the Value Proposition Canvas – is specifically designed as a tool to test the Value Proposition relative to a set of potential customer segment(s).
From the Business Model Canvas, we can look at three+ questions to better frame each block:
Value Proposition – Questions
- What new value do we create for customers?
- What customer problem are we solving?
- What is the ‘job to be done’ for the customer?
Customer Segments – Questions
- Who are the customers we are creating value for?
- Who are the customers who experience the problem acutely?
- What are their biggest potential Gains, largest Pains?
From there, the Value Proposition Canvas is designed to help further break these down and go deeper into both the problem and potential solution(s).
Value Proposition Canvas – Problem
FULL PDF – Value Proposition Canvas – New Product/Service
Customer Segment(s) Canvas – Solution
FULL PDF – Value Proposition Canvas – New Product/Service
When we think about each of the above diagrams in the context of the Business Model Canvas, this is what it looks like when we bundle it together.
Customer Validation: Evaluating Product-Market Fit
‘Four Steps to the Epiphany‘ by Steve Blank was one of the earliest books on the subject of Product-Market Fit.
All new companies and new products begin with an almost mythological vision–a hope of what could be, with a goal that few others can see. It’s this bright and burning vision that differentiates the entrepreneur from big company CEOs and startups from existing businesses.
Four Steps to the Epiphany
Entrepreneurship is often most closely related to that Visionary who can “see” the future and chart a path towards a better world. The Visionary wants to pioneer a new product or service, enriching would-be investors, co-founders, and early employees in the process. But it always boils down to – where is the proof?
Blank’s book walks readers through the process of ‘Customer Development.’ A way to find potential customers, validate their problems, develop a solution, and launch in the market.
The Value Proposition Canvas is an iteration of the ‘Customer Development’ process, creating a structure to go through the process of achieving Product-Market Fit. There is always a chicken-and-egg dilemma when looking at Product-Market Fit:
- do you talk to customers first to better understand the problem?
- do you present customers with a solution to better see how they react?
The ‘Blind Man and The Elephant‘ parable always comes to mind when asking would-be customers (1) to explain their problems. On the flip side, designing/engineering a solution without proper research (2) can setup a somewhat catastrophic outcome if there is not proper budgeting for potential failure.
Most entrepreneurs overestimate their time to achieve Product-Market Fit, but underestimate the upside in the market, which in turn leads to a dynamic where the most patient, well-resourced players are those who are able to win markets in the long-term.
Therefore, we can visualize this a somewhat messy, difficult process that requires ongoing experimentation and iteration. You can start with the problem or the solution, but ultimately building a tight feedback loop between the two is the best possible solution:
- Test the Value Proposition
- Speak with Customer Segments
- Integrate the findings, upgrade the Value Proposition
- Keep going until some form of Validation emerges.
Just keep in mind where this process fits in the subset of the Business Model Canvas. Assuming some kind of Validation emerges around Product-Market Fit, the rest of the Canvas needs to be developed to ensure that the overall business model is both sustainable and scalable.
RIM (Research in Motion) and the Wooden Blackberry Prototype
There are countless examples of this process out there, both examples of success and failure. The most common synthesis when looking at multiple examples over time is the ’10-year overnight success.’
Much of the media over the last decade has created the impression that most big ideas spring-up in a dorm room and lead to Billionaires a few years later. Those examples are on the far, far edge of the distribution curve (ie. they are SUPER RARE).
Take Research In Motion (RIM) and the Blackberry, Canada’s most spectacular export in modern history that went from 0 to hero (and a market cap of over $70B) back to zero.
The company’s story is fascinating and is being made into a movie, but there was one key moment when the company achieved Product-Market Fit after more than a decade into its existence.
The company was started in 1984 at the University of Waterloo by the Tech Mind behind the Blackberry smartphone Mike Lazaridis. Accountant Jim Balsillie became the Business Mind, but didn’t join the company until 1992.
The “10-year-overnight-success” moment came for the company about 13 years later, as their original business model revolved around selling wireless technology.
In the summer of 1997, Mike Lazaridis and Jim Balsillie handed out what they promised would be the Next Big Thing in business communications technology to a group of BellSouth executives in Atlanta.
The Spec
They were considered experts in ‘wireless technology’ but the Blackberry was just a dream at that point, there was no product engineered at that moment in time. BellSouth was a major Communications Network in the U.S.
Except, what they handed around the boardroom didn’t actually do anything. All they had to show was a couple of carved wooden models of their Inter@active Pager 950 – a forerunner of the BlackBerry – with glued-on paper keyboards.
The Spec
The presentation of the prototype ended up working, and the rest is history as they say.
It didn’t matter. The pitch succeeded, and BellSouth ordered $70 million worth of the devices, also known as the Leapfrog.
The Spec
Not to say that everything takes a decade, but the process of learning how to smoothly test and iterate on new products or services with customers is an art that takes a long time to perfect.
The Value Proposition Canvas is a good tool to kickstart the process.
Overall, the Value Proposition Canvas is an indispensable tool for modelling a business. Whether new or existing, gaining clarity on each key point on the VPC can help increase the ability to execute at scale exponentially. As to how to hold onto the gains (unlike Blackberry) that is a story for another post.