Value proposition isn’t just sales jargon or a PM buzzword. It might sound obvious, but when it comes to building a business, the value proposition is EVERYTHING. It defines how you approach pricing, how you think about the potential market share, what kind of sales efficiency you can expect – even the kind of talent you need in your company. Thankfully, you can know almost everything you need to know on Day 0. Here is how to think about your value proposition upfront and the importance it has to the rest of your planning…
Like all great things in life, product value propositions exist inside a 2x2...
On the y-axis you have quantitative and qualitative value. Products with a quantitative value proposition will have an easily measurable impact on the numbers of the business, usually in terms of revenue uplift or a reduction in operating expenses or cost of capital. A qualitative value proposition is more subject to interpretation, harder to tie directly to a numerical impact on the business.
On the x-axis you have causal and correlating. Causal just means that the product causes an outcome in an obvious/attributable way. Correlation merely means that the product has some kind of positive relationship with an outcome.
If you are going down the path of building, it should be pretty easy to hypothesize where your product will land on the spectrum of this 2x2. But then what? What can you infer, what do you do with that information? Turns out a bunch of things.
A hypothesis about a quantitative and causal product can more easily be tested. It takes a smaller N to prove because the results are more obvious. Success is more about the skill in building a product than anything else.
A more qualitative and correlating value prop not only requires skill in testing, but it requires a much larger N to begin to prove the correlation and validate the hypothesis.
Quantitative and causal products are more easily sold (which can also read “bought”). They require less sales skill or fewer resources. It’s easier to prove and understand the value a customer would be purchasing. Google AdWords is a favorite example here: “pay $X to us for $Y revenue.”
On the other hand, selling qualitative and correlating products can be a very subjective pursuit. Ultimately, user case studies will drive the value prop story but in absence of initial, conclusive evidence you need a compelling leader who can inspire belief and drive the early sales / case studies (think Rippling and Parker Conrad) OR a low-cost, bottoms-up go-to-market (Airtable is a classic example).
You can price quantitative and causal products more closely to the value you generate. When it’s qualitative and correlating, the burden of proof can mean a larger gap between value and price.
This may read like one is better than another – but that isn’t necessarily the case. Running a business with a quantitative and causal product is easier to get off the ground, generally has better value capture and is easier to run on fewer resources. But once a business that is qualitative and causal has received adoption / the market has agreed on the ROI, it can have more viral adoption and a strong moat (since the moat is more art than science). The key is simply understanding upfront the nature of the value proposition of your product. This can help you understand what your income statement will likely look like, how to allocate resources appropriately, as well as the kind of human capital you will need.
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