Business Owner: How do you answer this question?

Do You Know Your Value Proposition?

As a small business attorney, much of my practice is devoted to helping entrepreneurs figure out exactly what they have to offer. Whether I am hired to do it or just having coffee with a friend, I will inevitably ask, "Do you know your value proposition?" Too often, that question is met with a blank stare. Let's try to fix that.

Defining the Value Proposition

The phrase "value proposition" (VP) sounds like a startup buzzword. It is. But it is also a shorthand phrase for this is why people pay me. Getting to the heart of this business, your business, is discovering its value proposition.

Sometimes it's easier to illustrate this concept with an example, e.g. a test case.

Test Case: Coffee Shop

Let's take a look at a business almost everyone frequents: coffee shops. If you're opening a new coffee shop, there are many variables you must consider, regardless of the value proposition. Things like rent, cost of product, pricing, hiring and paying staff, insurance, quality control, training, marketing, legal fees, etc., can cause you to stay up late at night; they could even drive you away from following through on your dream.

But before you start putting pencil to paper, or columns on the spreadsheet, you, new coffee shop owner, first need to decide why someone would give you money.

Your Value Proposition is Your Differentiation

Coffee shops are nothing new, and they seem to saturate population-dense areas of most cities. Yet I'm sitting in one now that has been open for less than a two years, and it's packed. I can think of at least five nearby coffeehouses off the top of my head. Then why are these people spending their money here as opposed to somewhere else?

For this place, the value proposition appears to be the experience of gathering in a comfortable, casual, hipster atmosphere to drink coffee and enjoy light breakfast items with friends. It feels very different than the national coffee chain down the street and the ultra-fussy roaster-owned shop around the corner. The coffee is better than a diner, but it's not good enough to be the value proposition, i.e. specialty coffee for the discerning palette. The food is on par with the coffee. But the true value proposition is the experience, the comfort, the atmosphere. That is what this place sells.

If you'll notice, I just identified the value proposition for the other shops as well. The chain offers consistent, predictable quality throughout the country. The fussy shop offers specialized roasts for specialized tastes - they sell being "in the know."

Again, do you know your value proposition?

What Happens When You Lack Clarity?

Have you ever been to a restaurant and left either feeling like you've paid too much, that you could have made the meal at home and better, or that you were confused at some point (with the service, food offerings, price)? We all have.

The uneasiness you feel, for any reason, communicates a lack of focus on the owner's part. They don't know why people give them money, and either they are trying to figure it out by offering competing value, or even worse, they don't know what they don't know.

When you aren't clear on your value proposition, your customers/clients/investors feel uneasy and confused.

That's the case with another coffee shop less than a mile away from here. The atmosphere is disjointed, confusing, and poorly designed. Signage communicates that they are stingy with the wifi, which is a red flag for the nearby university students. The coffee is from an unknown, out-of-state roaster and no better than what can be purchased from a local market. The parking is awkward. The counter food is obviously pre-packaged, but priced at a premium.

In essence, there is no clear value proposition - no single feature of the establishment is enough of a benefit to the customer to overcome all the deficits.

You probably know that markets do not tolerate confusion well. I predict the shop will close as soon as the investor runs out of money unless the business changes significantly.

Use Your Value Proposition to Refine Your Business

Sometimes new business owners spend more time (and money) sorting through the various options to perform business functions without actually spending time to figure out what purpose the function serves. And not far down the road, they encounter a disruption, whether major or minor, that has the potential to derail the entire enterprise.

Knowing your value proposition is both your anchor and your lighthouse. The value proposition defines your company's purpose for existence and keeps it grounded while providing an ever-present goal, an ideal, to strive toward.

So think about it now. Just sit back and refine in your mind your business to its essence.

Answer the question: what is my value proposition?