Evaluating The Opportunity
When you have come up with what seems to be a great business idea, there is need to assess whether it can be turned into a commercial opportunity. The difference between an idea and an opportunity is the ability to bring to the market what customers are prepared to buy.
Not all opportunities are business opportunities that should be taken. A promising opportunity development must be based on a disciplined and systematic approach to assessing opportunity in order to maximize returns and minimize risks. An effective opportunity development must be based on intimate knowledge of the needs, wants, desires and expectations of customers.
The Value Proposition Canvas
There are many tools for evaluating opportunities but the two that are commonly used are the Value Proposition Canvas and the Business Model Canvas. According to Peter Thompson, the creator of the Value Proposition Canvas, the canvas was created to help start-ups to examine the human experience of customers as it contains questions that enables users of the canvas to think about the user experience of customers. a “value proposition is where your company’s product offer intersects with your customer’s desires. It’s the magic fit between what you make and why people buy it. Your value proposition is the crunch point between business strategy and brand strategy”. In other words, the value proposition enables you to position your business by defining why you are doing what you are doing, for whom (i.e. the target market) what benefit your business provides or problems that it solves and why your business is distinctively better than or uniquely different from your competitors.
Michael Skok in a very valuable article on Forbes explains four steps to building a compelling value proposition; Define, Evaluate, Measure and Build.
Define the problem to see whether it is worth solving
When a problem is well understood and defined, it is easier to search for and develop the appropriate solution. Building a compelling value proposition starts with critically finding answers to these questions, which Mr Skok calls the 4Us. If the answer is a definitive yes to the majority of these questions, it is likely that your going to have a compelling value proposition but if not, it would advisable to consider revising it.
A great value can only be created if your business is solving a valuable problem:.
- Is the problem unworkable? Does the solution solve a broken business problem, where there are real measurable consequences to inaction? Will someone get fired if the issue is not addressed? A “yes” means that person will likely be your local champion.
- Is fixing the problem unavoidable? Is it mandatory and have implications associated with governance or regulatory framework? A “yes” answer means that the group will likely be the champion.
- Is the problem urgent? Is it one of the top few priorities for a company? 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. *If the answer is yes – then you know you’ll have the attention of the c-suite.
- Is the problem Under-served? Is there a conspicuous absence of valid solutions to the problem you’re looking to solve? Focus on the whitespace in a market or segment. *If the answer is yes – then you know the market is primed for the solution.
- Qualify the problem: Is it Blac or White? BLAC stand for Blatant, Latent, Aspirational, Critical problems. Blatant and critical problems are crucial and can impede a business, putting careers and reputations at risk. Latent problems are not acknowledged and can be costly to sell while inspirational problems are optional and hard for a start-up to sell, particularly B2B. As it can be seen from the diagram, a problem that has to do with the white space offers more opportunity.
Evaluate to see whether the breakthrough is unique and compelling
This involves examining what is unique and compelling about the breakthrough using the 3Ds approach; Is it Discontinuous innovation, Defensible technology, and Disruptive business model?
Measure potential customer adoption using the Gain/Pain Ratio
This involves measuring the gain delivered to customers against the cost and pain of adoption by customers. Non-disruptive breakthrough is critical to start-ups as the gain deliver to customers will also be discounted by the risk associated with betting on you as a young company.
Build the value proposition
The value proposition will now be built and it is recommended the following framework be used as it is consistent with positioning statements:
- For (target customers)
- Who are dissatisfied with (the current alternative)
- Our product is a (new product)
- That provides (key problem-solving capability)
- Unlike (the product alternative).
Source: http://www.peterjthomson.com/2013/11/value-proposition-canvas/
Understanding the value proposition of the new product or service that your business provides forms the basis of developing a business strategy as positioning forms a major thrust of strategy. A strategy can be viewed from two perspectives. According to Michael Porter, a Professor at The Institute for Strategy and Competitiveness, Harvard Business School and a leading authority on competitive strategy and the competitiveness, there are two basic types of competitive advantage a firm can possess: low cost or differentiation. These two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry:
- Cost leadership
- Differentiation,
- Focus.
The focus strategy has two variants, cost focus and differentiation focus. On the other hand, the resource based view of the firm holds the view that internal resources and core competencies derived from distinctive capabilities provide the strategy platform that can enable a firm’s long-term profitability.
Strategy will fully be discussed in the appropriate section of this site.
The Business Model Canvas
The Business Model Canvas has become the most commonly used tool for systematically evaluating and testing a business idea. Below is a variation of the canvas divided into eleven components. It maps the key things that a start-up needs to do to be successful. Completing the canvas is an iterative process as speaking to potential customers, users and others may reveal new ideas causes the original idea to be changed.
