When an entrepreneur gets frustrated that investors or other market influencers don’t understand their project or don’t see the potential for it in the market, they tend to blame the other party for not ‘getting’ it. I see this all the time and I call it the Value Proposition Black Hole. The entrepreneur may have a great concept or actual product ready for market, but they have not figured out how to explain its value to the market and therefore to their audience. It is the responsibility of the entrepreneur to be effective at expressing the value of an opportunity to investors and any stakeholders.
Short Intro into the Value Proposition Black Hole - 1 min
Key indicators that the entrepreneur has entered the Value Proposition Black Hole:
You have to learn the rules of the game. And then you have to play better than anyone else.
- They are actively networking and engaged with the startup community in their town, many people have heard about their idea, yet they are not getting the ‘buzz’ of the community to be invited to meet with stakeholders and potential investors.
- When they say something like; “when they sit down with me and take the time to really understand what we are doing, they like it.” Yet they aren’t taking action to discuss terms of the investment or how they might help the company move beyond them to someone else they might know that is interested.
- They pay money to compete for capital in a competition or at a pitch event, but they don’t get a lot of positive feedback of people wanting to get more information.
- They are working on their project for over a year with little progress toward building a team or attracting capital.
- Whenever they talk about their business, people have to ask them multiple questions to figure out why it is needed or how they are going to make money.
The Value Proposition is connected to the Business Model and Market Opportunity, but is slightly different. Business Model specifically addresses who is the authentic customer and how will you convert them from a prospect to a paying customer. The Market Opportunity relates to the addressable market for the target customer within a larger market. The Value Proposition deals with how the company solves a problem in the market so that the authentic customer wants the company’s products or services and has a clear path to convert to buying it.
As a market place evolves and innovation causes a market place to shift it is due to new entrepreneurial companies recognizing a need in the marketplace that is not being met, or they see an opportunity for 'better mouse trap' or better business model. The Value Proposition for each company in a tech sector is different depending on the current competition, and the shifting expectations of the customers in that market place. The computer industry is a classic example of how evolution of innovation came as companies saw an opportunity, even before the consumers in that sector knew they wanted it, but when it was available, they shifted their demand.
In this Video, Karen give the example of the Value Proposition as it evolved in the early PC - Tech days.
Often times an entrepreneur will know all the details to get to their Value Proposition but simply aren’t articulating it in such a way that the listener understands it. They will not get to the needed capital or be able to build their team if they don’t figure out how to explain their value proposition with a deep understanding of their target market, the behaviors that cause their customers to buy and the resulting opportunity to produce a return on investment for themselves and their investors.