I’m a big fan of the Lean Startup movement and love the underlying principle of testing, learning, and pivoting by experimenting with the most basic product prototypes imaginable - so-called Minimal Viable Products (MVP) – during the search for product-market fit.
It helps companies avoid building stuff that customers don’t want. Yet, there is no underlying conceptual tool that accompanies this process.
There is no practical tool that helps business people map, think through, discuss, test, and pivot their company’s value proposition in relation to their customers’ needs. So I came up with the Value Proposition Canvas together with Yves Pigneur and Alan Smith.
The Value Proposition Canvas is like a plug-in tool to the Business Model Canvas. It helps you design, test, and build your company’s Value Proposition to Customers in a more structured and thoughtful way, just like the Canvas assists you in the business model design process.
The Canvas, with its 9 building blocks, focuses on the big picture. The Value Proposition Canvas zooms in on two of those building blocks, the Value Proposition and the Customer Segment, so you can describe them in more detail and analyze the “fit” between them.
Companies need to get both right, the “fit” and the business model, if they don’t want to go out of business. The tools work best in combination. One does not replace the other.
In this post, I’ll explain the conceptual tool. In my next post, I'll outline how you can use it for testing in combination with the Customer Development process by Steve Blank and the Lean Start-up process by Eric Ries. The Value Proposition Canvas will allow you to better describe the hypotheses underlying Value Propositions and Customers, it will prepare you for customer interviews, and it will guide you in the testing and pivoting.
As mentioned above, the Value Proposition Canvas is composed of two blocks from the Business Model Canvas, the Value Proposition and the corresponding Customer Segment you are targeting. The purpose of the tool is to help you sketch out both in more detail with a simple but powerful structure. Through this visualization, you will have better strategic conversations and it will prepare you for testing both building blocks.
The goal of the Value Proposition Canvas is to assist you in designing great Value Propositions that match your Customer's needs and jobs-to-be-done and helps them solve their problems. This is what the start-up scene calls product-market fit or problem-solution fit. The Value Proposition Canvas helps you work towards this fit in a more systematic way.
First, let us look at customers more closely by sketching out a customer profile. I want you to look at three things. Start by describing what the customers you are targeting are trying to get done. It could be the tasks they are trying to perform and complete, the problems they are trying to solve, or the needs they are trying to satisfy.
Rank each pain according to the intensity it represents for your customer. Is it very intense or is it very light? For each pain, indicate how often it occurs.
Rank each gain according to its relevance to your customer. Is it substantial or is it insignificant? For each gain indicate how often it occurs.
Now that you sketched out a profile of your Customer, let's tackle the Value Proposition. First, list all the products and services your value proposition is built around
Ask yourself which products and services you offer that help your customer get either a functional, social, or emotional job done, or help him/her satisfy basic needs.
Products and services may either be tangible (e.g. manufactured goods, face-to-face customer service), digital/virtual (e.g. downloads, online recommendations), intangible (e.g. copyrights, quality assurance), or financial (e.g. investment funds, financing services).
Rank all products and services according to their importance to your customer. Are they crucial or trivial to your customer?
Now lets outline how your products and services create value. First, describe how your products and services alleviate customer pains. How do they eliminate or reduce negative emotions, undesired costs and situations, and risks your customer experiences or could experience before, during, and after getting the job done? Ask yourself if they...
Rank each of the pains your products and services kill according to their intensity for your customer. Is it very intense or very light? For each pain, indicate how often it occurs.
Finally, describe how your products and services create customer gains. How do they create benefits your customer expects, desires, or would be surprised by, including functional utility, social gains, positive emotions, and cost savings?
Ask yourself if they...
Rank each gain your products and services create according to its relevance to your customer. Is it substantial or insignificant? For each gain, indicate how often it occurs.
Most Value Propositions compete with others for the same Customer Segment. I like thinking of this as an "open slot" that will be filled by the company with the best fit. The visualization for this was an idea by Alan Smith, one of my co-founders, and the designer of Business Model Generation.
If you sketch out competing value propositions, you can easily compare them by mapping out the same variables (e.g. price, performance, risk, service quality, etc.) on a so-called strategy canvas.
You can use the Value Proposition Canvas like the Business Model Canvas: plot it as a poster, then stick it up on the wall, and then use sticky notes to start sketching.
Contrary to the Canvas, the Value Proposition Canvas poster and methodology is copyrighted. However, you are free to use it and earn money with it as an entrepreneur, consultant, or executive, as long as you are not a software company (the latter needs to license it from us). However, when you use it, please reference and link to Strategyzer.com
Here is a downloadable draft poster version of the Value Proposition Canvas.
Using the Value Proposition Canvas as a thinking and design tool is only a start. To get the best out of it, you need to combine it with testing and pivoting. In my next blogpost I explain how the Value Proposition Canvas perfectly integrates with the Customer Development and Lean Startup Process. I explain how it helps you substantially when you "get out of the building" as Steve Blank would say.