A Quick Recap
In our last meeting, I introduced the Four Pillars of Business and went into depth on the key people essential to the start of any business. I talked about why the people involved in the first year of starting a business are critical to your startup plan and how you can best prepare yourself.
Today, we’ll be going into the second pillar of starting a business: building the product or service that your idea is centered around.
The Second Pillar of Business: Building the Product or Service
The product or service that your business is offering coupled with a distribution strategy is how you will eventually bring your business to market.
Building the product or service is the second pillar of starting a business because it has to be just right in order to succeed in a competitive environment where copycats and industry leaders are waiting to push you off your initial track. Products or services without enough thought put into them will get eaten up by all of the other firms making more dominant solutions.
To full grasp the concept of your product or service, I break it down into 5 key talking points:
- The value proposition
- Competition and differentiation
- The Minimum Viable Product (MVP)
- Validation strategy
If you’re familiar with these key entrepreneurial terms, that’s great! If you’re not, don’t worry. Either way, prepare yourself to learn.
1. The Value Proposition
The value proposition, commonly referred to as the value prop, is a short statement that clearly defines how your product or service adds true value to your customer market. In other words, it is a unique solution to the customer’s problem existing in the market.
Here’s an example from one of the companies that I am starting this year.
eCommetize assists high, traffic online influencers to monetize their community through building and managing eCommerce stores and supplier relationships.
What’s the value that we are adding to the customer market?
The ability of the online influencer to make more money off of the following that they have created without having to use extra time.
- Self-reflect on the customer problem that you want to address. How do you know that it is an actual problem for a large number of people?
In the upcoming Market column, we’ll discuss how to ensure that your identified problem is actually a real pain point for your perceived customer. You don’t want to create a business based off a problem that you have created without proof or that is only a real problem for a small, small number of people.
- Self-reflect on the current value that your idea is producing and expand upon it. Does your solution save the customer time? how about money? Does your solution solve a short term or long term problem?
2. Competition and Differentiation
When building the product or service, it’s important to perform your due diligence into the market before taking action. The last thing that you want to do is create a product or service that is identical to an already established company in the market. While we may all think that our ideas are original and have not been pursued before, we’re usually quite wrong.
Understanding our competition can give you indicators of what you are up against and how strong the market currently is. The more competition with similar products or services, the harder to identify a niche untouched where you could capitalize. However, a healthy amount of competition also indicates a potentially lucrative market as long as your product or service is differentiated from the rest of the competition.
Differentiation, by definition, is the ability to approach and solve a customer’s problem in a manner unique to the other firms competing in the market. Uber provides the same service that a taxi does by bring people from point a to point b. However, they differentiate by incorporating mobile technology to make the customer experience easier and cheaper.
- Self-reflect on the competitive state of the market that you are attempting to enter with your product or service. Identify the top 5 to 10 competitors and research what specific problem they are solving for the customer. Find out who is leading the market.
- Self-reflect on your idea. How is your idea approaching the customer problem differently than the leaders and other players in the market? Is there a niche that your firm can approach that the leaders are overlooking?
Some of the best advice that I received from Peter Thiel in his book Zero to One is to build companies that have the potential to become a monopoly within their niche market. Through my experience, I have seen his advice come to reality. Allow me to illustrate.
Did Amazon start as the everything store? or did they monopolize selling books online first?
Did Facebook start by attempting to become the world’s most popular social network? or did they attempt to gain the following of all students at Harvard first?
There are hundreds of examples of the most valuable companies beginning their journey to the top through small, niche networks. Keep this advice in mind as you attempt to build your business idea into a real company.
In today’s business landscape, it is almost inevitable that some form of technology will be a part of your product or service. Whether it be technology that you license from another company or technology that you build as your core product, it is essential to understand what is required for your business idea before launching into development.
- Self-reflect on the technology that your business will require to successfully launch and develop your product or service. Are you licensing it from another tech company? Or are you building the technology yourself? If so, how will you do it?
- What technology will your product or service need in the short term (1 year) and the long term (3-5 years)?
I have built companies that require both minimal technology and large amount of technology. At Portlight, the technology demand shifted as we grew forcing us to adjust our strategy on the fly.
When we started, out of the box technology solutions from other tech companies worked perfectly for what we were trying to achieve. However, as our inventory grew to over 500,000 products, we needed and in-house, customized piece of software to best optimize our business model. At this point, we transitioned to hiring developers who could develop the technology for us.
4. The MVP – Minimum Viable Product
The MVP or minimum viable product has become a popular buzz word used in the tech community. Initially made famous by The Lean Startup methodology, it has become common to hear startup founders discussing their MVP as they attempt to raise funding or acquire their first customer. Get your copy of The Lean Startup at Amazon today!
The MVP is exactly what the name indicates. It is a first version of your product or service that has only the key features to add value to your customer market. Once you have built your MVP, it is your duty to get feedback from the potential customers and then iterate the MVP to meet customer wants and desires.
- Self-reflect on the MVP that you can build to ask your potential customers for feedback. How long will it take you to build?
- Self-reflect on the pricing strategies that you may use to sell the product or service. What is your competition charging? Can you compete while returning a profit?
Reflecting and then taking action on your MVP is an important step to fully understand whether our product or service can survive a stress test with real customers.
5. Validation Strategy
After developing the concept for your MVP, the next step is to validate your idea with potential customers. Validating your idea means actually speaking with a sample of people who you think would want to purchase your product or service.
In the conversation, it is your goal to ask questions about their “problem”, present the idea for your product or service, and understand if they would be willing to purchase the product or service.
This step is vital to the continued effort of your idea because it proves or disproves that there is a market for your product or service. A common misunderstanding is that “if you build it, they will come.” Unfortunately, that is not true. However, conducting a legitimate validation test can give you guidance on how to slightly pivot your idea to better address the customer’s wants and needs. Do not overlook this step.
- Self-reflect on 3 to 5 different customer markets that you would want to approach with your product. Write down a list of questions that you would want to ask them about your product. Create a final grading rubric that the potential customer can fill out to express how interested they are in the product or service.
Developing and fully understanding the inner concepts of your product or service is critical to launching an idea with minimal flaws, a clear value to the customer, and a pool of options to make changes when necessary.
While you don’t want to stall the launch of your product or service for too long, you also don’t want to build and launch a product or service that no one will want.
Now that we have a better understanding of how to build the product or service for your business, we will dive into the financials. In the column, we’ll cover:
- Investment to start
- Economics of the business
- Financial management
- Exit strategy
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