As a CEO you have to make lots of decisions on a daily basis. Most of them er fairly operative. You know the drill. You have dealt with them before. Some are complex, and take time and effort to fix, many times with limited amounts of information and limited maneuver margin.
And sometimes, in the middel of all this, your development team presents you new products, services or even entire business proposals that require your GO/ NO GO decision after a brief presentation.
As a CEO you are entitled to question the grade of accuracy of the information you get in these situations.The enthusiasm of the development team can easily soften their judgement. Stress can harm their communication skills making the presentation confusing for senior management. In addition, some members of the team may perceive that a cancellation of the project could severely harm their careers and conveniently hide aspects they know would rise skepticism. Finally, innovation is s a tough discipline and the grade of uncertainty is usually high.
One of the most effective ways of quickly getting into the heart of any new business is to correctly but merciless attack the core of it: Its value proposition.
The value proposition is the promise the new venture, product or service shall deliver in order to make it preferable to the alternatives the customer already has. It is the foundation of everything else. Without a solid value proposition, no business will be sustainable. On the other hand, a brilliant value proposition can destroy your competition or built entirely new industries. Consider the promise the iPod delivered 15 years ago: “A thousand songs in your pocket”. That simple sentence built the slingshot that eventually made Apple the most valuable company in the world.
To test the viability and realism of a value proposition, I have developed a set of six questions. In my experience, these questions work both when it comes to new business in established companies and when assessing the chances of success of a startup. At the same time, these questions sharpen focus on core issues and puts the readiness of the team to test. For CEOs, these questions become a quick way of assessing whether the team has done its homework or not.
Q1: What are you delivering?
You may think this question is easy to answer, but it is not. In most of the cases I have witnessed, to answer these questions makes it necessary to go through a complete subset of slides without a consistent story along them. In many cases it will be difficult to understand even if the new venture is a product, a service, a technology or a network. That is already a dangerous sign. The new product, service or business should have a sharp sentence tagline that summarizes it clearly and simply.
Q2: For whom?
Most teams won’t be able of telling you who exactly is the target customer. Segmentation may be poor. Remember: Many companies are successful today because they were smart enough in the beginning to start attacking a very limited set of segments. Amazon Web Services attracted first small companies and startups. Today it is a fast growing juggernaut valued north of 100 bn USD.
Q3: Which situation are you solving?
Any sustainable new business must be able of solving a situation or improving the experience associated with it, otherwise it will eventually fail. We have seen many examples of this in the Unicorns flourishing under the monetary QE extravaganzas post-2008. You remember the totally irrelevant but much hyped app “Yo” that some financial analysts tried to sell as the new communication miracle back in 2014? Not? Exactly.
Q4: Why is it relevant?
The new proposal must attack a situation that is still a source of significant dissatisfaction. Customers have limited amounts of time and resources they are willing to dedicate to searching for alternative solutions. When existing competitors already deliver a solution that is “good enough”, the effects of brand loyalty and other entry barriers will prove to be tough to address for a newcomer. The contrary is also true. Windows Vista was probably the gift of the century for Mac. I know it first hand. I was one of those that made the switch and never looked back.
Q5: How does the potential customer is currently solving the situation you want to address?
“Competition? We have no competition!” You may have heard similar affirmations before, specially when it comes to entrepreneurs or startups. They fail to see their competitors because they don’t have the same form factor or use similar technologies. In reality, the prospect has almost always solved the problem in some way already, even if the solution has been made in-house. If your development team cannot tell you how the potential customer is addressing the actual situation today, either the situation doesn’t exist or they still have a hell of a research job to do.
Q6: How is this new solution better than the current alternatives and measured in which unit?
These six questions will make it much more easy for you as a CEO to assess the viability of any new ideas or projects. It will also make it easier for you and your management team to decide whether to dedicate resources to those project or stop them before too many resources and careers are invested in them.
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