Published in The Tennessean February 24, 2014
By Ed Rappuhn – SCORE Nashville
“What is a business model and why do I need one?”
Great question! A business model is a method of visualizing and understanding your business as a whole. It can be used as a preliminary step to developing a business plan, a format to develop an investor pitch, and as a dynamic method of evaluating your business as circumstances change. Imagine a blank artist’s canvas. But instead of paint, use pencil, sticky notes or dry erase markers to allow for changes.
In the center of the canvas is what you are selling, on the right is who will buy your product or service, on the left is how it is produced, and across the bottom is how much revenue can be generated and how much it costs. Today I will focus on the middle of the canvas, your value proposition.
A value proposition is a way to define your products and services. Few, if any, products or services can be sold if they do not provide value to the buyer. Consider an equation where Value = Benefit – Cost. Your goal is to provide greater value than competitive offerings. Even with no competition, the customer must see the benefit is greater than the cost of doing nothing.
Be clear and concise about what you offer. Avoid jargon and ambiguous terms. Use a headline, followed by facts. A picture is helpful if the value proposition is in print or on the web. Think of your value proposition in terms of an “elevator pitch;” a way to describe your offering to a stranger between the lobby and the fifth floor.
Test your value proposition by choosing two value propositions in promoting your offering. Measure the results. Or ask customers directly, “What, if anything, about my offering do you value?” You might believe something is significant, but do customers care? It’s their opinion that matters.
Your value proposition might change from customer to customer. When I go to the Apple store they never try to sell me something until they listen to me. They look at my current needs and ask about growth. Only then do they explain the value of the recommended product.
What does your competition promote as their value proposition? If they offer free shipping, money back guarantees, or quick response time, how do you differentiate your offering? If you are new to market, you need to a unique value proposition to entice the customer to change.
Once you have defined your value proposition, you are ready for step two of the business modeling exercise, the “who.” That will be covered in my next column, two weeks from today.
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org. Email questions about your business to firstname.lastname@example.org and watch for the answers in future columns.