What is your unique solution?
You had identified a solid problem in your industry space. Now it is time to turn your focus on creating the perfect solution. In his book, A Good Hard Kick in the Ass: Basic Training for Entrepreneurs, Rob Adams argues that you never really know your customers as well as you think you do because, “All you have is a one-time snapshot.” And besides having just a snapshot of the customers, the industry is constantly changing.
Discussions about Forging Your Unique Solution
As Vinod Khosla suggested to us, the entrepreneurs need to know what assumptions others in the industry are making, and what assumptions they are making that could be wrong. In essence, the business is trying to hit a moving target with an unproven product in an environment that is never the same. Quite often, because figuring all this out can be so difficult in high-tech markets, Khosla says that at Kleiner Perkins they see too many business plans that are distorted to reflect a “perfected marketing pitch” and not the underlying business opportunity capturing the interests of early adopters.
Being externally integrated with lead users is helpful in creating accurate customer profiles in the current market snapshot, since lead users have their pulse on the future of the industry. They have a sense of what is changing and how the industry is changing, and they are looking to profit from these changes. Analyzing your lead user insights begins by organizing the data collected, creating a “needs hierarchy,” and understanding the importance of their needs.
Helpful questions in this customer profiling are:
– Who are the existing/potential customers?
– How does the problem change from company to company?
– What are their characteristics?
– How do they decide to buy?
– What factors, other than customer characteristics and marketing efforts, will influence their buying?
– In what ways can they profit from the new product?
Conducting a SWOT Analysis
A SWOT analysis is an essential exercise for formulating new business strategies. Threats to any new business venturing will most likely come from the industry risks we discussed earlier.
Strategic Mapping and Gap Analysis
Ralph Waldo Emerson has a famous line that is often quoted in business, “If a man can make a better mousetrap than his neighbor, though he builds his house in the woods the world will make a beaten path to his door.” Making a play on Emerson is Garage Technology Ventures co-founder Bill Joos, who says, “It’s not enough to come up with the idea on how to build a better mousetrap. You must really want to kill mice.” As we have stated earlier, you cannot just build it and expect that they will come. You need to look for a viable opening in your industry, learn what differentiates each offering, and create and market a better solution.
This leads us to a process called strategic mapping, a formal statistical technique with immense power to help you focus. You begin by strategically “mapping out the market” based on how all the product offerings are perceived by customers in the market. Once mapped out, you begin gap analysis, looking for “white-spaces” or gaps in the space, seeing where to attack, and where you will need to defend. The results of this thinking will prove to be quite handy when you are working on your slide presentation for investors, when communicating with your venture team, and in the later stages when you are working on your marketing strategies and sales tactics.
This exercise, especially when performed on a large whiteboard, is very important for entrepreneurs creating an innovative product or service, or for entrepreneurs who are new at new business venturing. Our experience shows that the step from the idea-in-the-head stage to the actual product stage—or as we say, from one-dimensional (1-D) to three-dimensional (3-D)—is quite often too great of a step.
Strategic mapping helps by taking the 1-D idea in the head into a 2-D world on a whiteboard. Compressing all the work you have completed for this chapter—problem analysis, industry sector analysis, key competitor analysis, and internal SWOT analysis—you need to untangle just this one thought: How do you truly differ from your direct competitors?
It is important to consider an objective assessment of competitors’ key strengths and limitations, product benefits and limitations, target-market strategy, product strategy, distribution strategy, price strategy, and promotion strategy. The net result of all this deep thinking should be presented in a very simple table, like the one describes in simple detail: “What we do better than they do.” and “What they do better than we do.” Conduct this exercise for at least five competitors in your space.
Aspirin vs. Vitamins
When evaluating new product concepts, consider the advice we captured from Larry Page, co-founder of Google. He simply asks, do users really care? How does our solution help the experts who specialize in our space? Does it really solve a deep problem? And does our venture team surrounding the problem really understand? Dan Bassett, of InnoCal Ventures, said that entrepreneurs have to ask themselves, “Is the product based on a need-to-have or a want-to-have?”
Do not get confused between needs, wants, and demands. Again we turn to marketing guru Philip Kotler, who provides some basic understanding on how these three terms differ. Kotler says that needs exist in the very context of doing business, or simply part of the condition for living. He calls wants “specific satisfiers of needs.” In other words, a hungry person in the United States and a hungry person in a third-world country are both hungry, and they need to eat. But the person in the United States wants a Wendy’s hamburger with French fries, while the other person may want rice and beans.
To Kotler, demands are “wants for specific products that are backed by an ability and willingness to buy them.” What this means is that many people want a luxury car while only a few are able and willing to purchase one. So for a software application to be successful, there must be the following: a need, like a need for a computerized operating system to run a business process; there must be a want, like someone wanting Microsoft NT over Linux; and there must be a demand, such as people willing to pay for NT, especially when they can get Linux for free.
We all know that aspirin was created to alleviate pain, and vitamins are believed to prolong and support a healthy body. Similar to an aspirin being an immediate solution to a throbbing headache, does your solution immediately solve a significant and measurable source of pain? Imagine a hot summer day in July, and the problem is hot air. Are you selling an air conditioner or a fan that just pushes hot air around the room?
Quite often we hear entrepreneurs claiming to have a proven aspirin painkiller, when in fact they are pushing vitamins. Around investors this becomes a real “stick-shaker,” which is what commercial pilots say when an airliner stalls in midair, and the control stick is sending a warning signal to the pilot that the plane is falling from the sky. Know the difference; create a viable, real painkiller.
Recall our discussion in a previous discussion about the diffusion of innovation. It occurs when “innovators” buy and then, through an influence process, encourage others to buy. It always “starts with the first sale,” and the innovation can “diffuse” through society very quickly. Looking at the factors that affect rate of diffusion, here are a few questions that can help you “score” against the diffusion process.
– What is the relative advantage of the new solution?
– How superior is the innovation to the other solutions it was designed to compete against?
– What about the compatibility? Does it fit with current end-user activity?
It is called a continuous innovation if little change is required, and a discontinuous innovation if much change is required by the end users. Also, incompatibility produces learning requirements, which will have to be overcome at the expense and time of the ventures launching against this strong headwind.
When looking at the complexity of the solution, will the end-users, sales people, or industry as a whole be frustrated or confused in understanding the concept of your solution? And what about “trialability,” meaning how easily can your solution be sampled? For example, with a software venture, can your lead users download software from the Internet? Finally, look at “communicability.” How likely is your product to sell on its own?
Creating Your Solution Statement
What is your unique business value proposition? According to Tim Koogle, employee number five at Yahoo, entrepreneurs need to be at the heart of their business and find out what customers consider to be truly valuable. He says, “Focus on what people can only do with your stuff.” And can you put your business purpose into a few words? As Drucker says, “There is only one valid definition of business purpose: to create a customer.
What the customer buys and considers value is never just a product. It is always a utility, that is, what a product or service does for him.” For example, a shrink-wrapped box of Microsoft Office software is a product. But what you, the user, needs is a solution: How do I write a winning business plan on my computer? We can probably simplify things by calling products and services all one thing: a solution. The reason is simple, in that almost anything designed, developed, marketed, and used today has a tangible component and an intangible component.
Analyzing business opportunities must be viewed in a very discrete manner. You have identified a problem and you are now working on a solution. If it is a viable opportunity and worth pursuing, you need a problem statement and a solution statement. Without a doubt, creating your solution statement will be the most difficult analytical work you will have to do for your new business venture. This is what will separate the wanna-be entrepreneurs from the will-be’s.
As Henry Ford once said, “Thinking is the hardest work there is. That’s why so few do it.”
Do not be afraid to aim high. Thomas J. Watson, Jr., past president of IBM, once said, “It is better to aim at perfection and miss than it is to aim at imperfection and hit it.” But you must define the value precisely in terms of specific product or service, which meets specific customers’ needs at a specific price.
Even with all these planning tools we have recommended in this section, we know that entrepreneurs will still get in trouble when screening new opportunities and creating new products.
Problems entrepreneurs have with new product development:
– More often than not, entrepreneurs will become consumed developing and engineering their “patentable” technologies instead of creating end-user benefits. It becomes a new technical discovery in search of a market.
– And instead of conducting an organized search and analysis, sometimes they ask, “Who’s got a new idea today?”
– The “me-too” efforts come from copying direct competitors’ efforts without any analysis. The entrepreneurs who figure “let’s run it up the flag pole and see who salutes it” produce many ideas, thinking that success comes in numbers.
– And finally, there are the entrepreneurs who have “got to do something fast” and end up rushing to market a less than premium product.