3 Rules of a Compelling Value Proposition

To create a compelling value proposition, you have to know your three C's: competencies, customers, and competitors.

Flickr/Wisconsin Department of Natural Resources

A new school year has arrived. As teachers and students wipe away the cobwebs that formed over the summer, so too should we return to the basics of business: creating a compelling value proposition. This is the first topic on the first day of Business 101, yet the news is consistently filled with the stories of companies that have fallen out of favor because they have lost sight of how they provide value.

A gripping value proposition is important to a business at any stage, but never more so than at the start. In any new business venture, you are trying to motivate the most apathetic type of person: the consumer. You are either convincing them to move from a competitor or to buy something they did not know they needed. In either case, you have to provide them a reason to buy.

To create a compelling value proposition, you have to know your three C's: competencies, customers, and competitors.

Know Your Competencies

The first step in creating a value proposition is knowing what you are good at (and what you are not). These core competencies serve as the building blocks for determining how your business creates value. What will you provide customers that they cannot get today, and how can you provide it in a way that uniquely differentiates your business?

These competencies are the foundation of your value proposition, and you should consistently work to further develop and improve them to maintain a compelling offering.

Know Your Customers

Having competencies that differentiate your firm from competitors is not enough. You also have to have a market, which means you have to understand your customers, their needs, and how best to serve them.

We recommend an activity from the Business 101 playbook: describe your first customer. To really know your customer, you have to have a deep understanding of their life, what drives them, and what keeps them up at night. Take time to describe who your first customer is and how you can couple your competencies to better meet their needs. Designing a value proposition around your customers' needs will better prepare you to move the apathetic consumer.

Know Your Competition

The final piece of a truly effective value proposition is knowing your competition. Markets and competitors tend to gravitate to the areas with the most distinguished and developed customer needs. However, these strategies limit differentiation and often do not represent the future direction of the market. Know your competition, their strengths and weaknesses, and develop a value proposition that meets the needs they are unable or choose not to address.

Example: Video Rentals

Ten years ago there was essentially one business model in the video rental market: retail stores. Today there are several models, including Redbox, Netflix, and a host of others in the direct to TV market, including cable operators and technology giants.

Each has a unique and differentiated value proposition. Each has identified a market need based on deep knowledge of the customer. Each developed competencies that have allowed them to meet that customer need, and each has done so in a way that differentiates them from competitors. While the future direction of the market is unclear, the compelling value propositions of these entrants has allowed them to develop successful businesses. It's the key to any successful start-up.

How did you develop your business's value proposition? Send us your comments and questions at karlandbill@avondalestrategicpartners.com.

Avondale associate Matt Cunningham contributed to this article.

Karl Stark and Bill Stewart are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark