New Venture Creation ◾ 109
of your product or service. Support activities help to improve effectiveness
or efciency of the operation. Prot margin is the ability of the organiza-
tion to successfully deliver a product/service at a price that is higher than
the combined costs of all the activities in the value chain. The numerical dif-
ference between price and cost is your prot margin.
You should perform your competitive advantage analysis within your
value chain by:
◾ Analyzing which costs are related to every single activity
◾ Determining the optimal price of your product/service to your
customer
◾ Identifying potential cost advantages you may have over your competitors
◾ Analyzing how your product/service potentially adds value (lower cost,
higher performance, user-friendly, just in time delivery, etc.) to your
customer’s value chain
5.10 Your Value Proposition
“Killing two stones with one bird.”
A value proposition is a promise of worth to be delivered and a belief
from the customer that prot will be experienced. A value proposition can
Value Equation
Value = (Seriousness of problem + benets) – (cost of solution + risks)
Value = (Benets) – (Implementation uncertainties)
Benets
to customer
Implementation
uncertainties
Buy
Do Not
Buy
Figure 5.10 Value proposition—How compelling is your product/service to your
customers?
110 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
apply to an entire organization, or parts thereof, or customer accounts, or
products or services. Creating a value proposition is a part of business strat-
egy.
18
Developing a value proposition is based on a review and analysis of
the benets, costs, and value that an organization can deliver to its custom-
ers, prospective customers, and other constituent groups within and outside
the organization. It is also a positioning of value, where Value = Benets –
Uncertainty (includes economic risk).
19
Why should anyone buy anything from you? What do you have to offer?
New products are “new” and therefore untested; generally, they cannot
attract customers. The value proposition is best quantied by the value
equation as shown in Figure5.11.
In order to attract their customers, entrepreneurs need to develop a
compelling value proposition. As seen in Figure5.11, a customer would be
persuaded to buy your new product/service if (a) the benets outweigh the
costs/risks, and (b) it solves a major serious problem. Figure5.12 presents a
step-wise process for establishing your value proposition.
Value Proposition
Market
Metric
s
Customer “pain”
“problem”
Which
market
Benets to be
derived
Which product/service
Which alternatives
currently exist
•Goal 1
Advantages
•Goal 2
•Goal 3
•Goal 4•Goal 5
Review and analyze all the benets, costs and values that
your organization can deliver to your customers
Your Value Proposition is Your Promise to Deliver a
Solution, and A Belief From e Customer at Prot
will be Experienced
•Proof of Principle
Figure 5.11 Generic SWOT analysis—A SWOT analysis is a powerful strategic planning
tool to help you evaluate your competitive position vis-à-vis your intended objectives.
New Venture Creation ◾ 111
Examples of value propositions (also called company slogans) include
the following:
Coke The pause that refreshes.
FedEx The world on time.
E. F. Hutton When E.F. Hutton talks, people listen.
American Express Don’t leave home without it.
Lexus The passionate pursuit of perfection.
IBM Global solutions for a small planet.
Apple The power to be your best.
De Beers A diamond is forever.
Visa It’s everywhere you want to be.
Generic SWOT Analysis
Strengths (internal)
Groundbreaking new product
Joint development with large company
Weakness (internal)
Lack of adequate funds
Tougher governmental regulations
Increased competition
Lower reimbursement rates
Opportunities (external)
Better gross margins
Lower manufacturing costs
Rapidly expanding new markets
reats (external)
New market entrants
Lower price imports
Long adoption periods
Leverage
Vulnerability
Favorable
conditions
Problems
Figure 5.12 Early adopters—Early adopters will provide you with valuable “early
warning” symptoms of desirability for your product offering.
112 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
Intel Intel inside.
AT&T Reach out and touch someone.
BMW The ultimate driving machine.
FOX Fair and balanced.
CNN The most trusted name in news.
Clairol Only her hairdresser knows for sure.
5.11 SWOT Analysis
A SWOT analysis is a strategic planning tool used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats involved in a project or in a busi-
ness venture. It involves specifying the objective of the business venture or
project and identifying the internal and external factors that are favorable
and unfavorable to achieving that objective. The technique is credited to
Albert Humphrey,
20
who led a research project at Stanford University in the
1960s and 1970s using data from Fortune 500 companies.
◾ Strengths: attributes of the organization helpful to achieving the objective.
◾ Weaknesses: attributes of the organization harmful to achieving the
objective.
◾ Opportunities: external conditions helpful to achieving the objective.
◾ Threats: external conditions harmful to achieving the objective.
A generic SWOT analysis is presented in Figure5.13.
Early adopters
Convinced Persuaded
Early “Try”
Decision
Feedback
Influences
Other Buyers
Time
Figure 5.13 Technology adoption—Your job is to reach the growth period as soon as
possible to ensure venture sustainability.
New Venture Creation ◾ 113
Your SWOT analysis should be conducted as follows:
◾ STEP 1. The present. List all your current strengths and weaknesses.
◾ STEP 2. The future. List all future opportunities and strengths.
◾ STEP 3. Your action plan. Address all four areas individually.
◾ STEP 4. Develop an operational plan, complete with specic tasks and
dates of completion.
5.12 The Early Adopters
As an innovator, your rst sales will likely be to an “early adopter.” An
early adopter, or trendsetter, is an early customer of a given product or
technology. The term originated from the work of Rogers, Diffusion of
Innovations.
21
Typically, this will be a customer who, in addition to using the
innovative product or technology, will also provide considerable and candid
feedback (beta site) to help rene its future product releases, as well as the
associated means of distribution, service, and support.
22
Early adopters are crucial to any new venture survival. Early adopters
not only will provide some initial sales, but also will likely inuence other
buyers to “try out” the product or service. Early adopters are frequently
called “cutting-edge” and “up-to-the-minute” customers. This is illustrated in
Figure5.14.
Time
Technology Adoption Life Cycle
Modified after Moore
Valley of Death
Tech
Enthusiasts
Early Adopters
Ea
rly Majority
Early Majority
Laggards
Figure 5.14 Valley of death—Also called the “funding gap.” Do you have sufcient
funds to survive the “Valley of Death”?
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