Information Missing from Entrepreneurs’ Pitches (7)

Information Missing from Entrepreneurs Pitches 7
-Revenue Model-
 

How do you actually make money from your product or service that is being sold to your customer segments? One of the most common mistakes people make is not knowing the difference between the revenue model and the pricing model, which are the tactics you use to set the price in each customer segment.

Let’s cover the three mistakes I see startups make most often:

1.They think that the revenue stream is the price they charge for their product.

2.They set their price by how much it costs them to produce the product.

3.They set the price lower than the competition (race to the bottom).

These common mistakes leave way too much money on the table. So, there are a few questions you must ask yourself while setting the revenue model and pricing:

What do customers value, and how much are they willing to pay for it? On day one, when you are sitting in your building, your lab, or at your desk, these questions are mere hypotheses, but when you get out of the building and talk to hundreds of potential customers, you come to understand what it is they value. This is what we will use to find out what the revenue streams and pricing should be.

How do customers pay for products today? How much are they currently paying?

All of the above leaves so much money on the table. There is a better way to figure out the revenue model, or strategy, and the pricing tactic. Such revenues are the lifeblood of a company. Revenue streams may have different pricing mechanisms, such as fixed list prices (i.e. Target), bargaining pricing (such as car dealerships), auctioning (Sotheby’s), market dependent (supply and demand), and volume dependent (such as food services buying in volume).

Revenue streams can result from two areas: one-time customer payment, or (my personal favorite) recurring revenues where ongoing payments deliver a Value Proposition or after-sales services to a customer (monthly recurring fees). Companies continually research the answers to questions such as: what are customers willing to pay for what value? How are they currently paying, and are they satisfied doing so? How much does each revenue stream contribute to overall revenues and profits?

Revenue Model (Streams)

These can be generated in many ways:

Asset Sales

This is the sale of ownership rights to a physical product. Ford sells automobiles, which buyers are free to drive, resell, or dispose of. A consumer goes into a Wal-Mart and buys household products. A customer goes into a hardware store to purchase tools.

Usage Fees

These fees are proportional to the usage of service. Examples are Verizon cell phone, Amazon Web Service, Fed Ex shipping, and electric power. I use this in my company, Credit Justice Services (www.creditjusticeservices.com), where I charge a per-trade-line fee to correct the inaccurate or unverifiable information on people’s credit reports. The more trade lines I work on, the higher the fee.

Subscription Fees

These fees are for continuous access to service. At Salesforce.com you pay for the continuous use of their product, at Netflix you stream all the videos you want, and my gym yearly membership fee is good for however often I choose to go. At my restaurant chain, Bella’s, we found a company that would charge one fee for my electricity and take over the bill. This was a very beneficial arrangement because the electric bill is now a fixed cost.

Lending/Renting/Leasing

These fees are for temporary access to a good or service. The revenue stream is created by granting someone the exclusive right to a particular asset for a fixed period of time in return for a fee. Lenders receive recurring revenues, and lessees pay a fraction of the full cost of ownership. We used to think leases were only for houses or cars, but what about Chegg, the textbook rental store, borrowlenses.com, which rents out camera equipment, and monthly furniture rental companies?

Licensing

This is a fee for the use of someone’s Intellectual Property (I.P.). Microsoft, Electronic Arts (EA), and Apple are just a few of the companies we use to license software. At the University of Virginia, we have a division that concentrates only on I.P. protection and licensing called the Licensing Venture Group (http://lvg.virginia.edu/about/lvg).  There, the content owners retain copyrights while selling licenses to third parties.

Intermediation or Brokerage Fees

Often found in marketplaces of various types, this is a fee for bringing together two or more parties involved in a transaction. The most notable examples are brokers and real estate agents who earn a commission each time they successfully match a buyer with a seller. A relatively new company in this model is called Airbnb. They don’t own all the apartments and homes that are available for short term rent, but receive a cut of the daily fee. Match.com brings people together on their dating site for a fee. At Credit Justice Services, we bring credit-challenged clients together with attorneys from around the country for a lead-generation fee.

Advertising

These fees are paid by brands and companies aiming to get in front of potential clients.  Newspapers—and the media in general—rely on this approach, which has spread to companies like Google, Facebook, and Twitter, all of which sell advertising on their sites. These companies draw massive amounts of users, monetizing their product or service.

Pricing Types and Tactics

There are two types of pricing: Fixed and Dynamic.

Fixed Pricing

This could be as simple as Cost + Markup, but the one thing that is missing from the equation is the value to the customers you’ve been talking to. Now that you know what your customer desires, you can price on value for each customer segment, or feature what your customer needs. A list price is what is stated in the store or brochure, but could be subject to discounts depending on the number of items purchased or service required.

Dynamic Pricing

By contrast, dynamic pricing moves depends on market conditions, and is subject to the power and negotiating skill of the purchaser. The price depends on the inventory and time of purchase (as in Expedia or Hotels.com). Price in real-time markets is dynamically established by supply-and-demand conditions. Prices at auction also result from competitive bidding.

Inside of each revenue stream you might have different pricing tactics. A few I have used in my companies are illustrated below.

Bella’s Restaurant Chainwww.bellas-restaurant.com Meatball Mondays, half price bottles of wine Tuesdays, 15%-off date night on Wednesdays; all of these are tactics that attract customers when the restaurant is normally slow.

Credit Justice Serviceswww.creditjusticeservces.com Make a one-time payment and receive a 20% discount, make two payments and get a 10% discount. This approach allows me to receive cash upfront for a discount to the client. While increasing short-term cash flow, you decrease long-term income. We are also the only credit repair company in the country with attorneys who will take your case for free if you’ve been wronged; another valuable tactic.

Bisenti Technologywww.bisentitech.com So many start-ups are being ripped off by American programming companies who hang a shingle outside their door and claim to be technology experts. We just ran into such a client, and after further review we found a 21-year-old kid who took our clients’ money and became overwhelmed with the project and ran. Our standard at Bisenti Technology is pay for performance. We do not get paid unless we perform. This makes our job more challenging, but our clients love it. We are also 1/6th the cost of any other local or national programming company.

 

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net.

 

Source:

Blanks, S. (n.d.). (2015, November 13). Business Model Canvas, Udacity. Retrieved from www.udacity.com

 

Information Missing from Entrepreneurs’ Pitches (6)

Information Missing from Entrepreneurs Pitches 6
-Customer Relationships-
 

This building block dictates the nature of the relationships that an organization will develop with its various customer segments. Remember in the customer segment box we learned (among other things) exactly who our archetype client was, where they lived, what they purchased, and how. Now that we have a good understanding of who our client is, it is time to GET-KEEP-GROW the customer base. For me, this is the fun part. Let’s look at each of these three sections individually. I will be using my new chain of restaurants, Bella’s (www.bellas-restaurant.com), as an example throughout this article.

GET. Getting clients into your pipeline can be broken up into two categories: Paid and Earned.

Paid Media. These are paid-for services such as advertising on TV, radio, in newspapers, buying Google ad words, etc. At Bella’s Restaurant we launched a Facebook page and boosted every posting we made. We started with videos and pictures highlighting the very first day of construction, and then posted daily video updates showing the progress of construction and design up until opening night. Clients told us they felt as if they were a part of the development of Bella’s. They were excited to experience the restaurant once it opened and they posted many comments on Facebook. Starting two weeks before opening, we also advertised on radio, TV, and in newspapers and magazines in order to flood the market. This was a very direct style of marketing, since we already knew whom to target from doing our customer segment interviews.

Earned Media. Earned Media is public relations. This is the best type of media money cannot buy. Bella’s started off by sending press releases to all the media outlets in town, because they love local stories and are always looking for new content. They requested interviews for their TV news programs and newspapers. This campaign started two months before opening. On opening night there were three TV stations, two newspapers, and two magazines that covered the event. All this publicity cost us nothing!

So, how does one acquire and (once they are in the pipeline) activate their potential clients? This is more information on the GET section of our model.

Acquire. Customer acquisition is the process of persuading a customer to select your organization’s product or service over the competition’s. A number of mediums and tactics are available to entrepreneurs today who are interested in acquiring customers. Here are a few:

Content Marketing. This is a very valuable tool for entrepreneurs with limited resources. It includes your branding (i.e. logo, website, company story, and fliers) and any other content about why you exist in the marketplace. At Bella’s we created our logo and trademarked it. Our story was about my parents-in-law coming from Rome, and how they taught our chefs the cooking and recipes they served to their own family and friends in Italy. We wanted to emphasize that our menu was authentic Italian food. We filmed these cooking lessons and added them to our content.

Search Engine Optimization. Now it’s time to take your content and share it with the world. The more people who are exposed to it and share it, the higher your content will rank in search results. This is one of the most effective ways of getting your product noticed by your target customer. I do not believe in hiring an SEO. I do it myself, as should you. We placed everything on Facebook, Instagram, newspapers, TV, etc. All this goes on the web and increases your visibility.

Email Marketing. On Facebook, we had contests for a free dinner on opening night (we still have such contests). Through these contests we obtain clients’ names and email addresses, and use them for marketing. We also get this information when people make reservations. This data is rich and is the best way to reach your client directly. We then use Constant Contact to send out weekly emails with promotional material and information about the specials of the weekend.

Social Media MarketingAlthough you cannot be dependent exclusively on social media to get the word of your product or service out to the market, when used in collaboration with other tactics, social media can elevate your product significantly in your target customer segment’s estimation.

Activate. All of the above systems are well and good, but mean nothing if you don’t turn them into paying clients.

Conversion Rate. The more your company gets clients into the pipeline, the stronger your chances are of activating them by making minor tweaks to your content and learning what works. Bella’s did a test sample of 500 customers who ate at our restaurant by giving them a “How did you find us?” card to fill out at the end of their meal, and offered a 5% discount if they did so. What we found out was amazing. A full 68% of diners came in through word-of-mouth, 18% came in from seeing us on Facebook, 10% found out about us by driving or walking by and seeing the restaurant was always full, and 4% checked the “other” box and wrote a comment.

Analytics. It is not enough to just mobilize word of your products through the media. If companies do not use data gleaned from one or more of these resources and analyze it to better understand their customers, they are not taking full advantage of the investment they have made.

Stand for Something. Bella’s gets at least 100 requests per year to donate gift cards, space, and food for events. (Don’t they know we work on a 3% margin?) Although we certainly can’t afford to say yes to every request, it is very important to be known as good stewards of the community. Every fiscal year, in April, we examine all the requests for donations and accept four large ones and four smaller ones, giving out $200 in gift cards. This is a personal choice I made when starting the company.

Give Them What They Want. Bella’s conducted six weeks of taste testing with my mother-in-law working side-by-side our chef in the kitchen, cooking for 15 people every night. The clients would fill out an anonymous data card at the end of dinner. It was amazing what we learned. Customers are automatically more inclined towards a product based on how much it reflects qualities that they feel exist in themselves. Companies need to know their customers inside and out, have a complete understanding of the language they speak, their wants, needs, and desires in order to be successful.

Make It Personal. By providing a personal service to your customers, you increase your chances of creating a repeat customer. This couldn’t have been more evident than when I opened my second Bella’s restaurant, and was not spending enough time in the first one. My clients said the customer service was lacking, and it wasn’t the same without me there making my personal visits to each table. This could be the kiss of death if not done correctly, but we hired a “mini me” and this turned things around quickly. Clients love the personal touch!

KEEP. Once you get your clients, how do you keep them? It is much less expensive to keep a client than to get them in the first place.

Loyalty Programs. These are a great way to keep clients coming back. We signed up with a company called Cardagin (http://www.cardagin.com/) that handled all of this for us. The data we received from this company was tremendous, (such as spending habits, amount spent, what was purchased, etc.). This information was key to us and the loyalty points for free food, drinks, and even iPads were welcomed by clients.

Contests and Events. This has been very helpful to us. We place events on Facebook and the winners get something worth their time to participate in the event. People are competitive in nature and really enjoy these contests.

Product Updates. Changing things up and adding new things is good, so long as you stay with your core business. We do this at Bella’s by keeping the menu consistent, but adding specials every week. We find the best-selling specials during the year and add them to the menu. The clients feel they are a part of creating the new menu.

GROW. This is key to success. It doesn’t take much to do this, but it eludes more entrepreneurs than you can imagine.

Up-Sell. This is my favorite. There is a waiter in my company from Florence, Italy who is the best at this. When I eat at my restaurant and he waits on me, I notice how he upsells me and the people I’m eating with. It is so subtle that no one is the wiser. It is as simple as a client asking for water, and the waiter saying, “Would you like flat Acqua Panni water, or San Pellegrino sparkling water?” (In other words, leaving free tap water out of the equation.)

Cross-Sell. This is a great way to bundle some of your products together. For example, at Bella’s, we have a Specials Night when you can buy a complete dinner, including appetizers, salads, entrée, wine, and dessert for a fixed price. In my company, Credit Justice Services (www.creditjusticeservices.com), we cross-sell our legal program after a client is finished with the credit repair. This keeps the client in the loop longer.

Referrals. As you already know, this is the best avenue for growth in a company. As mentioned, 68% of Bella’s clients come from referrals. We have a referral program whereby a repeat client who brings in six or more guests receives a gift card as a thank you.

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net.

Source:

Blanks, S. (n.d.). (2015, November 13). Business Model Canvas, Udacity. Retrieved from www.udacity.com

Information Missing from Entrepreneurs’ Pitches (5)

Information Missing from Entrepreneurs Pitches 6
-Customer Relationships-
 

CUSTOMER RELATIONSHIP BUILDING BLOCK

This building block dictates the nature of the relationships that an organization will develop with its various customer segments. Remember in the customer segment box we learned exactly who our client was, where they lived, how they purchased, and many other things (we learned the archetypal client). This is the fun section for me, because now that we have a thorough understanding who our client is, its time to GET-KEEP-GROW the customer base. Lets look at each one of these three sections individually. I will be using my new chain of restaurants, called Bella’s www.bellas-restaurant.com, as an example throughout this article.

GET. Getting clients into your pipeline can be broken up into two categories: Paid and Earned.

Paid Media. This would be things like advertising on TV, radio, newspapers, buying Google ad words, etc. What we did at Bella’s restaurant was to start a Facebook Page and boost every posting we made. We started off with posts on the first day of construction and continued until opening night. Clients told us how they felt a part of the development. We did advertising on radio, TV, and magazines two weeks before opening to flood the market. This was a very direct type of marketing since we already knew who to target from our customer segment interviews

Earned Media. This is public relations. This is the best type of media money cannot buy. Bella’s started off by sending press releases to all the media outlets in town, because they are all looking for content and love local stories. From that point, they requested interviews for their news programs ore news papers. This campaign started two months before opening. On opening night there were three TV stations, two newspapers, and two magazines that came and wrote about the event. All this publicity cost us nothing!

So, now how does one acquire, and, once in the pipeline, activate their potential clients? This is the first of three sections of the Get-Keep-Grow model.

Acquire. Customer acquisition is the process of persuading a customer to select your organization’s product or service over the competition’s. A number of mediums and tactics are available for entrepreneurs today who are interested in acquiring customers for their business. Here are a few:

Content Marketing. For entrepreneurs with limited resources, content marketing is a very appealing and useful alternative. This is your branding (i.e., logo, website, company story, fliers) and any content that you put together about why you exist in the market place. Bella’s created their logo and trademarked it. Our story was about my parents-in-law coming from Rome to do our cooking. We filmed all this and added it to our content.

Search Engine Optimization. Now it’s time to take your content and share it with the world. The more people who are exposed to it and share it, the higher your content will rank in search results, which is one of the most effective ways of getting your product noticed by your target customer. I do not believe in hiring an SEO. I do it myself, as should you. We placed everything on Facebook, Instagram, newspapers, TV etc. All this goes on the web and increases your visibility

Email Marketing. On Facebook we would have competitions for a free dinner on opening night, and continue to do so even now. For the entry, we get the clients’ names and email addresses. We also get this information when they make reservations. This information is rich and the best way to get to your clients directly. We then use Constant Contact to send out weekly emails with promotional material and specials of the weekend.

Social Media Marketing. You cannot be dependent exclusively on social media to get the word of your product or service out in the market. When used in collaboration with other tactics, however, social media can elevate your product significantly in your target customer segment’s estimation. It is much easier to target a specific market using social media than other forms of advertising.

Conversion Rate Optimization. The more your company starts attracting customers, the stronger your chances are of acquiring them by making minor tweaks to your content and outlook.

Analytics. It is not just enough to mobilize word of your products through the media mentioned above. If companies do not use data gleaned from one or more of these resources and analyze it to better understand their customers, they are not taking full advantage of the investment they have made.

Customer Retention. This refers to the long-term relationship a company establishes with its customers. The more repeat customers a company has, the more it is assured of champions who will market its products and help it acquire additional customers.

Below are some strategies businesses can use to retain their customers and form long-term relationships with them.

Stand for Something. Customers are more loyal to brands that they identify with, or those that they feel represent traits and characteristics that they would like to emulate. Therefore, it is imperative for a company to select what its brand stands for and communicate that to its customers.

Utilize Positive Social Proof.  Websites that provide customers with facts that show how the use of their product will improve their social standing are more likely to help the company retain customers in the long term.

Invoke the Inner Ego. Customers are automatically more inclined to a product based on how much it reflects qualities that they feel exist in themselves. This is called implicit egotism, and can be a very effective weapon. Companies need to know their customers inside and out, have a complete understanding of the language they speak, their wants, needs, and desires to be able connect with them, and show them how the company and its products are an extension of themselves.

Use Words They Love to Hear. Certain words have a deep impact on the buying behavior of customers, and if the product fulfills the promise of these words, customer retention becomes easier.

Reduce Pain Points and Frictions. If you address a pain point for your customer, or resolve a problem for him, you will retain him for much longer.

Realize That Budget Is Negligible. Most companies balk at giving back to customers without realizing that giving them a discount, even if it is a small one, will wow the customer and keep him coming back for more.

Utilize Surprise Reciprocity. Surprising the customer by providing them with a boon (like a discount or a free add-on) will stay with the customer longer.

Make It Personal. By providing a personal service to the customers, you increase your chances of creating a repeat customer.

Speed Is Second to Quality. Often times companies make the mistake of picking speed of service over quality, thinking customers would appreciate the tradeoff. However, studies have shown that customers are more likely to come back if importance is given to quality.

Customers Enjoy Businesses That Know Them. The more time an employee spends with the customer, getting to know them and therefore providing a level of personalization, the more likely he is to reassure the customer that the company truly knows him and therefore keeps pulling the customer back to the brand.

Choose the Right Platform. It is important to know what communication channel is preferred by customers, and to utilize this channel to the fullest extent in order to keep the company’s presence ensured in the customer’s psyche.

Make It a Communal Effort. All elements of the organization must be fully engaged and informed when it comes to servicing a customer. The aggregated effect will greatly improve the overall experience.

Get People Started. Loyalty programs are more likely to be used if companies get past the customer’s initial resistance, and ensures that customers are automatically signed up for such schemes. Once the ball is rolling, customers are more likely to stay the course.

Get Ideal Customers to Be VIP’s. Humans are competitive by nature, and studies have backed this observation by showing people appreciate being assigned to a particular customer class if there is a class below them in the program.

Label Your Customers. Customers are more likely to keep coming back if associating with their brand puts a label on them.

Boosting Sales (Upselling)

Companies are forever focused on increasing their sales, and often use a strategy called “upselling,” which requires representatives to convince the customer to buy more of their company’s products. By using a combination of linguistics, packaging products and lowering their overall price, and selling dependent products, companies ensure that a customer buys as much of their products as possible.

In fact, companies often provide incentive programs that reward employees who manage to boost their sales through the technique of upselling, and ask others to emulate the techniques and tactics those employees use. However, such incentive programs are kept strictly under wraps, because if a customer gets to know about them, it may break the tenuous relationship of trust between the customer and the customer representative.

Typical upsells that you may have experienced can be: asking a customer if he would like to add a drink or fries to his order at a fast food restaurant; convincing a customer who is getting his laptop fixed that he should get more RAM, or a bigger hard drive installed; suggesting to a customer who is getting his phone fixed that he should upgrade to a newer version of the handset, etc.

Typically, there are two techniques that successful upsellers often utilize. Successful upsellers are many times researchers and observers who get to know their customers’ profile, particularly focusing on their economic status, demographic, preferences, and social aspirations. This helps the upseller to customize his pitch to the taste of the customer.

Another technique that is common among upsellers is the use of fear. By letting the customer know that the product might go out of stock due to demand, or getting them to buy after sales services or warranties for expensive items by letting on that the product is sensitive and needs to be handled by expert hands.

 

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net

Source:

Blanks, S. (n.d.). (2015, November 13). Business Model Canvas, Udacity. Retrieved from www.udacity.com

Information Missing from Entrepreneurs’ Pitches (4)

Information Missing from Entrepreneurs Pitches 4
-Customer Segment- 
I cannot tell you how many times I’ve asked new start-up companies how many potential clients they’ve talked to about their great breakthrough, and have received the disappointing answer, “none.” This is so disheartening to me. I learned a long time ago, when I started pitching to investors and studying the Business Model Canvas (BMC), that I needed to find out who my customer base was going to be. To do this, one needs to get out of the building, so to speak. First, one must do research on Customer Discovery (find the problem) and Value Proposition (create the Minimum Viable Product). The Customer Validation phase begins when you take the Minimal Viable Product (MVP) you have developed and go back to as many potential clients you have spoken to, and see if your product or service is the right one for your customer. This is called the Customer Segment of the Business Model Canvas.

The Customer Segment is one of the most important building blocks in the Business Model Canvas, so getting this right is key to your success. By matching your customer segment to your value proposition, you can achieve a more lucrative revenue stream and develop a Product Market Fit (briefly discussed in last week’s article). This part of the BMC can only be done outside of the building by interviewing hundreds of potential clients. Your customers can be segmented into different groups based on their needs, behaviors, and other traits they share. A customer segment can also be defined through demographics such as age, ethnicity, profession, gender, and more. We can also break this down into other factors such as spending behavior, interests, and motivations. Then, the organization must create a value proposition, and employ a business model best suited to servicing their chosen Customer Segment’s needs.

The Customer Segment part of the Business Model Canvas will help the startup discover the following:

Creating a Customer Profile:

Who Is My Archetype? In order to ensure that a start-up’s product or service appeals to its customer segment, the business must work to understand who the customer really is. This can be discovered by evaluating the customer’s environment, experiences, and general social context. This is called “living in the day and life of your customer.” By learning what your customer does from the minute they wake up until they go to sleep, you come to understand exactly where your product fits in their lives. All of these factors contribute to how the customer will respond to your product. So, a customer’s geographic, demographic, and social context will define the customer’s persona, creating a customer archetype for your products and services.

Customer Gains. We have to ask ourselves what outcomes our clients expect, and then widen our lens to discover what we can provide for them that would go beyond their expectations. Is it quality they are looking for, or more of “this” and less of “that?” Could it be features they are looking for, or perhaps better performance? What would make your customer’s job or life easier? Could it be more services, lower cost of ownership, or removing a step from a cumbersome process? And what would increase the likelihood of them purchasing your product or service? Is it cost, better quality, lower risk, more fun? The answers will differ if you are selling to a business customer rather than a consumer customer, but regardless of your customer type, these questions all need to be answered in the Customer Segment of the BMC.

Customer Pains. This part is the part that is easiest to identify. It’s seeing clearly what exactly is causing your customer hardship, and making sure your product or service will alleviate it.

Customer in Context. Selling a product or service from business to business is much different than selling to a consumer or end user. Within a corporation there will be people who use the product, people who would recommend the product, and people who are the actual buyers of the product. But the people you really have to look out for are the saboteurs. A great example of this is when one of my companies, Bisenti Technology (www.bisentitech.com), went for its first big project with one of the largest Hedge Funds in America. We knew who the economic buyer was (the CFO), we knew who the end user was (the marketing and sales departments), but we had to understand that the I.T. department was going to be our saboteur. They were worried that we were going to take their jobs instead of understanding we were there to help them. Knowing the chart of players before going in gave me a strategic move that helped us win the contract.

With all of this information in place, it is time to hit the streets and start testing your hypothesis. I ask myself the following questions as I engage in this real-life stage of the Customer Segment:

How do you test your customers’ interest?  I use what is called a Minimal Viable Product (MVP). This contains the core features your product or service delivers. I watch the customer’s eyes as they review my solution to their long-standing problem. If they light up, I know I am in. If not, I ask questions and iterate.

Where do you test your interest?  When I started Credit Justice Services (www.creditjusticeservices.com), I went to over 100 mortgage broker offices with my MVP, showing them the solution I had to their problem. When I started Bella’s, a new chain of restaurants (www.bellas-restaurant.com), I placed a picnic table in the middle of a defunct restaurant, and cooked for 15 people every day for six weeks until I knew I had the recipes just right.

What kind of experiments can you run?  I try to keep it as simple as possible. When I came up with a new Italian red sauce at my restaurant, Bella’s, I tested 500 people who sat at my bar and did a blind taste-test with 10 other red sauces. This gave me enough data to figure out what I needed to do to be number one.

How many do you test?  This is simple. The larger the data set you have, the more the accurate information about your product or service will be. I try to never to go below 100 users.

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net

Source:

Blanks, S. (n.d.). (2015, November 13). Business Model Canvas, Udacity. Retrieved from www.udacity.com

Information Missing from Entrepreneurs’ Pitches (3)

Information Missing from Entrepreneurs Pitches 3
-Value Proposition- 
According to Investopedia.com (2015), “Value Proposition refers to a business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings will” (p. 1).

The question I like to ask my clients and students who are starting a company is: “why would I buy their product or service instead of the company’s next door?” They normally come back at me with the types of features they have, or the coolness of their product. The Value Proposition is asking what pains and gains I will receive from using your product/service instead of the other company’s. Let’s look at what that means.

What is it you are building, and for whom are you building it?

What pains are you removing, or what gains you are creating?

Pain Killer.  What are you going to reduce or eliminate for the customer? Is it wasted time, cost reduction, emotional frustration, or risk removal?

Gain Creator (The Solution). How do you create benefits for the customer? Is it through exceeding their expectations and desires, or will they be surprised by the ease of the solution?

Once you have gotten out of the building and interviewed hundreds of potential clients in your customer-discovery phase of this process, you then come back to the lab and design a Minimal Viable Product (MVP) from what you learned. What is the Minimum Viable Product? It is the smallest feature set you can create to show the potential client that it would solve their pains or create gains. This is where I see clients and students go off the rail, especially engineers. They come up with a 50-feature set of ideas, and have no clear vision of what the customer wants or desires. This will only confuse the potential client and drive them away. You need to make the MVP as simple as possible to understand. Remember, you will be returning back to the client with your MVP,  saying, “This is what I’ve created to solve your problem. Is this what you were talking about?” Other features will add on after launching, depending upon the customer feedback.

There are two types of MVPs — Physical and Web/Mobile. Let’s look at each:

Physical. This is a product that will be sold through a direct sales channel, so you will need something that the customer can touch or feel. If not, I have my students go out with a power-point slide deck. This will test the understanding of the problem and solution. It will also help you figure out the minimum features the customer desires.

Web/Mobile. You need to start with a low-fidelity website. This means you need either a wire frame, or a power-point mockup of what you are creating. Remember to keep it simple. This is so the customer can understand what you are trying to solve or create. I would advise that you get a high-fidelity feature a few weeks after your customer interviews, which would include a more detailed webpage and an actual back end that works. This will help you develop something the customer wants and desires, without trying to figure it out yourself and wasting a lot of time while doing so. I love this process, because all you need to do is just ask the client, and they will tell you what they want!

What most start-ups don’t understand is that it’s not about your idea or product, but about solving a problem or a need for a customer. So, what does that mean, and what is the difference between a problem and a need?

Problem. This is solving an accounting  problem or a company systems problem.

Need. This is universal, and is therefore wanted by the billions of people on the planet. Great examples of this are communications, entertainment, and even love. EHarmony tapped into this like no other company. Apple also took the iPhone and turned it from a problem of communication to a need that resulted in people wanting a new one every year.

The Value Proposition works hand-in-hand with the Customer Segment part of the BMC, which I will be writing about next week. When a start-up can connect the two (Value Proposition and Customer Segment), we call that a Product Market Fit. This answers the question, “Is what I’m building needed, wanted, or desired by the customer?” The great news about the Business Model Canvas (BMC) is that you can iterate (make small changes) or pivot (go in a totally different direction) between the Value Proposition and the Customer Segment during the Customer Discovery stage until you get it right. When this is accomplished by a start-up, the chances of success increase significantly.

Most start-ups only look at what their actual product or service Value Proposition will bring to the client. I ask my clients and students to look at the whole package to be delivered to the customer. Here are a few questions you need to ask yourself about your product or service:

Product

What are the parts of your value proposition? Manufactured goods, commodities from other lands, etc.?

What are the entanglement parts of your value proposition? Perhaps copyrights, the licensing, or something else?

Are there financial parts, like insurance you offer, financial guarantees, and so forth?

Is it digital, like MP3 files or e books?

Service

Which core services are part of your Value Proposition? Is it consulting, a haircut, investment, or advice?

Which presale will you offer? Is it to help the client find a solution, financing, free delivery?

What after-sale services will you provide? Is it free maintenance, disposal of product, etc.?

The Value Proposition is the part of your product and service that states exactly why the client would rather buy from you than from your competitor. It is the part that describes what pains you will be removing and what gains you will be adding.

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net

Source:
Blanks, S. (n.d.). (2015, November 13). Business Model Canvas. Udacity. Retrieved from www.udacity.com

Investopedia. (2015, November 13). Value Proposition. Investopedia. Retrieved from http://www.investopedia.com/terms/v/valueproposition.asp

 

 

Information Missing from Entrepreneurs’ Pitches (2)

-Business Model Canvas-
 

When pitching to an investor, the last thing you want to pitch is your business plan. Yes, you heard me right: the last thing you want to pitch is your business plan! Allow me to illustrate why.

I received 400 business plans in 2012, called in 40 for interviews and pitches, and only four got funded. This seems to be the normal rate of return on funding. The question I was asked was, “why?” Why can’t it be higher? Obviously, there are some plans that just don’t fit into the categories the Angel, VC, or PE groups like to fund. Other reasons could be the product or service just does not jive with the investors, there is a lack of information being presented, or too much of the wrong information is being presented.

The business plan should come after the Business Model Canvas (BMC) is completed. The BMC is the plan before the plan, so to speak. As an investor, and now a professor, I’ve learned that business plans (and I’ve written many) never make it past the second week of opening. They are too static for this fast-moving, dynamic world. The BMC is what my article is about this week, and will be a 37,000 feet view of how it works as a whole. The rest of my articles will be about each of the nine boxes within the Business Model Canvas and how to use them in a presentation to investors.

It is important to understand the art and science of how to create a business model for your company. I compare the BMC to when I was an airline pilot. Imagine you’re leaving the gate and things are moving fast; you’re cleared for takeoff and things are rapidly changing. You can change your angle of attack and power setting at 10,000 feet, and then you hit cruising altitude. This is when you sit back, relax, and enjoy the flight. This analogy can be used to describe a start-up company. In the flight deck, we have a checklist to keep us safe; in the business world, we have the Business Model Canvas to de-risk our chances of failure.

Business Model Canvas is a way to experiment and test your hypothesis for creating and capturing the value of a start-up company. This process is also used with my clients who are developing a new product or service. When done well, it is a way to experiment and reduce risk. When owners of a new start-up consciously operate with a deep understanding of how the entire business system works, they can make better decisions and gain critical customer feedback on whether or not the intended approach is working, wanted, or even needed. The Business Model Canvas is designed to teach you the key essentials for how to utilize the tools to effectively model and shape existing and future products and companies.

Only one out of every 50 pitches I hear has a clear understanding of its customer development and business model. These are start-ups that have used the BMC as their checklist to success.

The Business Model Canvas has nine sections. We will eventually discuss each in detail, but for right now, let’s look at the 37,000 feet view:

Value Proposition: What value does your product or service deliver to the customer?

Customer Segment: For whom are you creating value?

Channel: How are you getting your value proposition to your customer segment?

Customer Relations: How are you going to GET-KEEP-GROW your client base?

Revenue Stream: What are your revenue model and pricing tactics?

Key Activities: What activities does your company need to do to move forward?

Key Resources: What resources do you need to start your company?

Key Partners: Who can you join forces with to increase your distribution faster?

Cost: What are the costs of getting the company up and going in year one?

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net.

Information Missing from Entrepreneurs’ Pitches (1)

dmuir_New_article_customer_dev_process_061115
I have been studying entrepreneurs’ pitches for over 10 years in the private equity world and for three and a half years in academia. As a professor at the University of Virginia teaching Presentation Strategies for Entrepreneurs, I thought I was qualified to write a series of articles about the information I have found missing from entrepreneurs’ pitches. This is the first of 10 articles I will be writing on the subject.

Customer Development. It all starts here. This is a four-stage process that allows the entrepreneur to find out what their potential client is actually looking for in their product or service.

  1. Customer Discovery. This is where the entrepreneur interviews 100 or 1,000 potential clients, and asks the question, “If there were three things you could correct in your business, what would they be?” The entrepreneur will surely find a pattern they can work with.
  2. Customer Validation. This is where the entrepreneur goes back to the potential customer (after discovery of the problem) with a Minimum Viable Product (MVP), and says, “I heard your pains and this is what I created to correct those pains. Is this something you would be interested in if created?” When the customer’s eyes light up, you know you have something.
  3. Customer Creation. This is where you start building the awareness, or the GET-KEEP-GROW methodology, as you work through the Business Model Canvas (BMC). Once completed, the nine boxes in the BMC will give you a clear and concise business model in which to operate and grow your company.
  4. Company Building. You now are no longer a start-up, but a full-fledged company ready to expand and iterate as needed to grow. You have a sales department, marketing department, and business development department all working together in order to build and expand the company.

Now, these steps may seem obvious and even academic at best, but it would blow your mind to know how many panels I’ve sat on in my 15-year career, asking these simple questions to the pitching entrepreneur, only to be faced with blank stares and the infamous, “I don’t know.” How does one build a company without talking to at least 500 or even a 1,000 potential clients?

Example of Customer Development. Several years ago, I started a new chain of Italian restaurants. I brought my mother-in-law over from Rome, Italy to do the cooking. I love my mother-in-law’s cooking, but I had to go through the customer discovery and validation process outlined above before opening. I found a broken-down restaurant that had gone out of business. I placed a picnic table in the center of the restaurant, and invited 15 people every night for dinner over a six-week period of time. At the end of dinner, I would have them rate the food. The data I collected was amazing. For the first three weeks, almost all the potential clients said the food was too strong; my mother-in-law was not cooking to the American pallet. As we iterated the recipes, the votes started getting better and better. When we hit a 90% approval rating on week six, then, and only then, did I create and design the menu. We opened the doors 10 weeks later to great fanfare. It would have been a disaster if we hadn’t fed and tested almost 500 people before opening the doors.

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net