E245 Stanford Lecture on Business Model Innovation. Focused on Product and Value Proposition. Addresses types of markets, where insights come from as well as type of insights. We talk about how we define Minimum Viable Product and examples of how one might test the Minimum Viable Product

1. E245 Value Proposition
Ann Miura-Ko
January 2011

2. The Business Model Canvas
Test Hypotheses:
• Product
• Market Type
• Competition

3. How to Build A Startup
Size of the Business Customer Customer
Idea Opportunity Model(s) Discovery Validation
Theory Practice

4. We start with the theory…

5. Key Questions for Value Prop
§ Problem Statement: What is the problem?
§ Technology / Market Insight: Why is the problem
so hard to solve?
§ Market Size: How big is this problem?
§ Competition: What do customers do today?
§ Product: How do you do it?

6. Inspiration
Where do these ideas come
from?
Flickr Image: Jeff Kubina

7. The Authentic Entrepreneur
http://www.ted.com/talks/
erin_mckean_redefines_the_dictionary.html

8. Technology and Market Insight
Technology Insight Market Insight
§ Moore’s Law § Value chain disruption
§ New scientific § Deregulation
discoveries § Changes in how people
§ Typically applies to work, live and interact
hardware, clean tech and what they expect
and biotech

9. Examples of Market Insight
§ People want to play more involved
games than what is currently offered
§ Facebook can be the distribution for
such games
§ Masses of people are more likely to
micro-blog than blog
§ The non-symmetric relationships will
allow companies and individuals to
self-promote
§ European car sharing sensibilities
could be adopted in North America
§ People, particularly in urban
environments, no longer wanted to own
cars but wanted to have flexibility.

10. Insight Characteristics
Wrong Right
Non-
Biggest Potential Wins
Consensus
Consensus Mindless Competition

11. Key Thought
What insight do I have that is not
yet conventional wisdom?

12. Market Type
Existing Resegmented New
Customers Known Possibly Known Unknown
Customer Needs Performance Better fit Transformational
improvement
Competitors Many Many if wrong, None
few if right
Risk Lack of branding, Market and Evangelism and
sales and product re- education cycle
distribution definition
ecosystem
Examples Google Southwest Groupon
Market Type determines:
§ Rate of customer adoption
§ Sales and Marketing strategies
§ Cash requirements

13. Existing Market
Characteristics:
§ Customers are always hungry
for better performance
§ Incumbents exist
§ Usually technology driven
§ Positioning driven by product
and how much value customers
place on its features
§ Risks:
§ Incumbents will defend their turf
§ Network effects of incumbent
§ Continuing innovation

14. Resegmented Market
§ Low cost provider (Southwest)
§ Unique niche via positioning
(Whole Foods)
§ What factors can you eliminate
that your industry has long
competed on?
§ Which factors should be
reduced well below the
industr’s standard?
§ Which factors should be raised
well above the industry’s
standard?
§ Which factors should be
created that the industry has
never offered? (blue ocean)

15. New Market
§ Customers don’t exist today
§ How will they find out about
you?
§ How will they become aware of
their need?
§ How do you know the market
size is compelling?
§ Which factors should be
created that the industry has
never offered? (blue ocean)

16. The Problem
§ The “problem” justifies why the product is
valuable to someone
§ The Problem Statement:
§ For whom?
§ What issue do they face?
§ Note: Doesn’t reference the product

17. Potency of the Problem

18. Competition
§ Are substitute products and services available?
§ Are competitors threatening to offer better price or value?
§ How saturated is our market?
§ How likely are customers to defect?

19. The Ecosystem (“Customers”)
§ Day to day users
End User § May actually have zero influence in buying
process
Influencer / § Preferences and decisions influence or
Recommender impact buying decisions
§ The person who controls the purse strings
Economic Buyer
or is in charge of the budget
Decision Maker § The buck stops here

20. Types of Product Value
Lower Cost
Faster
More Simple
More Efficient Smaller

21. The Ecosystem (The Rest)
§ Entity that provides parts or services
Suppliers
needed to manufacture your product
§ Group or organization that installs,
Channels distributes or sells the product in your
place
§ Organizations responsible for monitoring
Government trading and safety standards related to
your product
§ Other entities that provide products related
Partners
to delivery of your final product

22. Wait! I thought this lecture was
about products?!?

23. Product
Service Hardware
Knowledge Resources
Data Network

24. Minimum Viable Product (MVP)
§ A product that solves a core
problem for customers
§ The minimum set of features
needed to learn from
earlyvangelists
- Avoid building products nobody wants
- Maximize the learning per dollar spent

25. The Art of the MVP
§ A MVP is not a minimal product
§ “But my customers don’t know what they want!”
§ At what point of “I don’t get it!” will I declare defeat?

26. Testing the MVP
§ Smoke testing with landing pages using AdWords
§ In-product split-testing
§ Prototypes (particularly for hardware)
§ Removing features
§ Continued customer discovery and validation
§ Surveys
§ Interviews

27. Testing the MVP (Web Example)
Can you get customers to pay for a product
that doesn’t yet exist (or barely does)?
§ Interview customers to make sure they have a
matching core problem
§ Set up web site landing page to test for conversion
§ See what offers are required to get customers to use
the product (e.g. prizes, payment)
§ Use problem definition as described by customers to
identify key word list – plug into Google search traffic
estimator - high traffic means there is problem
awareness
§ Drive traffic to site using Google search and see how
deep into a registration process customers are willing to
go through

28. Example: Chegg

29. Testing the MVP (Non-Web)
Can you get customers to pay for a product
that doesn’t yet exist (or barely does)?
§ Interview customers to make sure they have a
matching core problem
§ Set up web site landing page to test for conversion
§ Set up a Lighthouse Customer Program where
potential customers pay to get early access to
product prototypes

30. The Pivot
§ The heart of Customer Development
§ Iteration without crisis
§ Fast, agile and opportunistic

31. The Value Proposition Pivot
§ UK-92480 § Nuf said
§ Problem: Angina (chest
pains)
§ Selectively blocking an
enzyme called PDE5 could
expand blood vessels and
treat angina.

32. The Value Proposition Pivot
§ Craigslist for Colleges § Textbook rentals
§ College students have § College students have
unique sets of goods and unique sets of goods and
services they need to trade, services they need to trade,
buy and sell at a local level buy and sell at a local level

33. Test these hypotheses for next week:
§ Problem Statement: What is the problem? For
whom?
§ Technology / Market Insight: Why is the problem
so hard to solve?
§ Competition: What do customers do today?
§ Product: How do you do it? Is this valuable or
unique? What is the MVP?
§ TEST THE MVP!