How to Start a New Business Using the Lean Startup Method (part 2 – value proposition)

Launched in tech university entrepreneur programs in California, the Lean Startup Method is expanding to other universities across the United States. After studying the failures of tech startups, the main goal of the Lean Startup Method is to eliminate all time, energy and money spent on creating products or services that nobody wants to buy. This method is intended for startup businesses, but it can also apply to existing businesses that want to grow.

Proponents of the Lean Startup Method say that most startups fail from a lack of customers. If you don’t understand your customer, you don’t know what products or services to build, or what features to include. So the first steps of Lean Startups involve identifying the potential customer and what problems your company will help them solve, or what opportunities your company will help them take advantage of.

The second step is to create a value proposition, a description of the product or service you will develop that will help the potential customer solve their problem or take advantage of their opportunity better than any other alternative. Your value proposition will explain what the product or service is, what it does, and how you believe it meets the important customer need. Your ‘deliverable’ at this stage might be a drawing of the potential product, a flyer outlining the main features and benefits, screen shots of simple software output, or photos of a simple mockup prototype.

Now go back out into the world and talk to more prospective customers. Ask them if they have the problem or opportunity you want to address, and confirm how important the problem or opportunity is to them. What is it worth to them to be able to solve this problem or seize this opportunity? You don’t want to build something the customer thinks is nice to have but has no priority in their purchase decisions. Then show them the deliverable. Do they think the product or service will meet their need? Do they see enough of a benefit to actually pay for the product or service? Get them to tell you what the product or service needs to deliver for them to use it now and pay for it.

After the number of customer meetings grows and the evidence builds up, you should be able to focus on a solution that has the minimum features needed to meet the customer need and get them to open their wallets. This minimum-feature solution is called the minimum viable product or MVP.

The other outcome could be that the potential customers don’t agree on what will meet their product or service need, or don’t show any real enthusiasm for your proposed solution. If that happens, it’s time to go back and re-think your customer base and product/service set. Are you talking to the right customers? Would another segment – different consumer or business demographics – have the need you’re attacking and be ready to pay for your solution? Or are you approaching the right customer base with the wrong product or service?

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