What is a Value Proposition?

What is a value proposition?

A startup’s value proposition consists of the key way in which the startup differentiates itself from the competition and the unique way it solves a problem for its customers.

A value proposition can be summarized as the “how and why” of a venture—how your business is different from others and why customers should choose you.

A value proposition will often be explicitly stated in a business plan but beyond being spelled out, the components of a business’s value proposition are evident in everything that business does.

From long-term strategy to day-to-day operations, the ways in which your business sets itself apart and solves problems for its customers represent its beating heart.

How Do I Write a Value Proposition?

It is common for new entrepreneurs to conflate a value proposition with different aspects of their business. A value proposition is not a USP (unique sales proposition). It is also not a tagline, a marketing hook, or a segment of sales copy.

Your value proposition is the foundation of your business, and it is the answer to two fundamental questions:

  • Who is your target customer?
  • How are you different from your competition?

Those are the two questions that make or break new ventures. Without a firm, confident answer to both, your marketing plan, your operations plan, and all the other parts of your business plan don’t matter.

The information that is used to construct your value proposition comes from your business plan. You will need information from your Product/Service Description, Market Analysis, and Industry Analysis sections to flesh out a robust value proposition statement that answers both of the key questions above.

The Parts of a Value Proposition

Your value proposition exists in three parts:

Although your value proposition will be spelled out in your business plan, it should make sense as a stand-alone statement—even though it uses information from elsewhere in your business plan, it shouldn’t directly reference those sections.

Your value proposition also shouldn’t include information that doesn’t pertain to the sections listed below.

The introduction of your value proposition describes who you are and what your business does. This comes from the Company Description section of your business plan.

The market definition portion of your value proposition describes who your target customer is and what problem you are solving for them. This information comes from the Market Analysis section of your business plan.

The final portion of your value proposition identifies who your competitors are and how you are different from them. Focus on direct competitors here.

Introduction

The introduction tells your reader who you are and what you do.

This information is presented in your Company Description section, but remember, your value proposition must make sense as a coherent statement independent of your business plan. The introduction is a single sentence that gets right to the point—under no circumstances should it be a slogan or a tagline or be jam-packed with jargon.

To illustrate the value proposition construction process, we will use a fictional pet specialty e-commerce retailer named Rex. Rex focuses on hard-to-find items for unusual (not dogs, cats, birds, etc.) pets.*

“Rex is an online pet product retailer focused on nontraditional and exotic pets.”

Market Definition

The information from your market analysis informs this section of your value proposition.

First, identify your target customer. Your target customer may or may not be the end user of your product. They may be a consumer (B2C) or a business (B2B). For the purpose of your value proposition, your target customer(s) can be identified in a single sentence.

“Our product assortment is perfect for friends of pets that are neither a dog nor a cat who need specialized products to live happy, comfortable lives.”

Next, define the problem that your target customers have, and how that problem is a pain point—how does it make them feel?

Again, this information is drawn from your market analysis. If you asked one of your target customers today, they should immediately identify with the pain point(s) your value proposition addresses.

“Owners of nontraditional pets struggle to find an adequate, affordable assortment of supplies and accessories in one place. They end up wasting time and money traveling to expensive specialty stores or searching online for the products they need.

“Their current choices are limited to expensive specialty stores, big box retailers with limited stock of the products they are looking for, and e-commerce sites such as Amazon. Frustrated pet owners often have to spend an inordinate amount of time and money tracking down the supplies they need.”

Competitor Differentiation

Based on the competitor analysis within the industry analysis portion of your business plan, who are your competitors? Use direct competitors for your value proposition. Keep it concise.

Your competitor may be called out by name if it is large enough or well-recognized. On the other hand, if you are competing with a number of smaller firms within an area, just say so.

“Rex competes with local specialty pet stores, big box pet retailers such as Petco, and online outlets such as Chewy and Amazon, but it has distinct advantages over each of these categories.”

Based again on your industry analysis, define the ways in which you are different from your competitors. This list is for you and will be summarized in your finished value proposition.

Focus on features and benefits that relate to your target customers’ pain points that were outlined in the market definition. Once you have listed your key features and benefits, summarize them in a concise sentence format.

“Specialty pet stores are expensive and don’t exist in most places. Big box pet retailers have limited shelf space, highly rotational products, and a preference for popular pets. Online retailers like Amazon may have the products, but the search is difficult, and customers may end up having to buy from multiple outlets. The specialty selection that Rex offers presents unique supplies and accessories that fill the needs of nontraditional pet owners and are affordable and easy to find.”

The Complete Value Proposition

To produce your completed value proposition, put together each of the statements you have already written into a single, succinct statement.

“Rex is an online pet product retailer focused on nontraditional and exotic pets. Our product assortment is perfect for friends of pets that are neither a dog nor a cat who need specialized products to live happy, comfortable lives. Owners of nontraditional pets struggle to find an adequate, affordable assortment of supplies and accessories in one place. They end up wasting time and money traveling to expensive specialty stores or searching online for the products they need. Their current choices are limited to expensive specialty stores, big box retailers with limited stocks of the products they are looking for, or e-commerce sites such as Amazon. Frustrated pet owners often have to spend an inordinate amount of time and money tracking down the supplies they need.

“Rex competes with local specialty pet stores, big box retailers such as Petco, and online outlets such as Chewy and Amazon, but it has distinct advantages over each of these categories. Specialty pet stores are expensive and don’t exist in most places. Big box pet retailers have limited shelf space, highly rotational products, and a preference for popular pets. Online retailers like Amazon may have the products, but the search is difficult and customers may end up having to buy from multiple outlets. The specialty selection that Rex offers presents unique supplies and accessories that fill the needs of nontraditional pet owners and are affordable and easy to find.”

*This example is summarized from the one used in our Starting a Business QuickStart Guide by Ken Colwell, PhD, MBA.

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[523.251,1046.50]
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[523.251,1046.50]
[523.251,1046.50]
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[523.251,1046.50]
[523.251,1046.50]
[523.251,1046.50]
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