Alexander Osterwalder, Yves Pigneur, Gregory Bernards, Alan Smith: Value Proposition Design

An Integrated Suite of Tools

• The Business Model Canvas helps you create value for your business.
• The Value Proposition Canvas helps you create value for your customer.
• The Environment Map helps you understand the context in which you create.

Refresher: The Business Model Canvas

• Customer Segments are the groups of people and/or organizations a company or organization aims to reach and create value for with a dedicated value proposition.
• Value Propositions are based on a bundle of products and services that create value for a customer segment.
• Channels describe how a value proposition is communicated and delivered to a customer segment through communication, distribution, and sales channels.
• Customer Relationships outline what type of relationship is established and maintained with each customer segment, and they explain how customers are acquired and retained.
• Revenue Streams result from a value proposition successfully offered to a customer segment. It is how an organization captures value with a price that customers are willing to pay.
• Key Resources are the most important assets required to offer and deliver the previously described elements. Key Activities are the most important activities an organization needs to perform well.
• Key Partnerships shows the network of suppliers and partners that bring in external resources and activities.
• Cost Structure describes all costs incurred to operate a business model.
• Profit is calculated by subtracting the total of all costs in the cost structure from the total of all revenue streams.

Canvas

The Value Proposition Canvas has two sides.

• With the Customer Profile you clarify your customer understanding.
• With the Value Map you describe how you intend to create value for that customer.

You achieve Fit between the two when one meets the other.

Customer Jobs describe the things your customers are trying to get done in their work or in their life. A customer job could be the tasks they are trying to perform and complete, the problems they are trying to solve, or the needs they are trying to satisfy.

Distinguish between three main types of customer jobs to be done and supporting jobs:

• Functional jobs: When your customers try to perform or complete a specific task or solve a specific problem.
• Social jobs: When your customers want to look good or gain power or status.
• Personal/emotional jobs: When your customers seek a specific emotional state.
• Supporting jobs: Customers also perform supporting jobs in the context of purchasing and consuming value either as consumers or as professionals.
• BUYER OF VALUE
• COCREATOR OF VALUE
• TRANSFERRER OF VALUE

Customer jobs often depend on the specific context in which they are performed. It is important to acknowledge that not all jobs have the same importance to your customer.

Seek to identify three types of customer pains and how severe customers find them:

• Undesired outcomes, problems, and characteristics Pains are:
• Functional (e.g., a solution doesn’t work, doesn’t work well, or has negative side effects),
• social (“I look bad doing this”),
• emotional (“I feel bad every time I do this”), or
• ancillary (“It’s annoying to go to the store for this”).
• Obstacles
• Risks (undesired potential outcomes)

A customer pain can be extreme or moderate.

Seek to identify four types of customer gains in terms of outcomes and benefits:

• Required gains
• Expected gains
• Desired gains
• Unexpected gains

A customer gain can feel essential or nice to have.

Ranking jobs, pains, and gains is essential in order to design value propositions that address things customers really care about. Of course, it’s difficult to unearth what really matters to customers, but your understanding will improve with every customer interaction and experiment.

Products and Services. This is simply a list of what you offer. Think of it as all the items your customers can see in your shop window —metaphorically speaking. It’s an enumeration of all the products and services your value proposition builds on.

Your value proposition is likely to be composed of various types of products and services:

• Physical/tangible
• Intangible
• Digital
• Financial

It is essential to acknowledge that not all products and services have the same relevance to your customers. Some products and services are essential to your value proposition; some are merely nice to have.

Pain relievers describe how exactly your products and services alleviate specific customer pains. Great value propositions focus on pains that matter to customers, in particular extreme pains. Great value propositions often focus only on few pains that they alleviate extremely well. A pain reliever can be more or less valuable to the customer. Make sure you differentiate between essential pain relievers and ones that are nice to have.

Gain creators describe how your products and services create customer gains. They explicitly outline how you intend to produce outcomes and benefits that your customer expects, desires, or would be surprised by, including functional utility, social gains, positive emotions, and cost savings. A gain creator can produce more or less relevant outcomes and benefits for the customer just like we have seen for pain relievers. Make sure you differentiate between essential and nice to have gain creators.

Pain relievers and gain creators both create value for the customer in different ways. The difference is that the former specifically addresses pains in the customer profile, while the latter specifically addresses gains.

You achieve fit when customers get excited about your value proposition, which happens when you address important jobs, alleviate extreme pains, and create essential gains that customers care about.

Searching for Fit is the process of designing value propositions around products and services that meet jobs, pains, and gains that customer really care about. Fit between what a company offers and what customers want is the number one requirement of a successful value proposition. Fit happens in three stages. The first occurs when you identify relevant customer jobs, pains, and gains you believe you can address with your value proposition. The second occurs when customers positively react to your value proposition and it gets traction in the market. The start-up movement calls these problem solution fit and product-market fit, respectively. The third occurs when you find a business model that is scalable and profitable.

Three kinds of fits:

• On Paper – Problem-Solution Fit: Problem-solution fit takes place when you:
  • Have evidence that customers care about certain jobs, pains, and gains. Designed a value proposition that addresses those jobs, pains, and gains. At this stage you don’t yet have evidence that customers actually care about your value proposition.
• In the Market – Product-Market Fit: Product-market fit takes place when you:
  • Have evidence that your products and services, pain relievers, and gain creators are actually creating customer value and getting traction in the market. During this second phase, you strive to validate or invalidate the assumptions underlying your value proposition.
• In the Bank – Business Model Fit: Business model fit takes place when you:
  • Have evidence that your value proposition can be embedded in a profitable and scalable business model. A great value proposition without a great business model may mean suboptimal financial success or even lead to failure. No value proposition—however great—can survive without a sound business model.

Value propositions in business-to business (B2B) transactions typically involve several stakeholders in the search, evaluation, purchase, and use of a product or service. Each one has a different profile with different jobs, pains, and gains.

Value propositions to stakeholders:

• Influencers: Individuals or groups whose opinions might count.
• Recommenders: The people carrying out the search and evaluation process.
• Economic Buyers: The individual or group who controls the budget and who makes the actual purchase.
• Decision Makers: The person or group ultimately responsible for the choice of a product/service and for ordering the purchase decision.
• End Users: The ultimate beneficiaries of a product or service.
• Saboteurs: The people and groups who can obstruct or derail the process of searching, evaluating, and purchasing a product or a service.

Two common illustrations of multiple fits are intermediary and platform business models.

Intermediary: When a business sells a product or service through an intermediary, it effectively needs to cater to two customers: the end customer and the intermediary itself.

Platforms function only when two or more actors interact and draw value within the same inter dependent business model. Platforms are called double-sided when there are two such actors and multisided when there are more than two. A platform exists only when all sides are present in the model.

Add contextual elements to your customer profiles if necessary. They might serve as constraints for designing value propositions later on.

With the jobs-to-be-done approach, you uncover the motivations of different customer segments. Yet, depending on the context, some jobs will become more important or matter less than others. In fact, the context in which a person finds himself or herself often changes the nature of the jobs that the person aims to accomplish.

Very different value propositions may address similar jobs, pains, and gains.

Use the customer profile to visualize what matters to customers. Specify their jobs, pains, and gains.

Use the value map to make explicit how you believe your products and services will ease pains and create gains.

• Problem-solution fit: Evidence that customers care about the jobs, pains, and gains you intend to address with your value proposition.
• Product-market fit: Evidence that customers want your value proposition.
• Business model fit: Evidence that the business model for your value proposition is scalable and profitable.

Design

Design is the activity of turning your ideas into value proposition prototypes. It is a continuous cycle of prototyping, researching customers, and reshaping your ideas. Design may start with prototyping or with customer discovery. The design activity feeds into the testing activity.

10 Characteristics of Great Value Propositions

• Are embedded in great business models
• Focus on the jobs, pains, and gains that matter most to customers
• Focus on unsatisfied jobs, unresolved pains, and unrealized gains
• Target few jobs, pains, and gains, but do so extremely well
• Go beyond functional jobs and address emotional and social jobs
• Align with how customers measure success
• Focus on jobs, pains, and gains that a lot of people have or that some will pay a lot of money for
• Differentiate from competition on jobs, pains, and gains that customers care about
• Outperform competition substantially on at least one dimension
• Are difficult to copy

10 Prototyping Principles

• Make it visual and tangible.
• Embrace a beginner’s mind.
• Don’t fall in love with first ideas— create alternatives.
• Feel comfortable in a “liquid state.”
• Start with low fidelity, iterate, and refine.
• Expose your work early —seek criticism.
• Learn faster by failing early, often, and cheaply.
• Use creativity techniques.
• Create “Shrek models.”
• Track learnings, insights, and progress.

How to do it:

• Brainstorm · 15–20 min
• Display
• Draw · 12–15 min
• Dotmocracy · 10–15 min (ideally over a break)
• Pitch · 30 sec per group
• Prototype

Contrary to popular belief, great new value propositions don’t always have to start with the customer. They do, however, always have to end with addressing jobs, pains, or gains that customers care about.

Use design constraints to force people to think about innovative value propositions embedded in great business models.

Use best-selling books and magazines to generate fresh ideas for new and innovative value propositions and business models. It’s a quick and effective way to immerse yourself in various relevant and popular topics and build on current trends.

The push versus pull debate is a common one. Push indicates that you’re starting the design of your value proposition from a technology or innovation you possess, whereas pull means you’re beginning with a manifest customer job, pain, or gain.

Explore value proposition prototypes that are based on your invention, innovation, or technological resource with potentially interested customer segments.

Learn what technologies and other resources are required for each value proposition prototype designed to address manifest customer jobs, pains, and gains.

High-value jobs are characterized by pains and gains that are…

Important + Tangible + Unsatisfied + Lucrative = High-value jobs

You’ve mapped your customer profile. What to do from here? Here are six ways to trigger your next value proposition move.

• Address more jobs? Address a more complete set of jobs, including related and ancillary jobs.
• Switch to a more important job? Help customers do a job that is different from what most value propositions currently focus on.
• Go beyond functional jobs? Look beyond functional jobs and create new value by fulfilling important social and emotional jobs.
• Help a lot more customers get a job done? Help more people do a job that was otherwise too complex or too expensive.
• Get a job done incrementally better? Help customers better do a job by making a series of micro-improvements to an existing value proposition.
• Help a customer get a job done radically better? This is the stuff of new market creation, when a new value proposition dramatically outperforms older ways of helping a customer get a job done.

Understanding the customer’s perspective is crucial to designing great value propositions. Here are six techniques that will get you started.

• The Data Detective – Build on existing work with (desk) research.
• The Anthropologist – Observe (potential) customers in the real world to get good insights into how they really be have.
• The Journalist – Talk to (potential) customers as an easy way to gain customer insights.
• The Impersonator
• The Cocreator
• The Scientist

The Data Detective: Get Started with Existing Information

• Google Keyword Planner
• Google Trends
• Third-Party Research Reports
• Government Census Data, World Bank, IMF, and more
• Social Media Analytics
• Customer Relationship Management (CRM)
• Tracking Customers on Your Website
• Data Mining

The Journalist: Talk to customers to gain insights relevant to your context. Use the Value Proposition Canvas to prepare interviews and organize the chaotic mass of information that will be coming at you during the interview process.

• Create a customer profile. Sketch out the jobs, pains, and gains you believe characterize the customer you are targeting.
• Create an interview outline. Ask yourself what you want to learn.
• Review the interview.
• Conduct the interview.
• Capture. Map out the jobs, pains, and gains you learned about in the interview on an empty customer profile. Make sure you also capture business model learnings. Write down your most important insights.
• Search for patterns.
• Synthesize. Make a separate synthesized customer profile for every customer segment that emerges from all your interviews.

Rules for Interviewing:

• Rule 1 Adopt a beginner’s mind.
• Rule 2 Listen more than you talk.
• Rule 3 Get facts, not opinions.
• Rule 4 Ask “why” to get real motivations.
• Rule 5 The goal of customer insight interviews is not selling (even if a sale is involved); it’s about learning.
• Rule 6 Don’t mention solutions (i.e., your prototype value proposition) too early.
• Rule 7 Follow up.
• Rule 8 Always open doors at the end.

Conduct interviews in teams of two people. Decide in advance who will lead the interview and who will take notes.

The Anthropologist: Dive into Your Customer’s World

• B2C: Stay with the family.
• B2B: Work alongside/consult.
• B2C: Observe shopping behavior.
• B2C: Shadow your customer for a day.

A Day in the Life Worksheet

Identify Patterns in Customer Research

• Display. Display all the customer profiles from your research
• Group and segment. Group similar customer profiles in to one or more separate segments
• Synthesize. Synthesize the profiles from each segment into a single master profile.
• Design. Get started with proto typing value propositions after finishing your first attempt at customer segmentation.

10 Questions to Assess Your Value Proposition

• Is it embedded in a great business model?
• Does it focus on the most important jobs, most extreme pains, and most essential gains?
• Does it focus on unsatisfied jobs, unresolved pains, and unrealized gains?
• Does it concentrate on only a few pain relievers and gain creators but does those extremely well?
• Does it address functional, emotional, and social jobs all together?
• Does it align with how customers measure success?
• Does it focus on jobs, pains, or gains that a large number of customers have or for which a small number are willing to pay a lot of money?
• Does it differentiate from competition in a meaningful way?
• Does it outperform competition substantially on at least one dimension?
• Is it difficult to copy?

Use role-playing to bring the voice of the customer and other stakeholder perspectives “into the room” long before you test your value propositions in the real world.

Value propositions and business models are always designed in a context. Zoom out from your models to map the environment in which you are designing and making choices about the prototypes to pursue.

Compare Your Value proposition with Competitors. Draw a Strategy Canvas step by step and compare your value proposition with those of your competitors:

• Select a value proposition.
• Select factors of competition. Draw a horizontal axis (x-axis). Pick the pain relievers and gain creators you want to compare with competition.
• Score your value proposition. Draw a vertical axis (y-axis) to represent the performance of a value proposition.
• Add competing value propositions. Add competing value propositions to the Strategy Canvas.
• Score competing value propositions.
• Analyze your sweet spot. Analyze the curves and uncover opportunities.

Presenting your ideas and canvases in a clear and tangible way is critical throughout the design process. One of the most important aspects of presenting value propositions is to convey messages with customer jobs, pains, and gains in mind. Never just pitch features.

How to build Canvases from end to start:

• Canvases to be implemented
• High-fidelity prototypes
• Testing data
• Customer interviews and videos
• Tested Canvases
• Untested Canvases
• Low-fidelity prototypes (e.g., product box)
• Napkin sketches

Distinguish between Three Types of Feedback (positive and negative):

• OPINION:
  • “If we added ___I believe we’d have a better chance to make it work.”
  • + – Logical reasoning can help improve ideas.
  • It can lead to pursuing pet ideas of people with more power.
• EXPERIENCE:
  • “When we did ___ in our last project, we learned that…”
  • + Past experiences provide valuable learning that can help prevent costly mistakes.
  • Failing to realize that different contexts lead to different results.
• (MARKET) FACTS:
  • “We interviewed people about this and learned that ___percent struggled with…”
  • + This provides input that reduces uncertainty and (market) risk.
  • Measuring the wrong data or simply bad data can lead to missing out on a big opportunity.

Collect Efficient Feedback with de Bono’s Thinking Hats

• Black hat: Difficulties, weaknesses, dangers; spotting the risks
• White hat: Information and data; neutral and objective
• Green hat: Ideas, alternative, possibilities; solutions to black hat problems
• Yellow hat: Positives, plus points; why an idea is useful

Decide which criteria are most important to you and your organization and select value propositions and business models accordingly during the design process.

• Fit with Strategy: How the idea fits with the overall direction of the company
• Fit with Customer Insights: How the idea relates to the first customer insights gained during first market research
• Competition and Environment: How the idea allows the company to position itself related to the competition
• Relation to Current Business Model: How the idea builds or doesn’t build on the current business model
• Financials and Growth: What potential each idea has related to growth and financials
• Implementation Criteria: How difficult it is to implement the idea from design to market

To create value for your business, you need to create value for your customer.

The Business Model Canvas makes explicit how you are creating and capturing value for your business.

A great value proposition without a financially sound business model is not going to get you very far. In the worst case you will fail because your business model incurs more costs than it produces revenues. But even business models that work can produce substantially different results.

Great value propositions should be embedded in great business models. Some are better than others by design and will produce better financial results, will be more difficult to copy, and will outperform competitors. Score your business model design by answering these seven questions:

• Switching Costs. How easy or difficult is it for customers to switch to another company?
• Recurring Revenues. Is every sale a new eff ort or will it result in quasi guaranteed follow-up revenues and purchases?
• Earnings vs. Spending. Are you earning revenues before you are incurring costs?
• Game-changing Cost Structure. Is your cost structure substantially different and better than those of your competitors?
• Others Who Do the Work. How much does your business model get customers or third parties to create value for you for free?
• Scalability. How easily can you grow without facing roadblocks (e.g., infrastructure, customer support, hiring)?
• Protection from Competition. How much is your business model protecting you from your competition?

A common situation in the Improve Invent spectrum is the need to find new growth engines without investing in substantial changes to the existing business model. This is often required to monetize investments in existing models and platforms.

A great workshop produces tangible and actionable outcomes.

Avoid “blah blah blah” and favor structured interactions with tools like the canvases or processes like the thinking hats.

Alternate between work in small groups (4–6 people) and plenary sessions for presentations and integration.

Design the agenda as a series of iterations for the same value proposition (or business model). Design, critique, iterate, and pivot.

Test

The first step in any venture used to be writing a business plan. We now know better. Business plans are great execution documents in a known environment with sufficient certainty. Unfortunately, new ventures often take place under high uncertainty. Therefore, systematically testing Business Planning Experimentation ideas to learn what works and what doesn’t is a far better approach than writing a plan. One might even argue that plans maximize risk. Their refined and polished nature gives the illusion that with great execution little can go wrong. Yet ideas dramatically change from inception to market readiness and often die along the way. You need to experiment, learn, and adapt to manage this change and progressively reduce risk and uncertainty. This process of experimentation, which we will explore on the following pages, is known as customer development and lean start-up.

Apply these 10 principles when you start testing your value proposition ideas with a series of experiments.

• Realize that evidence trumps opinion.
• Learn faster and reduce risk by embracing failure.
• Test early; refine later.
• Experiments ≠ reality.
• Balance learnings and vision.
• Identify idea killers.
• Understand customers first.
• Make it measurable.
• Accept that not all facts are equal.
• Test irreversible decisions twice as much.

Customer development is a four-step process invented by Steve Blank, serial entrepreneur turned author and educator.

• Customer Discovery: Get out of the building to learn about your customers’ jobs, pains, and gains. Investigate what you could off er them to kill pains and create gains.
• Customer Validation: Run experiments to test if customers value how your products and services intend to alleviate pains and create gains.
• Customer Creation: Start building end user demand. Drive customers to your sales channels and begin scaling the business.
• Company Building: Transition from a temporary organization designed to search and experiment to a structure focused on executing a validated model.

Eric Ries launched the Lean Startup movement based on Steve Blank’s customer development process. The idea is to eliminate slack and uncertainty from product development by continuously building, testing, and learning in an iterative process.

• Generate a hypothesis.
• Design/build.
• Measure.
• Learn.

Design rapid conceptual prototypes to shape your ideas, figure out what could work, and identify which hypotheses need to be true to succeed. Design and build experiments to test the hypotheses that need to be true for your idea to succeed. Build so-called MVPs to test your value propositions.

Provide evidence showing what customers care about (the circle) before focusing on how to help them (the square).

Business Hypothesis – Something that needs to be true for your idea to work partially or fully but that hasn’t been validated yet.

Structure all of your experiments with this simple Test Card.

• Design an experiment.
• Design a series of experiments for the most critical hypotheses.
• Rank Test Cards.
• Run experiments.

You experimented and learned. Now what?

• Invalidated
  • Get back to the drawing board: pivot.
• Learn more
  • Seek confirmation.
  • Deepen your understanding.
• Validated
  • Expand to next building block.
  • Execute.

Use experiments to test if customers are interested, what preferences they have, and if they are willing to pay for what you have to off er.

Call to Action (CTA) Prompts a subject to perform an action; used in an experiment in order to test one or more hypotheses.

Innovation Games is a methodology popularized by Luke Hohmann to help you design better value propositions by using collaborative play with your (potential) customers.

Speed Boat This is a simple but powerful game to help you verify your understanding of customer pains. Get your customers to explicitly state the problems, obstacles, and risks that are holding them back from successfully performing their jobs to be done by using the analogy of a speed boat held back by anchors.

Evolve

The Value Proposition Canvas is an excellent alignment tool. It helps you communicate to different stakeholders which customer jobs, pains, and gains you are focusing on and explains how exactly your products and services relieve pains and create gains.

Use the Value Proposition and Business Model Canvases to create and monitor performance indicators once your value proposition is operational in the market. Track the performance of your business model, your value proposition, and your customers’ satisfaction.

Use the same tools and processes from testing and monitoring to improve your value proposition once it’s in the market. Continuously test “what if” improvement scenarios, and measure their impact on customer satisfaction.

Successful companies create value propositions that sell embedded in business models that work. Outstanding companies do so continuously. They create new value propositions and business models while they are successful.

Today’s enterprise must be agile and develop what Columbia Business School Professor Rita McGrath calls transient advantages in her book The End of Competitive Advantage. She argues that companies must develop the ability to rapidly and continuously address new opportunities, rather than search for increasingly unsustainable long-term competitive advantages.

Glossary

Customer Gains: Outcomes and benefits customers must have, expect, desire, or dream to achieve.

Customer Pains: Bad outcomes, risks, and obstacles that customers want to avoid, notably because they prevent them from getting a job done (well).

Jobs to Be Done: What customers need, want, or desire to get done in their work and in their lives.