Why do customers buy a product from a startup? It’s all about value.
Let’s talk about value. This term is used extensively in business contexts, yet few entrepreneurs truly grasp its essence.
Here are some guidelines.
Customers define value
Where does value come from? Companies sell products and services, and customers buy them. Looking at this exchange, it is tempting to think that companies who are the sources and creators of these offerings deliver value to their customers.
They don’t.
All they do is sell solutions that will eventually create value on the customer side.
Value can have nearly unlimited variations. It could manifest as shiny and glowing skin, a beautiful lawn, a clean kitchen in the B2C context, less production time, a friction-free supply chain, and increased sales in the B2B world.
Value is difficult to measure
The concept of value is central but tricky for multiple reasons:
Firstly, value is difficult to measure. How much value a product or service will ultimately generate depends totally on the needs and preferences of the customers. - Marketing researchers have understood this for a long time. They started investigating the complex relationship between products and value some 60 years ago and they have not finished yet.
Secondly, value is not exclusive. Often, several products, similar or different from each other, can provide the same value.
Thirdly, the value of the same product will differ between customer segments and customers within the segment.
Value is the basis of purchasing intent
Many startups have an intense, nearly emotional relationship with their product or service, especially after investing years into its development.
Once they intend to market it, the time has come to acknowledge a nasty truth: Customers don’t care about sweat, tears, or production costs spent. The only question relevant to them is: “Will my situation improve if I buy this product, that service?” Whenever the answer is “Yes,” the company has a chance to sell.
Value for customers in entrepreneurship
Until the early 2000s, many entrepreneurs believed that a product’s features made it valuable to customers, even though marketing experts had already abandoned this idea.
Some modern approaches to innovation, such as Lean Startup, have changed this dynamic. They have shifted product development to be more customer-centric. With these newer approaches, entrepreneurs focus on hypothesis-building and validation.
However, validating value hypotheses is complex, mainly because people’s decision-making and buying behavior heavily depend on context and situation and can’t be easily researched. In a nutshell, people often don’t do as they say. Therefore, the Lean Startup method (which is based on interviews) is best suited when the product-market fit has been essentially shown and needs fine-tuning.
The situation is different for many tech startups, especially “deep-tech“ startups, university spin-offs, and other developers of disruptive products in their early stages (i.e., before achieving product-market fit). For them, the Lean Startup approach doesn’t work well because they are not near product-market-fit. Newer entrepreneurship research shows this clearly.
Start with the value – and let the product follow
There’s a better way: The “Metrics Driven Market Validation” (MDMV) approach helps. MDMV combines several modern methods adopted from entrepreneurship, management, marketing, and product development: Focus on value-added, working with KPIs, early identification of beachhead customers, delayed product development, value-based pricing, and paid pilot projects.
These components can be combined into a simple process that rapidly determines a product's market. The process is iterative and hypothesis-based and works best for B2B situations where value is easier to identify than in B2C.
MDMV intends to gather as much information about the customer as possible and their interest in the product before building the concrete product, thus reducing time to market, funding needs, and unnecessary pivots.
Stay tuned to learn more about Metrics Driven Market Validation in future posts.