The survival of a startup is determined by its ability to create something of value that enough people will pay for, before running out of steam (financially and emotionally).

There are many ways you can create value, and in Part 2 of our series on Value Creation, we'll share our top tips on what value to your customer looks like.

Jump To Part 1

To summarise from Part 1, when you sell a product or service, it involves a value exchange. Customers give you money, and generally time, and you give them something that improves their life in some way or another.

The more value you're able to provide a customer, and the lower the investment on their behalf (this includes price, time and effort and perceived risk), the more competitive and sustainable your business.

When building a company your core objective is to optimise your value creation process.

Optimising Value Creation

Here are our suggestions on how you can maximise value for your customers, which translates to value for your company (if you charge the right price for it):

1. Increase Real Value

By understanding the fundamental requirements of your customers:

What problems do they have?
Why do these problems exist?
What do they care about most in a solution?
How can you understand these requirements better so you can provide more real value?

Example: if my product is an apple, the fundamental requirements would be to satisfy hunger and provide nutrition.

2. Increase Perceived Value

By understanding the emotional drivers behind your customers purchasing decisions, and ensuring your branding, marketing efforts and the experience you provide maximise perceived value.

Do you have a compelling vision and/or story, and can you communicate this better?
What are your brand and culture values, and do you need to make these stronger?
Does your marketing effort add value and align with the perception you want to create for your company?
Do you provide an exceptional customer experience that aligns with how you want customers to feel when they engage with your business?
Are you helping to create the desired reality for your customer? See our Customer Realities post for more information.

Apple example: if my target market were health-conscious mothers, I could build a brand that positions apples as the easy, healthy snack food alternatives that mums can give their kids on the go without compromising on health and nutritional value.

3. Decrease Switching Costs

Make it really easy for your customer to sign up, start using, and keep using your product.

What is your sign up process, and how can you make it easier?
How do you get your customers to start using your product with maximum benefit? Is it working? Can you make it better?
Can you make your payment process easier, so your customers don't have to think about paying every time they use your product (e.g. subscriptions, automatic payments, saved details)
Do your customers keep using your products? How can help to make using your product more of a habit, or align it with activities that are already habits for your customer?

Apple example: Provide subscription apples, so they don't have to think about having to purchase apples every time they go to the supermarket (this example is becoming less relevant).

4. Decrease Perceived Costs

Understanding the perceived risks associated with your products and what you can do to reduce them.

If you're a startup, then you won't have the reputation or credibility of other existing businesses. So you need to make your customers trust you, or mitigate the perceived risk that you might not do what you say you do. You achieve this through things like testimonials and reviews, endorsements, free trials, 'cancel at any time' policies, images of relevant people using the product etc.
Will your customers worry about what other people will think of them using the product, or the outcome of them using the product? If so, how can you minimise this?
Referrals help to reduce perceived risks significantly, so make sure you have a good referral strategy.

Apple example: Giving away sample apple slices, so people can have the experience before they commit to buying a bag.

5. Optimise Cost of Sale

This is looking at how you can optimise the value for your business (by reducing production and customer acquisition costs).

Product development efficiencies - how can you optimise the cost of producing the product without compromising on the things your customers value most?
Customer acquisition efficiencies - how can you optimise the cost of acquiring and retaining customer (see Business Model post)?

Apple example: Using robots to pick the apples, instead of humans.

6. Price

Pricing is hard. We think the best approach is to research existing alternatives and know what your cost of production is to give you guidance on the initial price, then adjust it as you learn more about the value of your product for your customers. setting a price. As a rule of thumb, the higher your price the more marketing and sales effort required.

Look at Price Intelligently's blog for additional insights on SaaS pricing.

Once you're creating and delivering value, you want to work towards optimising your pricing. You should be optimising the relationship between Value Creation for your business and Value Creation for your customer.

If you are making more profit relative to the 'additional benefit' you're providing your customer, there is an opportunity for your competitors to develop a model to beat you. If you're creating too much value to your customers and not enough for your own business, you will find it harder to attract and retain a good team, harder to grow in the long run which also gives competitors an opportunity to build something better.

7. Customer Discovery

It always comes back to this.

Your ability to improve the variables listed above (the levers for value creation) increase SIGNIFICANTLY the more you understand your customers.

So you should invest time in finding out what your customers care about before you build anything, and continue to get customer feedback with everything you do. You can read more about this in our Market Validation post.

Conclusion

There is a method to the madness of building a startup, and it's called value creation.

All activities should be geared towards doing the tasks that maximise perceived value.

We think of it like this:

The very early stages of starting something (pre-startup) is figuring out what value you provide as an individual.
The startup phase is figuring out what value you provide as a company.
The growth phase is figuring out how you optimise your value creation model and deliver value on a larger scale.

Get in the mindset of understanding and optimising for value-creation, determining what activities provide the maximum value, and focus only on doing these tasks. The variables outlined in this article are the elements you should be focusing on optimising in order to maximise value creation for your company, and maximising profitability in return.

There are all kinds of ways to create value throughout your product development and delivery model - continuously experiment and see what works.

Missed something in Part 1? Jump back here >>