More than 20 years ago, when I was studying at Wharton, the world’s oldest collegiate business school, American television was home to a show in which contestants bowled for dollars. The concept was appealingly straightforward: the higher their scores, the more cash they received.
The programme had some of the best audience feedback ratings and retention figures of its time, so why did it unceremoniously careen from one channel to another before at last being cancelled? This was the question posed by our Professor of Strategic Marketing.
The answer: its value proposition wasn’t aligned. In other words, the series never paid sufficient attention to the fundamental notion of who benefits from a transaction and why. This is a puzzle all businesses need to solve, not least during their formative stages.
By way of illustration, consider how that ill-fated show worked. It aired on commercial TV and was watched mainly by bowling enthusiasts. Commercial TV makes money from advertising, so the key to success lay in working out who would want to advertise to bowlers.
What the producers neglected to establish was that nobody wanted to advertise to bowlers. Members of that particular demographic were seen as having very low disposable incomes, so they weren’t considered worth targeting.
As a consequence, despite its popularity, the show eventually failed. Its model just wasn’t sustainable. The end consumer recognised its value, but the direct customer – the B2B element – didn’t.
Great idea – but what’s the market?
Squaring the activities of a business with its income-generating model is almost always tricky. Sometimes it’s difficult to work out who’s benefiting from your activities, who the decision-maker is and who pays you.
New technology companies tend to find the task especially tricky. Describing tech as “a solution looking for a problem to solve” is another way of saying there’s likely to be an issue in this regard. After all, by definition, many of these firms are doing something genuinely novel.
For instance, I recently helped an entrepreneur who invented a tech-driven means of testing the ripeness of cocoa fruit grown on farms. It uses high-frequency radio waves to establish whether the crop across an entire estate is ready for harvest – a quick, easy and non-destructive alternative to slicing open potentially precious produce.
Unfortunately, farmers gave the idea a cool reception. It was only after months of fruitless – pun intended – attempts to introduce the innovation to the market that we finally grasped why it wasn’t gaining traction.
Cocoa farmers aren’t accountable for the quality of their fruit. They’re paid on the basis of total yield or weight – and their produce is also often combined in cooperatives before being weighed. The cost of unripe fruit is instead borne by chocolate producers, which presumably “price in” historical quality shortcomings.
So here, too, the value proposition was poorly aligned, with no value received by those being asked to change their behaviour. The entrepreneur’s revised challenge would be to find potential customers with a vested interest in higher-quality fruit – integrated producers running their own farms, for example.
Understanding the world and where you fit in it
Something similar happened in Italy in the 1980s. The country was the world’s number-one wine producer by volume, but the industry realised that to prosper in an increasingly globalised and competitive market it would need to raise quality levels and move into premium wines.
Alas, grapes were again mostly grown in cooperative groups that were paid by weight. This meant individual growers had no incentive to enhance their produce beyond the minimum acceptable level – a serious detriment to any nation wishing to earn a reputation for fine vino.
So what can we infer from such unhappy tales? The basic takeaway is that aligning a value proposition is a matter of getting to grips with the structure of the world around you.
Above all, this means you need to think very carefully – and from the outset – about the benefits being transferred to your customers, suppliers and business partners. You then need to track those benefits – and the money – through the value chain of your various stakeholders.
It’s nowadays very simple to obtain a Business Model Canvas or a Value Proposition Canvas. Devoting a few of minutes to exploring one or the other – or both – will very likely prove time extremely well spent. Each can offer a good template by way of a starting point.
Try to understand what motivates each entity on the map – and then try to understand where you fit in. Get it right and your company could flourish. Get it wrong and you could be bowling the business equivalent of gutterballs until you, too, are finally cancelled.
David Falzani MBE is a Professor at Nottingham University Business School’s Haydn Green Institute for Innovation and Entrepreneurship (HGIIE) and president of the Sainsbury Management Fellowship