At the Center: Creating Value for Customers

Posted: February 17, 2013 by Chuck Matthews in Leadership, Marketing, Planning, Startup

Dr. Charles Matthews bio“Just because you are struggling does not mean you are failing. Every great success requires some kind of struggle to get there.”
– Anonymous

In our hurry-up distracted world, there is a strong temptation to fall victim to the false promise of immediacy and success in all things we do. Instant communication, instant feedback, 24/7 connectivity, faster planes, trains and automobiles, and more. Even in entrepreneurship, the latest buzz phrase is “fast to fail.” It is an interesting concept that is often misunderstood to mean giving up, when in fact, it has more to do with how to go about achieving our goal of success.

In my last column, I introduced three deceptively simple yet powerful strategic planning questions to guide our entrepreneurial journey: where have you been, where are you now, where do you want to go. Addressing these three items allows us to address the more challenging question of how you plan to achieve your goals. While it often looks easy in retrospect, it is rarely easy prospectively and while we are actively engaged in the process. To do this, let’s examine four core areas – focus, environment, the entrepreneur, and the process – today and over the next several columns. But first, let’s take a look at the role and importance of establishing a compelling value proposition.

Value proposition: Keep in mind that the entire entrepreneurship process model is underscored by what must be a rock solid foundation: the creation of value for the customer. This value proposition must be sufficiently compelling to induce a value exchange between your good and/or service and the customer’s need, want, desire, pain, problem, etc. Most entrepreneurs who solve problems, no matter what the size, tend to create a solid value proposition.

Focus: It is difficult yet critical not to be distracted along the way. So the first step and core area is focus, focus, focus. Even a casual perusal of successful new ventures reveals a clear and persistent focus on three core elements: the product and/or service offered; the customer; and the competition. One of my all-time favorite examples of a new venture startup that lived, breathed, and executed this focus principle is the Boston Beer Co. In 1990, about seven years into his venture, I was very fortunate to have James Koch, founder and CEO of the Boston Beer Co. and a native Cincinnatian, give a guest lecture on strategy and entrepreneurship to one of my classes.

When Koch first conceived his new venture idea in 1983, entering the brewing industry was not very attractive. In fact, breweries were closing, growth was stagnant, and there was excess brewing capacity. Initial thoughts of building a brewery were quickly abandoned, as potential investors were naturally reluctant to participate. Given this relative lack of overall industry attractiveness, what did Mr. Koch know that would set him apart? The short answer: product, customer, and competitors.

Product: Samuel Adams lager would become the cornerstone of what would eventually become an entire product line of beer that would be targeted to just 2 percent of the beer-drinking market. Pursuing a focus differentiation strategy demanded that the product attributes not only meet but exceed the customer’s expectations. Since the premium product attributes (especially taste) were paramount, considerable time was spent perfecting the heart and soul of the company – the product.

Customer: The customer segment was small, but of sufficient size, quality and durability to support a new entrant. By conceding 98 percent of the brew-drinking market to the dominant domestic breweries, Boston Beer was able to successfully focus on the 2 percent of beer drinkers that sought a premium or super-premium product – an emerging segment addressed at that time only by the imported or specialty beer producers.

Competitors: In the early years, he correctly assessed that the major domestic players would be unable and/or unwilling to initially respond to a new entrant in the premium beer segment. They were committed to the larger non-premium segment and had conceded the premium/ specialty segment to the imported beers. While he knew the imported beer makers would respond, focusing on product attributes the customer sought, he would gain valuable time and space on his eventual emerging competitors.

Through the early 1990s, micro and craft brewing were still highly fragmented, giving Boston Beer first-mover advantage.

Of course, by the late 2000s the business landscape had changed dramatically. Given the context of continual change, in our next column we will explore three critical aspects of the changing environment. Till next time, all the best for continued entrepreneurial success!

Charles H. Matthews, Ph.D., is professor and executive director of the Center for Entrepreneurship Education & Research, Carl H. Lindner College of Business, University of Cincinnati.

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