Introducing the Value Proposition Canvas The Value Proposition Canvas is a tool entrepreneurs use when deciding what solution (called a Value Proposition ) they are offering It consists of two pieces: the left side is called the Value Map and the right side is called the Customer Profile Customer Profile Value Map Gain Creators Gains Customer Products & Jobs Services Pain Relievers Pains The set of customer The set of value proposition characteristics that you assume, benefits that you design to observe and verify in the market. attract customers.
Segments The first step in creating a customer profile is breaking your potential customers into segments A segment is a group of your customers that have similar problems and characteristics that you are creating value for • You must answer these questions: • For whom are we creating value? • Who are our most important customers? • What are the customer profiles? • Are there other customer segments we could be reaching? • What kinds of customers are you serving? • What are their problems? • These segments become your “Target Markets”
Segmentation Variables Typical B2B Segmentation Variables Typical B2C Segmentation Variables Demographic Demographic (Age, Gender, Race, Ethnicity, Income, Education, Occupation, Family (Industry, Company Size, Location) Size, Family Life Cycle, Religion, Social Class) Geographic Operating Variables (Region, Urban/Suburban/Rural, Region Size, Market Density, Climate, (Technology, User Status, Customer Capabilities) Terrain) Purchasing Approach Psychographic (Purchasing Function, Buyer-Seller Relationships, Purchasing Policies, (Personality Attributes, Motives, Lifestyles) Purchasing Criteria) Situational Factors Behavioral (Urgency of Order, Product Application, Size of Order) (Usage, End Use, Benefit Expectations, Brand Loyalty, Price Sensitivity) Buyer’s Personal Characteristics (Character, Approach, Loyalty, Risk Attitude)
Customer Segments
Customer Profile Customer Profile Once you’ve established the The things your customers do on a segments , then you need to regular basis, whether in their actual jobs, in social work on the customer profile situations or in their personal lives. for each segment Gains Remember, this is observed Customer Jobs Pains The things, whether expected or unexpected, that The things that hinder benefit customers or your customers from make their jobs easier. doing their jobs or make their jobs harder.
Case Study: Pipeline Leak Detection Customer Segment: Oil good range of operating Pipeline Operators in Canada: conditions VP Pipeline Operations & no false alarms – very accurate Integrity rapid detection ensure positive public low cost operations perception easy to install durable detected by the company, not the public Gains easy to use systems deal with leaks quickly low cost to install Customer Profile Customer Jobs Pains complicated systems maximize pipeline uptime false alarms = keep operating costs low pipeline downtime not reliable – minimize regulatory breaking down systems costly to interference operate systems expensive to install spill gets out of control not clear on extent of spill negative public perception
The Value Map How your products or Once you have identified your customer’s services create specific problems (jobs, pains and gains), it’s time customer gains. Value Map to identify your solution – your Value Proposition A value proposition is all of the benefits Gain Creators customers can expect from your solution and is displayed using the value map Value is what customers will pay for, tell Products & their friends about and will keep paying for Services in the future This is different from the customer profile Pain Relievers as you have control over them While you don’t decide what problems your All of the products and customers have, you can decide which of services your company How your products or those problems to solve and how offers to customers. services solve specific Remember, this is designed pains that customers face.
Case Study: Pipeline Leak Detection linked to existing monitoring systems positive public perception spray on nanoparticle Gain Creators hydrocarbon sensors regulatory “hands off” communication device detects hydrocarbon entire pipeline covered directly Value Map leak detection good adhesion notification system speedy notification of Products & leaks Services reversible independent power source direct detection (not a Pain Relievers proxy) no false alarms good range of operating accurate conditions
5.0 Finding Fit
Determine Fit Determine the fit Validate the problem Observe and between your value through customer record your proposition and the customer profile discovery customer profile Pinpoint the Define the problem Design your value segments you are your innovation is proposition attempting to serve solving Validate your business model Design your business model
Finding Fit Fit occurs when the two sides of the Value Proposition Canvas line up This happens when your value proposition (your solution) is addressing the jobs, pains or gains (the problems) of your customer segment Striving for fit is the essence of value proposition design FIT! Value Map Customer Profile “Your customers are the judge, jury and executioner of your value proposition. They will be merciless if you don’t find fit!” -Alex Osterwalder, Value Proposition Design
Types of Fit Business Model Fit Problem-Solution Fit Product-Market Fit (In the Bank) (On Paper) (In the Market) You have evidence that your You have chosen a customer segment to You have evidence you are target solution can fit into a profitable creating value for your You have evidence that your customers and scalable business model have certain jobs, pains and gains customers You are generating a profit You have designed a solution that You are gaining customers in addresses those jobs, pains and gains your chosen customer segment Your startup has become a The fit between your customer’s problem and your solution exists on (traction) company paper, but is still unproven in the real world You are working to test the You are turning an idea into a startup assumptions you made about You have evidence that your solution is your solution solving your customers’ problems You are turning a startup into a company
Case Study: Pipeline Leak Detection Check marks signify that products and services relieve pains or create gains X’s show which jobs, pains and gains the value proposition does not address. and directly address one of the customers’ jobs, pains or gains. ?’s show what are still unclear in terms of our offering. good range of operating linked to existing conditions monitoring systems no false alarms – very accurate positive public perception rapid detection ensure positive public spray on nanoparticle Gain Creators low cost operations perception hydrocarbon sensors easy to install durable regulatory “hands off” detected by the communication device company, not the public easy to use systems Gains detects hydrocarbon deal with leaks quickly entire pipeline covered directly low cost to install Customer Jobs complicated systems leak detection Pains maximize pipeline uptime good adhesion notification system false alarms = speedy notification of keep operating costs low Products & pipeline downtime not reliable – leaks Services breaking down minimize regulatory reversible systems costly to independent power source interference operate direct detection (not a systems expensive to Pain Relievers proxy) install spill gets out of control no false alarms not clear on extent of spill good range of operating negative public accurate conditions perception
Customer Profile Ranking Factors should be ranked according to how your customers actually think and feel – not just your guess or how you think or feel Job Importance Pain Severity Gain Relevance Rank jobs according to their Rank pains according to how Rank gains according to how importance to customers. extreme they are in the essential they are in the customers’ eyes. customers eyes. IMPORTANT ESSENTIAL EXTREME NOT IMPORTANT NOT ESSENTIAL MODERATE
Value Proposition Ranking Factors should be ranked according to how your customers actually think and feel – not just your guess or how you think or feel Solutions Pain Relievers Gain Creators Rank solutions according to Rank pain relievers according Rank gains according to how their importance to to how essential they are in essential they are in the customers. the customers’ eyes. customers’ eyes. IMPORTANT ESSENTIAL EXTREME NOT IMPORTANT NOT ESSENTIAL MODERATE
Case Study: Pipeline Leak Detection Pains Pain Relievers Products & Services Gains Customer Jobs Gain Creators systems costly to leak detection accurate low cost operations maximize pipeline uptime positive public perception operate notification system keep operating costs low no false alarms low cost to install detects hydrocarbon systems expensive to linked to existing directly deal with leaks quickly good range of operating install monitoring systems easy to install conditions regulatory “hands off” spray on nanoparticle complicated systems detected by the easy to use systems hydrocarbon sensors speedy notification of company, not the public not reliable – leaks durable communication device breaking down ensure positive public good range of operating conditions perception direct detection (not a false alarms = independent power source proxy) pipeline downtime no false alarms – very minimize regulatory entire pipeline covered accurate interference spill gets out of reversible control rapid detection good adhesion not clear on extent of spill negative public perception
Case Study: Pipeline Leak Detection: Fit? Business Model Fit Problem-Solution Fit Product-Market Fit (In the Bank) (On Paper) (In the Market) X X You have chosen a customer segment to You have evidence that your You have evidence you are target solution can fit into a profitable creating value for your You have evidence that your customers and scalable business model have certain jobs, pains and gains customers X X You have designed a solution that You are generating a profit X You are gaining customers in addresses those jobs, pains and gains your chosen customer segment Your startup has become a The fit between your customer’s problem and your solution exists on (traction) company paper, but is still unproven in the real world You are working to test the You are turning an idea into a startup assumptions you made about X You have evidence that your solution is your solution solving your customers’ problems You are turning a startup into a company
Case Study: Pipeline Leak Detection The startup realized a problem-solution fit could not be found for the original design (coated pipeline) Why? Perhaps the biggest challenge was the cost to install across and entire pipeline, questions surrounding the durability of the coating once installed and unknown costs to operate Two options existed: kill the project or pivot…
Case Study: Pipeline Leak Detection The startup pivoted and developed the Subsense LDS Product… — Developed in collaboration with an industry partner — Leak detection and monitoring system for existing or new pipelines — Suitable for high consequence areas : water crossings or urban areas — Market ready by Q1-2018 — Validated at 3 rd party facility — Fabricated field ready prototype at KICS/SAIT facility
NO GO GO If you cannot find fit between what you are offering (value proposition) and what the customer wants (solution to a problem), you must determine if this is a go or no go. Remember these key concepts: kill, pivot or proceed.
6.0 Business Models
Business Plan vs Business Model Business Plan Business Model Used by startups Used by traditional businesses Static Dynamic Based on untested hypotheses Provides tested hypotheses Once written, very difficult to change Designed to be changed with each Intended to be used as a finished test plan, despite feedback from Intended to be used with customer customers discovery Usually text document that spans Visual document using the Business several pages Model Canvas Might be required by investors, Leads to startup success if used grantors and others properly
What’s a Business Model (and why you need one) ? Remember, your goal is to create value for your customer Once we’ve established the “fit” between your offering and the customer’s pains, gains and jobs, its time to search of a business model A business model describes how we will deliver value to our customer
7.0 The Business Model Canvas
Define Your Business Model Determine the fit Validate the problem Observe and between your value through customer record your proposition and the customer profile discovery customer profile Pinpoint the Define the problem Design your value segments you are your innovation is proposition attempting to serve solving Validate your business model Design your business model
The Business Model Canvas The Business Model Canvas is a visual tool used by startups to map out the way they intend to make money (deliver value) The Canvas consists of 9 parts and how they interact with each other (the model) In order to create a profitable business , you need to think about and plan each part of the Canvas, not just your solution Video
1. Customer Segments Customer • The Customer Segment Building Block defines the Segments different groups of people or organizations an enterprise Who you’re selling to aims to reach and serve • Segments have common needs, common behaviours or other attributes • Can target one or more customer segments
Remember?
Case Study: Pipeline Leak Detection Customer • You may remember that we identified the primary customer Segments segment as the VP Pipeline Operations & Integrity Who you’re selling to • Broadly speaking, the target segment is Canadian pipeline operating companies Canadian pipeline companies • Earlier in this workshop, we also identified their jobs, pains, and VP Pipeline Operations gains (their problems) – pipeline downtime and costs emerged as critical pains/gains
2. Value Proposition Value • Remember, the Value Proposition • You must answer these Proposition Block describes the bundle of questions: products and services that create What you’re selling • What value do we deliver to the value for a specific Customer Segment customer? • The Value Proposition is the reason • Which one of our customers’ why customers turn to one company problems are we helping to over another solve? • It solves a customer problem or • What bundles or products and satisfies a customer need services are we offering to each • It is an aggregation, or bundle, of segment? benefits that a company offers • Which customer needs are we customers satisfying?
Case Study: Pipeline Leak Detection Value • Earlier, we clearly mapped out Proposition our value proposition but What you’re selling needed to pivot • Developed the LDS Model Turnkey hydrocarbon leak detection system (Subsense) Low install cost • Resolved issues of costs and Reliable & durable durability Accurate Low operating cost
3. Channels Awareness • The Channels Building Block describes how a How do we raise awareness about our company’s products/services? company communicates with and reaches its Customer Segments to deliver a Value Proposition Evaluation • Communication, distribution and sales channels How do we help customers evaluate our organization’s Value Proposition? compromise a company’s interface with customers Channels • Channels are customer touch points that play an How you reach Purchase important role in the customer experience customers How do we allow customers to • You must answer these questions: purchase specific products/services? • Which channels reach our customer segment? • How do other companies reach them? Delivery How do we deliver a Value • Which ones work best? Proposition to customers? • How do your customers want to be reached? After Sales How do we provide post-purchase customer support?
3. Channels
Case Study: Pipeline Leak Detection • Since this is a B2B play, mass marketing does not work • Instead, the company must rely on personal and professional networks to reach our intended segment (VP Pipeline Operations) Channels • This can be very difficult if you do not know the industry How you reach customers Personal networks Professional affiliations Direct B2B Sales force
4. Customer Relationships Customer • The Customer Relationships Building Block describes Relationships the types of relationships a company establishes How to get/keep with specific Customer Segments customers • Relationships can range from personal to automated • Customer relationships may be driven by motivations such as customer acquisition, customer retention and/or upselling • You must answer these questions: • How do we get, keep, and grow customers? • Which customer relationships do we have? • How costly are they? • What relationship do you want between your business and your customers? • Will it be personal, automated, acquisitive, retentive?
Case Study: Pipeline Leak Detection Customer • The company’s relationship with their segment is Relationships very personal How to get/keep • Can be costly to maintain customers Relationship-based • Frame it as “we are in this together” - a Personal contact/touch partnership In this together Make them look good • Key is building trust through time and proof of concept
5. Revenue Streams • You must answer these • The Revenue Streams Building Block represents questions: the cash a company generates from each • For what value are our Customer Segment customers really willing to pay? • If customers are the heart, revenue streams are • For what do they currently pay? the arteries • What is the revenue model and • Revenue streams can vary widely from usage fees the pricing tactics? to subscription, to one-time, to many others • The key is finding out what your target segment is willing to pay for and how Revenue Streams How you make money
5. Revenue Streams
Case Study: Pipeline Leak Detection • For the LDS, the company has a few options for revenue streams • Proposing a mix of transactional (purchase the unit outright) + on-going (maintenance) • Exploring possible lease (rent) options (like rig matts) Revenue Streams Installation How you make money Purchase LDS unit Maintenance
The Canvas Value Customer Customer Proposition Relationships Segments How to get/keep What you’re selling Who you’re selling to customers Channels How you reach customers Revenue Streams How you make money
6. Key Resources • The Key Resources Building Block describes the most important asset required to make a business model work • Different resources are required dependent upon the business • Most resources can be grouped into one of the Key Resources following: physical, intellectual, financial and human Who makes the solution and how • You must answer these questions: • What key resources do our value propositions require? • Our distribution channels? • Customer relationships? • Revenue streams?
6. Key Resources
Case Study: Pipeline Leak Detection • Key resources earlier on are: • Sales People • Design & Engineering People Key Resources Field installers / maintainers Management team Who makes the solution and how IT Offshore manufacturing? Sales force
7. Key Activities Key • The Key Activities Building Block describes the Activities most important things a company must do to What you have to do make its business model work to get the solution to • Key activities are dependent on the type of the customer business model • You must answer these key questions: • What key activities do our value propositions require? • Our distribution channels? • Customer relationships? • Revenue streams?
7. Key Activities Online Platform Suppliers Distribution
Case Study: Pipeline Leak Detection Key • Similar to the Key Resources, the LDS Company Activities needs to focus on the key activities of: Manufacturing units Support (like IT) What you have to do manufacturing, installation/maintenance, sales to get the solution to Continued R&D and perhaps R&D the customer Installing & servicing units Sales
8. Key Partners Key • The Key Partners Building Block describes Strategic alliances Partners between non- the network of suppliers and partners that competitors Who helps you make make the business model work or sell your solution • Companies create alliances to optimize their business model and economy of Coopetition: strategic partnerships between scale, reduce risk and uncertainty, or competitors acquire resources • You must answer these key questions: Joint Ventures to • Who are our key partners? develop new • Who are our key suppliers? businesses • Which key resources are we acquiring from our partners? • Which key activities do our partners perform? Buyer-supplier relationships to assure reliable supplies
Case Study: Pipeline Leak Detection Key • A few options exist for the LDS company for Partners partnerships Who helps you make • First, joining pipeline associations (CEPA in or sell your solution Canada) can help sales efforts Pipeline associations • Second, the company may joint venture with existing LDS companies to add to their offering Other LDS companies? • Third, the company may seek agreements with Pipeline service companies pipelines service companies to gain access to their clientele
9. Cost Structure • The Cost Structure Building Block describes all costs incurred to operate a business model • Costs should appear once you’ve defined resources, activities and partnerships • Two extremes: cost-driven vs. value-driven • You must answer these key questions: • What are the most important costs tied to our business model? • Which key resources are most expensive? • Which key activities are most expensive? Cost Structure The money the company needs to spend to do business
Case Study: Pipeline Leak Detection • The company faces three main cost areas: • Manufacturing the units • Sales and marketing costs to reach customers • Field labour costs for installation and maintenance Cost Structure Manufacturing costs The money the company needs to spend to do business Field labour costs Sales & marketing costs
The Canvas Key Key Value Customer Customer Partners Proposition Relationships Activities Segments Who helps you make How to get/keep What you have to do What you’re selling Who you’re selling to or sell your solution customers to get the solution to the customer Key Channels Resources How you reach Who makes the customers solution and how Cost Structure Revenue Streams The money the company needs to spend to do business How you make money
8.0 Validation
Validate the Business Model Determine the fit Validate the problem Observe and between your value through customer record your proposition and the customer profile discovery customer profile Pinpoint the Define the problem Design your value segments you are your innovation is proposition attempting to serve solving Validate your business model Design your business model
Startup You’ve worked through your business model but now what? It’s time to test your model (validate your assumptions) Remember that you form an entity called a “startup” A startup is a temporary organization in search of a scalable, repeatable, profitable business model It’s all about talking to customers to verify your assumptions
Key Analysis #1 You have designed a Value Customer Proposition Segments solution to a problem for a Turnkey hydrocarbon leak Canadian pipeline companies detection system specific segment (or VP Pipeline Operations Low install cost segments) and have Maximize pipeline uptime Reliable & durable validated that Keep operating costs low Accurate Low cost & easy to install through customer Low operating cost discovery YES
Key Analysis #2 You understand how Value Customer Proposition Segments to reach your customers and can actually achieve this Channels at a reasonable cost Probably Personal networks Professional affiliations Direct B2B Sales force
Key Analysis #3 You understand Value Customer Customer Proposition Relationships Segments what type of Relationship-based relationship your Personal contact/touch customer segments Make them look good In this together want and can actually build that relationship Probably
Key Analysis #4 You’ve figured out Value Customer Proposition Segments what your customer segments are willing to pay for and how they will pay Probably Revenue Streams Installation Purchase LDS unit Maintenance
Key Analysis #5 You’ve determined Value Proposition what key resources are required to deliver your value Key proposition and can Resources Field installers / maintainers Management team you access those IT resources Offshore manufacturing? Sales force Yes
Key Analysis #6 You understand Key Value Proposition Activities what key activities Manufacturing units Support (like IT) are needed to Continued R&D deliver your value Installing & servicing units Sales proposition and feel comfortable executing these activities Yes
Key Analysis #7 You’ve determined Key Value Partners Proposition the key partners required to deliver Pipeline associations your value Other LDS companies? proposition and feel Pipeline service companies that agreements could be reached Maybe
Key Analysis #8 You know precisely Value Proposition what it will cost to deliver your value proposition and have shown a profit is possible Maybe Cost Structure Manufacturing costs Field labour costs Sales & marketing costs
Validation If you have answered ”yes” to all (or at least most) of these, you’ve validated your business model (you have located a scalable, repeatable, profitable business model If not, you may need to pivot (iterate ) or fail fast The next step is continue work on your MVP and move toward company creation
Case Study: Pipeline Leak Detection Have they found a scalable, repeatable, profitable business model? — Yes, the value proposition is compelling for the Segment — We need further customer discovery on… Channels (reaching our customer) Whether they can actually build customer relationships Whether they can form the necessary partnerships Most importantly, whether the financial model is viable Further customer discovery is required to verify
NO GO GO
Case Study: Pipeline Leak Detection Key Key Value Customer Customer Manufacturing units Make them look good Partners Proposition Relationships Activities Segments Relationship-based Support (like IT) Continued R&D Who helps you make How to get/keep What you have to do What you’re selling Who you’re selling to or sell your solution customers to get the solution to In this together Turnkey hydrocarbon leak the customer Canadian pipeline Personal contact/touch detection system Installing & servicing units companies Pipeline associations VP Pipeline Operations Low install cost Key Channels Other LDS companies? Sales Resources Sales force Reliable & durable How you reach Management team Accurate customers Who makes the Field installers / maintainers solution and how Personal networks Offshore manufacturing? Low operating cost Professional affiliations IT Sales force Direct B2B Cost Structure Revenue Streams Installation Manufacturing costs The money the company needs to spend to do business How you make money Purchase LDS unit Field labour costs Sales & marketing costs Maintenance
For Fun: Apple iPod / iTunes Business Model (circa 2001) Key Key Value Customer Customer Partners Proposition Relationships Activities Segments Switching costs Marketing Hardware design Love apple Seamless music experience Mass market Record companies Key Channels Resources Retail stores People Apple stores iPod Hardware iTunes software & content Apple.com (iTunes) Cost Structure Revenue Streams People iTunes store (music) Marketing & sales Manufacturing Hardware (iPod)
Closing
Summary Determine the fit Validate the problem Observe and Value Proposition between your value through customer record your proposition and the customer profile discovery customer profile Design Pinpoint the Define the problem Design your value segments you are your innovation is proposition attempting to serve solving Validate your Business Model business model Canvas Design your business model
Next Steps Get the Strategyzer Books Download the Business Model Canvas and Value Proposition Design (https://strategyzer.com/canvas/business-model-canvas) and (https://strategyzer.com/canvas/value- proposition-canvas) Test your idea(s) or innovation(s) using the models Use the Innovate Calgary Team to help you Please see the resource list at the beginning of this workshop Attend the next workshop on Prototyping and Starting a Company Understand that it’s ok to fail fast or pivot
Did We Achieve Our Objectives? For participants to gain a good understanding of the Value Proposition Design concept. For participants to gain a solid understanding of the Business Model Canvas (vs. traditional business plans). For participants to gain an understanding of the economic and regulatory environment of the energy industry. To arm participants with tools to assess the commercial viability of their invention. Bottom Line: Does your innovation have commercial potential? Are you sure?
Peter Zyla 587 582 3713 pzyla@innovatecalgary.com Please don’t forget to register for the next CREATE ME2 Workshop on May 9 th !
Techno-Economics, Technology Transfer and Commercialization Workshop Part 2: Economics & Regulatory Environment of The Energy Industry April 25, 2018
Outline Introduction Electricity Grid Energy Storage Applications Market and Regulatory Barriers Alberta’s Market
Electricity Grid Generation Transmission Ancillary Services Renewable Energy Distribution Residential Consumers Commercial & Industrial Consumers
Storage Applications Transmission Congestion Transmission Deferral Supply shortages Power station outages Variable demand Energy Arbitrage Frequency regulation Extreme Variability Voltage support Over-supply of RE Constrained Distribution Distributed Storage
Question: Despite all the benefits, why energy storage technologies are not vastly used in real world? Technology Barriers 1. Regulatory Barriers 2.
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