Tuesday, November 10, 2015

Deepen Your Value Proposition Before Diversifying

Elizabeth Segran has a very good article at Fast Company this week titled, "How to Build a Business That Matters."   She interviews several very successful entrepreneurs.  One piece of advice really stuck out for me.   She writes, "The value proposition has to be deep."   She cites the example of Birchbox, a company founded by Katia Beauchamp and Hayley Barna.  The two women founded a company that offers a subscription service that delivers a set of samples of beauty products to its customers each month.   The startup soon realized that its service was a major hit.  That's a great story, right?  They came up with an innovative idea that clearly met customer needs (people want to try beauty products before they make major purchases).  

What's the problem?  Well, many competitors arose, and others launched similar services in other markets.  How could Birchbox build and defend its competitive advantage?  Beauchamp said, "We understood that the value proposition had to be deep for us to become a staple in consumers’ lives.  It couldn’t just be fun, because fun wears off. It couldn’t just be pretty, because eventually you have enough pretty things."   Thus, the company developed its analytics capabilities so that customers could receive a very personalized set of product samples.   Those analytics capabilities also could provide critical information to beauty product manufacturers, so that they could create new products that customer needs.  Then they worked to get exciting new products to their customers before the competition, and to make it as easy as possible for customers to purchase products from their online store, if they liked the samples.  

In sum, they didn't just rest on their laurels when the initial idea proved a hit.  They deepened the relationship with customers in ways that were much harder to imitate than the initial business concept.  That's what all entrepreneurs must do.  Unfortunately, many entrepreneurs start diversifying into new products and services in search of additional growth before they have fully established a sustainable position in their initial market.  They don't work hard enough at times to make their initial concept hard to imitate.  They don't deepen their relationship with existing customers enough before moving on to new customers and product markets. 

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