Wednesday, February 09, 2011

On Value...

I’ve been dieting since the beginning of the year. Anyone who knows me knows I need to be on a diet, but last night, after heavy jonesing for Chinese food, I broke down and had Chinese food.
At the end of my meal I sat thinking about what I’d just eaten. The dumpings weren’t hot; the sweet and sour sauce obviously from a can (bag?); and the meal as a whole just tasteless and lacking. It was going to cost me at least an hour on the treadmill and frankly, just wasn’t worth the calories I’d eaten. On my way out the door I stopped at the register to pay. The owner asked (as they always do) how my meal was. I said nothing. She obviously saw the painful grimace in my face as I held back my criticism and pushed a little more. In a slow, and deliberate way, I explained –my dumplings were cold, my sweet and sour pork was plain, and the meal as a whole was simply lacking. The woman explained that the dumplings should have been hot, but the sweet and sour pork is “the way we do it”.
So here’s a clue. “The way we do it” means “There’s a reason you only have five people in your restaurant at the peak of the dinner hour”. “The way we do it” is directly related to the fact that you’ve got a sign on your front door announcing a price reduction on your buffet.
What’s this got to do with tech? I do consulting –not full time, but on request under the name Hammerhead Research. So this piece isn’t a plug for Hammerhead, but it reinforces a message that demonstrates exactly what I have been telling clients (and now my government bosses) for years.
1.     Know your customer.
2.     Know exactly what your customer considers valuable.
3.     Know who your competitors are, and your value proposition in relation to them.
4.     Create products that add value
5.     Don’t stray. Pick your value proposition, stick to it, and deliver it consistently.
6.     In the commercial world, target customers who both need the value you add, and have the ability to pay.
It’s a pretty simple formula actually. It took a startup failure, $800K in angel funding and being sued for me to learn this lesson in retrospect.
Two years or so ago I authored a plan for a Fortune-100 company who wanted to move from the physical security monitoring space (think ADT, but not ADT) into the computer security space. They wanted to become a global-scale managed security service provider, competing with ADT in the consumer market by integrating wireless unified threat management (UTM) devices into home fire and security monitoring systems. If a fire, flood, home invasion, or cyber bad guy set off an alarm, one of this company’s monitoring centers would be alerted. It would then be evaluated, and the analyst could make pre-determined decisions on how to react. 
To understand the customer, I researched consumer demand for information security devices. Not surprisingly, most consumers don’t know what they don’t know. Anti-virus was deemed by most to be enough. Consumers are already price conscious when it comes to home monitoring, with $25-$40 being the current market pricing.
To research the space, I studied current offerings, and gaps in current physical security and MSSP offered services. I called on (by phone and in person) customers who were showcased on potential competitor websites to find out what they liked and didn’t like about their current provider. I polled competitor salespersons about future company plans (those guys will tell you anything!). I performed this service across the spectrum of providers that might compete with the new business in this F-100.
In the end, the company decided not to enter the market. Consumers were highly price sensitive, don’t understand the need (yet), and the market fragmented by a perceived lack of value in the home monitoring market and a low opinion of the companies selling services. In my opinion, this company was smart to not become just another monitoring company. While the computer monitoring service would likely differentiate them from the rest, the value proposition wasn’t strong enough (in the customers’ eye) to generate long-term sales.
This is one example. I’ve researched and authored dozens of startup plans or turnaround studies for companies large and small who simply don’t understand the value proposition. I’m hoping the owners of that Chinese restaurant read this post.
Know your customer
Know your competitor
Know your value proposition
Deliver consistently