Before You Develop a Business Strategy, Do This

Businesses often make the mistake of crafting a strategy based on their own perception about what value they offer customers. It’s possible to build a much more effective plan, however, by figuring out your unique value proposition.
Headshot of author Dave Perretz
Dave Perretz
Expert Columnist
February 18, 2021
Headshot of author Dave Perretz
Dave Perretz
Expert Columnist
February 18, 2021

In a recent column, I discussed the importance of prioritizing your objectives. Doing so will make any goal-setting framework far more effective. One of the key elements in establishing a list of priorities is figuring out which parts of your business will provide the most value to your customers. I analogized this process to a student trying to get the best possible grade in a class. In that example, the student had a syllabus that broke down the elements of the grade to guide their strategy. In business, you have no such guide. But you can create one, and I will show you how.

If you knew exactly what your customers cared about, how much they cared and how exacting their standards were, you could tailor your strategy to their specifications and prioritize your efforts to match. Although the customers don’t give you a syllabus explicitly outlining these things, you can do a little research that will give you a clear picture of their thoughts. Equipped with this knowledge, you can determine the three critical components of prioritizing your strategy.

Three Critical Components of Prioritizing Your Strategy

  1. Unique Value Proposition (UVP)
  2. Value
  3. Variance

Unique value propositions (UVPs) are attributes that customers use to differentiate between you and your competitors. They show why a customer would choose your product or service over another. Some typical UVPs are advanced technology, easy-to-use interfaces, superior customer service, brand recognition and so on.

Value is the measure of how much impact the outcome has on your goal. In the context of UVPs, a high-value UVP means that customers principally consider this factor when making their buying decision. A low value for a UVP indicates the opposite.

Variance is an approximate measure of how differentiated your UVPs are in the eyes of your customers. If the UVP is binary, then the variance is low. In the preceding article, I used homework in a class as an example. The student gets credit for completing homework assignments and receives a zero for failing to complete them. This is low variance. By contrast, on a test, there is a wide range of possible outcomes (0-100), and students could possibly get a range of grades. This state indicates high variance.

This may seem simple, but it’s deceptively tricky. Customers value a product or service based on the benefits they receive from its use. That means your perception of the value you provide isn’t infallible. For example, a business might think its advanced technology is the most important value proposition when, in reality, customers make their buying decision based on customer service. So how do you bridge the gap between your perception and the customers’ reality?

customer-value-graph
Image created by the author.

To begin, create a value and variance two-by-two grid with customer value on the vertical axis and variance on the horizontal axis. We’ll use this graph to sort our UVPs and visually plot them out.

How to Prioritize Your Objectives

  1. Figure out who your best customers are.
  2. Systematically interview your best customers.
  3. Objectively determine what your customers value.
  4. Assess your ability to differentiate.
  5. Prioritize your strategy.

 

1. Figure Out Who Your Best Customers Are

Review your data to identify the customers that drive the biggest return on investment. A business often has 20 percent of its customers producing 80 percent of its positive economic outcomes (revenue, profits, referrals and so on). Those “top 20 percent” folks are your core customers. They receive a lot of value from your product or service, and your business earns a big reward for providing that value.

Find out who these 20 percent are and contact them. Simply sending a survey to this group of customers will not be sufficient. Ideally, you should call your best customers and have a conversation. The data you receive will be richer, and you can also ask follow-up questions if a customer’s answer is unclear.

 

2. Systematically Interview Your Best Customers

Each interview you conduct should be structured, and you need to have a consistent approach each time. This structure will help you sound professional and will allow you to capture the required data. Your goal should be to have a conversation with at least 25 customers, but there is no set cap.

The interview is meant to gather feedback on two key questions from your customers’ perspective:

  1. What do customers value (unique value propositions) most about your business?
     
  2. Can customers tell when you go above and beyond on a UVP?

I can’t reiterate enough that the answers to these questions need to reflect how your customers see your company. That means you want to take care to avoid leading questions that will create biased data.

I recommend that you build an interview guide using a tool like Typeform or Google Forms that your team can use to record notes and responses from the conversational interviews with customers. Remember that you’re not sharing the interview guide with your customers. Instead, the tool is an efficient means of capturing responses and organizing the data for later analysis. Additionally, you can share the documented interview guide with fellow team members so that they can help conduct multiple customer interviews simultaneously.

The beginning phase of the interview (and the corresponding interview guide) should focus on determining how customers value your business. After customers have given you a list of UVPs, ask them to rank each one in terms of how much impact it had on their buying decision, with number one being the most impactful. Ideally, you want to limit the customer to their top four or five answers because there are diminishing returns in terms of statistical significance as you increase the number of UVPs per customer.

In the second phase of the interview, you will assess the variance in each UVP from your customer’s perspective. The best way to determine variance is to ask the interviewee their thoughts as to an industry standard or expectation and if they can tell whether or not you go above and beyond on each UVP.

It’s very important to ask follow-up questions to clarify the customers’ expectations. The best follow-up question I have found is, “Can you help me understand more about [insert UVP here]?” You want the customer to tell you a minimum and maximum level of expectation. For example, you could ask them to define their expectations for a one-, three- and five-star experience with a product in your niche.

 

3. Objectively Determine What Your Customers Value

Review the survey responses and format the data by grouping responses into similar buckets. This step is a balance of art and science as you interpret your customers’ responses. You should end up with no more than seven buckets in total. The goal here is to identify the most commonly referenced UVPs.

As an example, imagine that Customer A says, “I like how easy it is to print a report.” Customer B says, “I was able to learn how to use the software very quickly.” You could reasonably group both of those responses in a bucket labeled “Ease of Use.”

Next, create two distinct histograms. The first graph will tally the number of responses that each UVP receives. If a respondent mentions something related to the bucket “Brand,” then you mark a point for “Brand.” Rank from the most commonly referenced to the least. This ranked list will give you a high-level understanding of how your best customers think about a particular value proposition when they are deciding to buy your product or service.

The second graph is a bit more complicated. Remember, in the interview, you asked customers to list value propositions and then you asked them to rank the value propositions in order of most to least impactful in terms of their buying decisions. The second graph is a measure of how meaningful each UVP is to your customers.

customer-value-graph
Image Created by the author.
customer-value-graph
Image created by the author.

These two histograms can then be compared against each other to validate the most impactful UVPs from the customers’ perspective. You want to avoid UVPs that customers mention a lot but then rate as unimportant to their decision-making because those ultimately don’t move the needle much.

The graphs will likely have different orders for the UVPs, but don’t worry! You’re looking for trends in the analysis. In our example above, “Brand” is the most-mentioned UVP, and it’s the third-highest-ranked UVP in the weighted average analysis. Those positions combined are a clear signal that your company’s brand is impactful on customers.

If a UVP is one of the top three to five entries on both graphs, then you can reasonably assume that it’s of high value. Now that you know which UVPs are high value, you’ve completed the first half of the value and variance analysis. This is great news!

 

4. Assess Your Ability to Differentiate

Unfortunately, now a bit of bad news. There isn’t an easy way to quantitatively measure variance in the perceived value customers place on UVPs. In order to assess variance optimally, a business would need a lot of information collected over a significant period of time. That’s not always possible, especially for startups. In this case, you will have to reach out to advisors, conduct industry research and use your best judgment.

On the bright side, we can use the questions we asked our customers in our interview to help us get a pretty close approximation. As you will remember, they are:

  • Is there a generally recognized standard?
     
  • Can customers tell when you go above and beyond the expectation?

If there isn’t a recognizable standard, but customers can tell when you go above and beyond, then you have high variance for that UVP. For example, there isn’t a clearly defined industry standard in customer service, but we can all tell the difference between good customer service and the cable companies. Conversely, if there is an industry-standard, and customers really can’t tell when you are significantly better, then you have low variance.

Don’t put a lot of resources behind low-variance UVPs. When customers can’t perceive a difference, it’s really hard for them to reward you for going above and beyond. This is even more important if you have to make a major investment to achieve a differentiated level from your peers. You shouldn’t expend Herculean effort and sink lots of time and money into a value proposition for which customers don’t give you a reward.

 

5. Prioritize Your Strategy

According to Sonia Marciano, a strategy professor at the NYU Stern School of Business, the goal of corporate strategy is, at a minimum, two-fold. First, you need to find a big marketplace for your product or service. Second, maximize your chance of success by focusing on the highest-value projects to your customers that will produce the biggest reward.

Once you have plotted the UVPs on this matrix, you can make a strong case to focus your resources on the attributes of your business for which the customers give you the best response. If a UVP is low value, it’s much easier to make a case for deprioritizing it or saying no altogether. You now have an objective way to prioritize your resources against the highest-value objectives.

customer-value-graph
Image created by the author.

If we look at the green box above, there are three UVPs that we should consider high value that also display high levels of variance in the marketplace. These are UVPs for which you want to set clear, aspirational objectives. In our example, this fictional set of customers will reward the company for over-investing in their brand, customer service and making their product/service easy to use.

 

Now Youre Ready for OKRs

Now that we have a clear strategy, our OKRs can become useful tools. If I were the CEO of this company, I would focus my OKRs on building the strongest brand in our market, building the most customer-friendly service team possible and focusing my technology and design elements on making our product/service as easy to use as possible. I would position the company in the marketplace highlighting these value propositions as our differentiators.

As your team starts to complete initiatives and make progress on your key results, you’ll need to reassess your strategy and go through this process again. Your UVPs will adjust within this matrix, and you can then refocus your OKRs.

After engaging in this process, you will notice that everything you do is more effective. Your strategy will have more focus, your OKRs will be aligned to the UVPs for which your customers will most greatly reward you, and it will be easier to explain to your team how their efforts will deliver a positive impact to customers and your bottom line.

Build a Bulletproof StrategyThis Is Why Your OKRs Aren’t Working

Expert Contributors

Built In’s expert contributor network publishes thoughtful, solutions-oriented stories written by innovative tech professionals. It is the tech industry’s definitive destination for sharing compelling, first-person accounts of problem-solving on the road to innovation.

Learn More

Great Companies Need Great People. That's Where We Come In.

Recruit With Us