A value proposition is one of the key building blocks for any business model. It is the benefit both in terms of gains or reduced pains a potential customer or key partner might experience.
Indeed, the value proposition isn’t just a promise and payoff for customers, but that is also very important to connect key players (employees, distributors, partners, and more) internally and externally to the organization.
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What is business value?
There isn’t a single definition of value. But that is somewhat relative, and we need to ask, “to whom?”
For instance, when it comes to the business world, value can be created for investors, shareholders, partners, employees, customers, and more.
Thus, depending on the interactions the company has with several stakeholders, at each interaction, the company has the chance to create and capture business value.
For what matter, we might define business value as:
The payoffs that a stakeholder (partner, employee, customer, user or any other key player for the organization) gains from interacting with a company.
Business value isn’t intended just as monetary value. Business value is also created when from the interaction, there is no money exchanged, yet the interaction has an economic benefit for someone else.
For instance, Facebook is a media business that offers users a free platform. Thus, (as of now), there is no exchange of money between Facebook and its users.
However, the actions users take on the Facebook platform are valuable for businesses willing to capture some of that value by advertising on Facebook’s newsfeed.
What is a value proposition, then?
A value proposition might be defined as anything that is valuable to a set of key partners and players for the company’s business model.
Indeed, a value proposition is a glue that keeps together the company’s business model in the long run and what makes it sustainable.
The value proposition in a linear vs. platform or scaled business
Indeed, it would be a mistake to believe that a value proposition is the same for a small organization vs. a business that has scaled up and it already has hundreds if not thousands of employees and hundreds of thousands of customers.
A larger, complex organization will have multiple value propositions for as many players as it has that are critical for the company’s business model.
That is why we’ll look at companies that offer “multi-sided” value propositions. Or more variations of a core value proposition, based on the key players the company interacts with.
Apple’s value proposition
Apple is a tech giant, and as such, it encompasses a set of value propositions that make Apple’s brand recognized among consumers. The three fundamental value propositions of Apple’s brand leverage the “Think Different” motto; reliable tech devices for mass markets; in 2019, Apple also started to emphasize more and more privacy to differentiate itself from other tech giants.
A company like Amazon has multiple value propositions, as it serves several target customers in different markets. With its mission “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online and endeavors to offer its customers the lowest possible prices,” Amazon’s value propositions range from “Easy to read on the go” for a device like Kindle, to “Sell better, sell more” to its marketplace.
Users: a free search enginefor billions of users around the world. Users get a free, seamless engine that helps them find an answer to anything. Google also provides now advanced features that enable a very advanced and rich experience for users. Among all the partners’ Google’s users are the most important. Even though users don’t pay for Google search, they are at the core of the overall Google business model. Without users, Google would not have a business model in the first place.
Businesses advertising on Google: The core of theGoogle business modelis advertising, focused ontargeted text-based ads for businessesoffered via the AdSense network. BeforeGoogle existed,d there was no way for marketers to know in detail all the conversion metrics of their ads. WhileOverture was the first to offer CPC advertising, Google managed to scale it up at massive levels.
Publishers: BeforeGoogle disrupted the advertising world and took over the digital advertising market, a few established publishers could make money via advertising. With its AdSense network,Googlealso allowedsmall publishers to monetize their content.
Developers: in a world where AI and machine learning have become critical to creating products that people want, developers have become even more important than publishers – I argue – for the development and evolution of Google’s future business model.
DoorDash Value Proposition
DoorDash is a platform business model that enables restaurants to set up no-cost delivery operations. At the same time, customers get their food at home, and dashers (delivery people) earn some extra money. DoorDash makes money by markup prices through delivery fees, memberships, and advertising for restaurants on the marketplace.
For restaurants, more exposure for their brands and an additional revenue stream.
For dashers, the ability to earn income flexibly.
For eaters, the comfort of having food delivered straight to their doors.
Vroom Value Propositions
Vroom is an e-commerce platform for used cars. Its value propositions are in line with its key partners:
Car buyers get a curated, wide, and reconditioned inventory, with a set of value-added services (insurance and more), together with the car purchase.
Car sellers can get the easy valuation of the car, and in this case also a simple setup process to sell the car directly to Vroom.
Honey Value Propositions
Honey earns affiliate commissions from stores when users find savings, as the purchase is confirmed. Honey also makes money with its Honey Gold, earning a commission when the member visits a partner store while it offers members a digital coupon to apply at purchase. PayPal acquired honey in 2020 for a $4 billion cash acquisition.
For members, Honey makes available discounts to shop conveniently in many shops part of the network.
For stores part of the network, they get additional exposure on the platform, thus attracting more potential customers.
Udemy Value Propositions
Udemy is an e-learning platform with two primary parts: the consumer-facing platform (B2C). And the enterprise platform (B2B). Udemy sells courses to anyone on its core marketplace, while it sells Udemy for Business only to B2B/Enterprise accounts. As such, Udemy has two key players: instructors on the marketplace, and business instructors for the B2B platform.
Instructors get an additional income stream, and the ability to work flexibly, with a scalable product, like a course.
E-learners get access to the Udemy marketplace, with a wide variety of courses, usually available at an affordable price.
Companies get access to a whole library of courses, so they can reduce the training costs for employees and an smoother transition with the company, as they have unlimited learning resources available for their growth.
Discord Value Propositions
Discord makes money in several ways. From its Discord Store, where users can buy premium games, to the seller shops, that primarily works with a 90/10 revenue share for developers and game sellers. And the ability for sellers to get more visibility on the platform by adding features to the game visibility.
Gamers get a platform where they can interact with other gamers.
Developers get an ecosystem where they can make money by developing games on the platform.
Craiglist Value Propositions
Craiglist is a local posting website that enables people to post any sort of classifieds on the platform, mostly for free, except for some categories of ads and the advertising of vehicles on the website. Therefore, craigslist monetizes based on some premium categories of listings (like job postings or apartment rentals).
Users get access to a free website that has any sort of listings, from jobs, to rents and sales of used items.
Companies get mostly free postings on the platform, except for a few categories of products where the listings is paid.
WordPress Value Propositions
WordPress.org became the most popular CMS and blogging platform in which the Foundation owns the trademark, and revenues come from donations. The Foundation holds a public-benefit-corporation who manages the revenues coming from WordPress events and conferences. Automaticc – the business arm – monetizes premium tools built on top of WordPress.com (a premium platform) through freemiums.
Website owners get easy to set up a blogging platform for free, with the possibility to expand their capability with plugins and extensions.
Developers get access to an ecosystem where they can develop their own tools to be hosted on the WordPress marketplace and build a business around that tool.
Value is created not just from the monetary standpoint
Larger, more complex organizations will also have multiple value propositions.
Key Highlights
Value Proposition Defined: A value proposition is a critical element in a business model, representing the benefits, gains, or pain alleviation that potential customers or key partners can expect from interacting with a company. It serves as the core promise of value delivery.
Multifaceted Business Value: Business value is not a one-size-fits-all concept. It varies depending on the stakeholders involved, such as investors, shareholders, partners, employees, and customers. Each interaction with a company offers a chance to create and capture business value.
Business Value Definition: Business value can be defined as the payoffs or benefits that stakeholders receive when engaging with a company. It is not limited to monetary value but includes any economic benefit derived from the interaction.
Monetizing Interactions: Even when no money directly changes hands in interactions, business value can still be created. For example, platforms like Facebook offer free services to users while generating revenue through advertising.
Value Proposition in Business Models: A value proposition is anything that is valuable to key partners and players within a company’s business model. It serves as the glue that holds the business model together and makes it sustainable.
Linear vs. Complex Business Models: A distinction should be made between value propositions in linear business models and more complex, platform-based, or scaled business models. Larger organizations tend to have multiple value propositions for various stakeholders.
Examples of Value Propositions: The article provides insights into the value propositions of three major organizations: Apple, Amazon, and Google, which all offer multi-sided value propositions tailored to their key players.
Apple’s Value Proposition: Apple’s value propositions include reliability, innovative technology, and an increasing focus on user privacy. These elements help define the brand and maintain its recognition among consumers.
Amazon’s Value Proposition: Amazon’s value propositions are diverse, catering to various target customers and markets. Its customer-centric approach, with a focus on low prices and ease of use, is central to its value offerings.
Google’s Value Proposition: Google’s sophisticated business model involves creating value propositions for users (free search engine), businesses (advertising), publishers (monetization), and developers (AI and machine learning).
Other Value Proposition Examples: The article also highlights the value propositions of other companies like DoorDash, Vroom, Honey, Udemy, Discord, Craigslist, and WordPress, showcasing how each company addresses the needs of its key partners.
Key Takeaways: The article concludes with several key takeaways, emphasizing the importance of value propositions as a core building block of any business model and the creation of value beyond monetary transactions.
Value Proposition Evolution: Value propositions may evolve over time in response to changing customer needs, market dynamics, and technological advancements. Companies must adapt to remain competitive.
Diverse Stakeholders: Recognizing that business value can be created for various stakeholders, including employees, partners, and users, is essential in modern business models.
Sustainability Through Value: Value propositions play a crucial role in the long-term sustainability of a business. They help maintain customer loyalty and competitive advantage.
Balancing Multiple Propositions: In more complex business models, companies may need to balance multiple value propositions to serve various customer segments and partners effectively.
Value Beyond Money: Business value is not solely about monetary transactions. It encompasses a wide range of benefits, including convenience, efficiency, and improved experiences.
Continuous Innovation: Successful companies often innovate their value propositions to stay ahead in the market and remain relevant to changing customer expectations.
This framework has been thought for any type of business model, be it digital or not. It’s a framework to start mind mapping the key components of your business or how it might look as it grows. Here, as usual, what matters is not the framework itself (let’s prevent falling trap of the Maslow’s Hammer), what matters is to have a framework that enables you to hold the key components of your business in your mind, and execute fast to prevent running the business on too many untested assumptions, especially about what customers really want. Any framework that helps us test fast, it’s welcomed in our business strategy.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
This framework is well suited for all these cases where technology plays a key role in enhancing the value proposition for the users and customers. In short, when the company you’re building, analyzing, or looking at is a tech or platform business model, the template below is perfect for the job.
This framework is well suited to analyze and understand blockchain-based business models. Here, the underlying blockchain protocol, and the token economics behind it play a key role in aligning incentives and also in creating disincentives for the community of developers, individual contributors, entrepreneurs, and investors that enable the whole business model. The blockchain-based model is similar to a platform-based business model, but with an important twist, decentralization should be the key element enabling both decision-making and how incentives are distributed across the network.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values, and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape, and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.
The capital structure shows how an organization financed its operations. Following the balance sheet structure, usually, assets of an organization can be built either by using equity or liability. Equity usually comprises endowment from shareholders and profit reserves. Where instead, liabilities can comprise either current (short-term debt) or non-current (long-term obligations).
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
