If you’re starting a business, you’ve probably already put a lot of thought into how it will serve customers and generate income for you.

But have you stopped to think about how you’ll explain that to potential customers? Or even to employees—whether you’re already hiring them or preparing to hire them in the future?

You need a clear, concise statement of what your business provides, and for whom.  This statement is known as a value proposition, and it’s a small but incredibly powerful tool in your business toolbox.

Let’s dive into the details of a value proposition so you can create one and start attracting the right customers and employees for your business.

What Is a Value Proposition?

A value proposition is essentially a statement of what value your business offers. The most useful value propositions are short, no more than two sentences, and answer the following questions:

  • What is the product or service?
  • Who is the intended user?
  • What is the benefit/reason the user would be interested in the product or service?
  • Why is this different from other products or services?

The value proposition should be memorized by you and every employee so that when someone asks what the business does, there’s a simple, clear, consistent answer. 

Your value proposition will make it easier for others to refer your business to potential customers. They’ll have a short, clear description that they can share with their network.

Internally, decisions regarding product design and marketing should be based on whether they align with the value proposition.

Now that you can see how valuable this statement is, let’s look at its core components in greater detail.

Define Your Product or Service

In the simplest, most specific words, state what your product or service is. Being vague causes the customer to have to ask too many questions to determine if they are interested in the product.

The value proposition is not a list of all the product features, nor is it a unique, creative name for the product or service. Save those for your branding efforts.

When you define your product or service, it should be easily understood by anyone, not only people in your industry.

For years, there was a running joke at Hewlett Packard that if HP had invented sushi, they would have named it “cold, dead fish.” That’s how committed they were to letting customers know exactly what the product was.

Let’s say you want to create a web application. Telling people that your business creates web apps is far too vague. What will your app do for people? How will it be used? Does it provide maps and directions? Is it a game? Does it help with meal planning and making a grocery list? The better you define your product, the easier it will be to generate interest in your business.

Identify Your Ideal Customer

My Customer Understanding who your customer is allows you to make the best possible product and marketing effort.

Can you see your customer using your product?  What do they look like? What do they care about? A mother with young kids?  A retired man who has physical difficulties?  A tween who wants to be popular in school? Is your production for someone with a specific job?  Write down who your customer is in some detail to make them real.

State the Benefits of Your Product

The benefits of your product or service might be clear to you as the business owner, but are they clear to your potential customers?

Your value proposition asks the question, “What is the benefit/reason the user would be interested in the product or service?”

Possible benefits might be:

  • Easy to use
  • Lower cost
  • Helps a business make more money
  • Convenient
  • High quality / lifetime warranty
  • Customizable
  • Good for the environment
  • Provides status or social inclusion

Essentially, you have a product or service that solves a problem.  What problem is it solving?

As an example, think of a bakery that sells a variety of baked goods and is open early in the morning. If the intended user is a mother with kids, the bakery could offer healthy muffins, pastries, and breakfast sandwiches, as well as coffee for adults and juice and milk for kids.

Make Your Product Stand Out from the Competition

By understanding other products or services that could compete with what your company offers, you can explain why your product should be purchased.

Research all the businesses that directly compete with your product. Note what makes them different from one another. Now, add the businesses that don’t directly compete but offer a product that your intended customer might buy instead of your product.

My Competitors

Let’s return to the bakery example. As a breakfast stop for busy families, it will have to compete with popular coffee chains, such as Starbucks and Dunkin’ Donuts, where families in a rush might be getting a quick breakfast.

Since it caters to busy moms, this bakery could stand out from its competition by providing baked goods in fun shapes that kids would enjoy. Or perhaps milder flavors for picky eaters. Or all organic ingredients. Or maybe even arranging the baked goods so that only healthy options appear at child eye-level, resulting in less begging for sweets and more peace for moms.

If you’re having trouble figuring out how your product is different, then perhaps this product wasn’t meant to be.  See if you can think of some way to modify the product or service so that it meets a specific customer need or provides a unique benefit. 

Create Your Value Proposition

Now is the time to create your value proposition.  Use the questions above to brainstorm ideas. Pick out the most important answers describing what you want to create.

Then, put it all together in one or two sentences. Editing your value proposition down to two sentences may take a bit of time, but it’s really important for your future to do it.  Create a few possibilities and test them out with friends and possible customers.

A concise, consistent, and accurate value proposition will enable you to complete a business model canvas so you can pitch your business to supporters or investors.

In addition, it will serve as a valuable quick reference as you grow your business, to make sure all your decisions are aligned with your larger purpose.

Not sure how to create the Value Proposition for your business? Talk to a SCORE mentor today and get started on the road to a profitable business.

Stay tuned for the rest of the Business Model Canvas series! Want to be the first to know what’s new on our blog,  which free workshops are coming up, and the business trends to watch? Sign up to receive our newsletter.

About the Author(s)

 Melissa  Traynor

After graduating from California Polytechnic State University at San Luis Obispo, Melissa Traynor worked for 25 years in the Silicon Valley for well-established Hewlett Packard and startup MontaVista Software.  Melissa gained experience in the operations of a medium to large company doing a wide variety of support related, technical jobs. For the past five years, she has worked with several...

Creating a Value Proposition: A Key First Step in Building a Profitable Business