As an Entrepreneur In Residence (EIR) with CTNext, I speak with a lot of entrepreneurs with new business ideas. Some are fledgling ideas hoping to take flight and others are revenue generating businesses that they are looking to grow. My role as an EIR is to provide these entrepreneurs with guidance, advice, and introductions that will help them succeed. The first step in the process is for me to understand what their business or idea is all about. I ask a lot of questions. I listen. I interrupt. I challenge assumptions. I push back. In most of these conversations, it actually takes 15-30 minutes to understand what their business does. That’s too long. If you are pitching to an investor or introducing your company or product to a potential partner you need to get to the point more quickly and be able to answer a few important questions.
Entrepreneurs are always so excited to talk about their “baby” – the product or service that they have given birth to, watched grow, and that they feel has so much potential. I get it. Entrepreneurs are passionate about their ideas and creations. That passion is one of the things that makes them choose the entrepreneurial path. But equally important is the company, the business plan and the market opportunity.
In my conversations with entrepreneurs, I ask them:
Who is your customer? It’s a simple question, but it doesn’t always have a simple answer. Who is going to derive benefit from using your product or service? Often there are multiple customers. Maybe you have a software product that is used by teachers, but the usage data is collected and used by school administrators. Both are customers with unique needs who receive different benefits from your product or service. Perhaps there are advertisers involved. They are yet another customer with very different needs and benefits. It’s important to be able to quickly and clearly articulate who your customer or customers are.
What is your value proposition? I admit when I was a consultant I hated this buzzphrase, but the value proposition is critical to understanding why people will pay for your product or service. What does it do for them? Does it enable them to do their business faster, cheaper, more efficiently? Does it improve customer satisfaction and customer retention? Does it allow them to enter a new market? Essentially, how does your product or service improve your customer’s business? You’ll have different value propositions for each customer type and you’ll need to be able to articulate the unique value proposition for each one.
Who is paying for your product? Again, the answer isn’t always so simple. Most often it is the customer who pays for the product, but sometimes it’s another entity. Perhaps your product is free to the users and you generate revenue by paid advertising. Or maybe you receive payment from both the users and the advertisers. Or you receive payment from a company who then provides your product or service to its customers. In each case you need to identify who is going to pay you for the product or service, how much they are willing to pay, and why they will be willing to do so.
These are three questions that any entrepreneur needs to be able to answer to help determine determine whether he/she has a real business opportunity. This is a start. In a future blog I’ll talk about some additional questions entrepreneurs should be prepared to answer.
Jim McClafferty is an experienced executive and entrepreneur with over 25 years of management experience across many industries in both large and small companies. He is the founder of Brain Parade and developer of See.Touch.Learn. its award winning special education software app.
Jim serves as an Entrepreneur In Residence with CTNext, sharing his experience with Connecticut based startups and entrepreneurs as they seek to launch and grow their companies. Visit http://jem-ea.youcanbook.me/ to schedule an appointment with Jim TUESDAYS at The Stamford Innovation Center http://www.stamfordicenter.com/ and THURSDAYS at The Grove in New Haven http://www.grovenewhaven.com/