Why Your Value Proposition is Important to an Investor

A value proposition can make or break an investment deal if not done correctly. So what is it? It is a clear statement about what your startup business does and how it is solving a problem.

If you provide a service or product that has already been duplicated your value proposition will describe the value of your product, need for your product and what makes it better than the duplications. This is where you must point out what makes your idea newer, more updated, innovative or creative. Can your product out perform the competition or does it have customizations? For example, cell phone companies are always coming out with new innovative technology. One may have faster internet speed or another better coverage. You hear their value proposition every time you see a commercial. They want you to invest in their product because of all its special new features that stand out from the rest. Upgrades are frequent. 

If you are a startup company with a new type of service or product you have a chance to set the pace for others who may follow after you. What you may also face is the "if no one has ever done this before, how do I market my own?" feeling. You have entered into uncharted territory if you are first at something. But the best part about having a new type of service or product is that you are the first and you can say you are the first. A value proposition based on a new idea is your chance to wow an investor and make them say " I can't believe no one has ever thought of this before." 

A value proposition gives value to your product or service. It must be based on either branding, cost/value, upgrades, "are you first" factor or "are you better factor," or simplicity/functionality.

Branding: If you are an established brand you have "natural" visibility. People know and trust your brand. If your brand is new you have to establish and develop the culture your brand represents. Value propositions are generally based on whether you are established or if you are new. An investor, if they know your brand, depending if you have established a good or bad culture, may need less convincing. But an investor approached by a new idea will have to see more market research to buy into it.

Cost/value: The cost of your product or service must equate the value of it. If I am selling hot dogs on a street corner in New York City I know my customers will not spend more than $3 on it but if I am selling it in the movie theater I know I can beef up the cost to $4 based on a no outside food policy. Each hot dog has a different value because of where you are getting it from. 

Branding also affects my cost and value. A Coach bag is much more costly than a Target bag because of the brand. Coach is a high end classy line for those with extra buying power.

Upgrades: A product or service with a lot of competition will need to upgrade consistently to stay ahead of the game, especially in the tech world. Upgrades are important to visibility and important to keeping your brand relevant. An upgrade can also mean an upgrade in your branding. A great example of this is Old Spice. They have had the same product for many years but have recently added a modern, sexy twist to it to make it sellable. And the ads are genius!

"Are you first" or "Are you better" Factor: Mentioned previously in the article, investors will favor products that are fresh, new, innovative and sellable. You must do your research and understand your target niche/population. You're idea will not be sellable unless you are clear on who you are targeting and what your prospective customers like.

Simplicity/Functionality: In 2012 people want easy, fast, accessible, safe and comfortable. 80% of people in the United States are normal, everyday people living simple lives. They don't want complexity or confusing. Neither does an investor because they want to make a profit quickly. If your product is extremely innovative, like how a hydrogen powered plane would be then I say go for it, but if you are creating a product or service for an every day person keep it simple.

Also, do not rush a value proposition. Think about it, write it down, come back to it, research it and survey it to your inner circle or mastermind. Make sure you are 100% about what you are selling.