We are on week 7 of the business strategy bootcamp. I LOVE this week, because we are getting into the dollars and cents of your strategy. As an accountant, dollars and cents is what I do best. We are going to be writing your Value Proposition. Watch now!
PDF Worksheet Download: https://wolvesandfinance.com/wp-content/uploads/2019/12/Ep-7-Worksheet.pdf
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In last week’s video, you identified your target revenue stream. Now we are going to take that revenue stream and write a Value Proposition. The Value Proposition describes how your business strategy creates positive cashflow. You should be able to write out, in a clear and simple way, how your business strategy will make money.
This can be overwhelming for some people, but we are going to walk through this process step by step. And you want to be able to do this for other people. When you are talking to people about your business, you want to be able to walk them through how you are making money.
You are going to start with the market. This might take a little bit of research, but you want an understanding about how big your target market. This is fairly simple with basic internet searches. How many potential customers are in your target market? How much sales are they generating annually? Are we talking about millions of people, or thousands of people? The next step is to determine how much of this market you can realistically capture? Is it 1% of the market, or 75% of the market?
Now let us look at the revenue stream. You already identified either a good or service you want to sell. What is the value you are creating for the customer? What price are they willing to pay and what quantity per customer? This will tell you your revenue.
Now let us look at your costs. How much does it cost to run your business and deliver the product or service? This will tell you your cost. Now I want to emphasize, we do not need too much detail here. It is really easy to get bogged down in creating very detailed projected financial statements with every single salary of everyone who is going to help you. But all we need right now is the round number. You generally have a good idea of what your costs are going to be. That is your starting point for this exercise.
So you have your market, revenue, and cost, and you can calculate how much money you are going to make. This will tell you your profit. Now if you are a nonprofit organization, you still need to go through this process, you just end up with zero profit. But your value proposition should still explain how you generate cash flow to cover your costs.
This seems very simple, but you can write this value proposition for any business. So let us break this down:
- Overall market
- % target market to capture
Now we are going to take it a step further, because you have created a dilemma. You have written down a value proposition that does not exist. You have identified a percentage of the market you can capture, but you are probably not there yet. So how do you get your organization to your value proposition? I will tell you how most businesses do it. They pay for it. Most startups start out losing money, until they can work their way up to their target market percentage and start delivering on their value proposition. So it is going to take some investment up front, and the question is whether your investment up front will pay off with the value proposition over time.
This step is hard for some people to visualize. So we are going to do a thought experiment. Remember, that your value proposition is based on some real value you are creating for your customers. So if you can just give your target market a taste of all the great things you can do for them, they will keep coming back for more. So your value proposition is an engine you have set up, that will keep making you money, except you have to get the customer in. So I am going to have you imagine something. Imagine that you are going to give your product or service away for free to your target customers. Do not freak out. This is just a thought experiment. Once they have a taste, they will come back for more and start participating in your value proposition. Now I am not saying you have to give all you stuff away for free. The point is to find ways to reach out to your target market and keep growing your customer base until you reach your target market percentage.
The value proposition is the dollars and cents of your business strategy. It is writing out how the money piece is going to work. This will really make or break your business strategy. This is the moment where reality stares you in the face. If you really are creating value for customers, it should be easy to come up with how you will create cash flow. If it is difficult to show how you make money, maybe you are not really creating value. This is where money really keeps people honest. Because people have business ideas all the time. Ideas are a dime a dozen. Not all business ideas are good. You have to prove to me, but putting numbers on the page, of how your business idea can make money, and if it cannot make money, maybe it is not a good idea. The Value Proposition is guiding you on how to make business decisions on what direction to take your business. But it is even more than that. If you have an idea, that you can show is truly creating value for yourself and your customers, you have an obligation to make that idea happen. This is what business leadership is all about. You are creating new value propositions, and making the world a better place.
I have a worksheet that will help you write down your own value proposition. There is a link to the PDF worksheet in the description box below. Go ahead and fill out the worksheet for your own business. It should only take you 30 minutes. By the end of this process you should know if your business idea is making money.
Leave a comment down below letting me know what you think!
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Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.