How to Pivot a Value Proposition
Alex Osterwalder recommends pivoting on the value proposition as early as the idea stage.
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Alex Osterwalder recommends pivoting on the value proposition as early as the idea stage. He explains that companies can test the idea by hypothesizing what must be true to confirm the idea and assess the degree of market fit. He explains that testing this early de-risks business innovation. In addition, he recognizes the challenges that large companies face with this approach because their processes are not meant for experimentation, but for efficient execution of well-worn processes and procedures.
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it’s a very interesting question and how you pivot value propositions and people often think that they need to build something. You know if they are thinking of an IT service then they need to build the IT service. Well that’s absolutely not true, that comes maybe in a later stage because building stuff in a software world you know is cheaper than ever before but it still costs quite a bit of money.
The first thing you want to do is just conceptionally map it out and then asked yourself, what needs to be true for my idea to work. And those are your hypothesis. So you ask yourself, what are all the things that need to be true for idea to work after you have kind of mapped out your value proposition that you want to build.
And then you test one after the other, and that can be as simple as launching a Google ad campaign. You didn’t build anything yet, you’re just figuring out. If people will click on an ad you know about a type of new this or that, a new headache pill or you will launch a Google ad around this specific problem, and you will learn if people have that problem or not.
If nobody clicks on and add, well that problem doesn’t probably exist. So you can test a lot of things and pivot your idea way before you build anything. So there is this myth of having to build something around to test it. In particular, in the health sector, people will tell you that it is very expensive to build a prototype. You know in biotech it’s very expensive to come up with something new.
You can pivot a lot before, you can test ideas a lot before you just need to address always this question, what’s the most important thing that needs to be true for my idea to work and that’s the first thing you will test. Then you will continue testing those important hypothesis.
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Sure I mean start-up or large company the task is the same thing. You want to reduce uncertainty, you want to de-risk innovation, so you have to do it if you don’t want to make what some academics like to call wild ass gambles on new innovations.
The challenge of course in large companies is that you have rigid processes that were not designed for experimentation. So it’s much harder to do this kind of experiments because the processes don’t exist. The incentives don’t exist, experiment fail and learn, so you have to put that in place. But I can tell you this that we are seeing in many many companies, that GE even launched a whole programme called FastWorks together with Eric Reece to do this and DeBlanc has also worked with that at GE. So large companies are trying to do this now. It’s very tough for them to get these processes going, but they know if they don’t do it for them, innovation will remain extremely risky and able basically burn a pile of cash.
So if they want to reduce the risk of innovation, they need to do the same thing as start-ups do today which is experiment, learn, and pivot or iterate very quickly. And they are trying very hard, I know a lot of companies that are doing that now.