Transcript

What is a value proposition? Why do you need one? And, how do you develop one that will actually articulate value to your market?

Speaker 1:
You’re listening to Rattle & Pedal, divergent thoughts on marketing and growing professional services firms. Your hosts are Jason Mlicki and Jeff McKay.

Jason Mlicki:
So Jeff, on today’s episode, I thought we would talk about what it costs to remove crabgrass from my backyard.

Jeff McKay:
Ooh, I love talking about lawns. Cool.

Jason Mlicki:
Okay. So we’re actually going to talk about value propositions, but I’m going to start with a story about value propositions that I just had in the last couple of days. I’m looking out at my backyard the other day, and I’ve been trying to grow grass in the backyard for a while, and we have a lot of crabgrass growing, a lot of weeds. So I turn to my 10-year-old and say, “Hey, you want to make a couple of bucks?” And he said, “Yeah, sure. What do you want me to do?” I said, “I want you to go out in the backyard and weed the yard.” He says, “Okay.” He said, “What are you willing to pay?” I said, “I don’t know. What do you think it’s worth?” So he said, “What do you say to $6 or $7? I said, “Okay, that’s fair. I’ll pay you $6 to go weed that backyard.”

Jason Mlicki:
All right. So then a couple of minutes later, my soon to be 12-year-old runs up and says, “Wait a minute, what’s going on?” I said, “Well, I’m paying your brother $6 to go weed the backyard.” He said, “Well, I can do it better. I can do it faster. I’m stronger than he is. I’ll do it faster and I’ll charge you $10.” And I said, “Well, time out. What’s your value proposition?” So I asked him the question, I said, “What are you trying to tell me?” He says, “I can do it faster than he can.” And I said, “Well, I don’t need it faster, what I need is to get it done right.” He said, “Well, I can do it better than he can.” I said, “Well, how do you qualify better?”

Jason Mlicki:
So then I challenged him a little [inaudible 00:01:29] and I said, “What’s the problem with your strategy here?” And he said, “I don’t know.” I said, “Well, you never asked me what I thought I wanted or needed. So how do you know what the value proposition, what is the value to be delivered?” So that’s my story on value propositions. And ultimately, we netted out on a solution in which there was a revenue share amongst all three boys. And based on outcomes of their work,

Jeff McKay:
Out of the mouths of babes. There’s such an irony in that story and I’m not sure which way the irony flows is that value proposition should be understandable by kids or kids should be developing the value propositions. So people will actually understand what they are.

Jason Mlicki:
What they are.

Jeff McKay:
That’s hilarious. I love that. And they all did it manually. They got out there and dug up those weeds.

Jason Mlicki:
Oh yeah. I had to go out there and they had to do it by hand. And part of the story that I missed out on was where he said something along the lines of that he was stronger. I mentioned that he was stronger than his brother. And I said, “Well, why does that matter? I don’t need strength. I just need you to pull the weeds.” Right? And so he kind of looked at me and it made him realize, again, the feature of his service that he was trying to put forward was not a superior feature because it wasn’t deriving a superior benefit.

Jason Mlicki:
And it was really fun to watch because he pivoted left and right three times in about 30 seconds. I mean he explored every possible angle he could get to get that sale. In the end, we opted for a collaborative approach. So, enough of that. We’re to talk about value propositions and how they relate to firm marketing and maybe B2B marketing in general. So where do you want to start? Other than my backyard.

Jeff McKay:
Well, maybe it makes sense to get everybody on the same page. Talk a little bit about the definition of a value prop because people throw that word out a lot.

Jason Mlicki:
Yeah. Well, in prep for this we talked about this, and we both looked it up, as a matter of fact, we could both says, “Wait a minute, what is a value proposition? What does that even mean?” And we both looked it up and we both found a Wikipedia reference on this. And it was stemmed back to an article published by McKinsey in 1988, titled, A Business as a Value Delivery System, which at the time was probably a pretty revolutionary concept. But the definition that they put forth then that I liked, which relates back to my story was, a value proposition is a clear, simple statement of benefits, both tangible and intangible that the company will provide along with the approximate price of what charge each customer segment for those benefits.

Jason Mlicki:
So at least according to Wikipedia, I didn’t find the reference article, but that was the definition of a value proposition when the term was coined back in the eighties. To me, I thought there was a couple of key things to pull out there. One was, simple statement, benefits, both tangible and intangible, and price. I thought those were the three parts of the equation as it was framed originally, which incidentally for me, it made me realize that I don’t think too many firms actually have very good value propositions if that’s the true structure of a value proposition. How many firms deliver all three of those things in a nice wrapped bow?

Jeff McKay:
Very few. Very few. Well, leave it to McKinsey to rename something that already exists and take to the market and get businesses to pay for it. And boy, we have used this word a lot, haven’t we? Value proposition. So McKinsey labels this thing value proposition, but really it’s nothing new. One might even argue, and maybe we could talk about it for a few minutes is, what’s the difference between a value proposition or a brands’ positioning or a salesperson’s kind of unique selling proposition or positioning. To me, they all sound essentially the same, don’t you think?

Jason Mlicki:
I don’t know. Tell me in your mind what a unique selling proposition is or what a brand positioning is in this context?

Jeff McKay:
Well, in my years of developing value propositions as a CMO and as a consultant, normally those get done because the market is not understanding marketing messages. And partners or the sales team want to get the message cleaner. And normally that comes back to, “Well, we need a value proposition.” When I use those terms, value proposition, or unique selling positioning, or brand positioning, they’re all overlapping.

Jeff McKay:
Again, going back to my trite use of Venn diagrams, they overlap one another. It depends on how complex the organization is to what degree those circles begin to separate. But if I were to provide a hierarchy, I’d probably say it’s brand positioning, value proposition, and then unique selling position.

Jason Mlicki:
In my head, I map them to different parts of what’s happening in a firm. So to me, the brand positioning where the brand is tied to the firm. I would argue most [inaudible 00:06:41] a practice doesn’t really have a brand per se. I mean, it kind of does, but not really, right? I mean, McKinsey has a brand, but the strategy practice or the corporate finance practice doesn’t really have a brand as a practice. The practice has a value proposition that proposes to explain that the problem is that the practice is built to solve. And the unique selling proposition ultimately should be the domain of an individual client and an individual deal. So to your right, it’s sort of like, it’s a hierarchy, broadest to most narrow.

Jason Mlicki:
I mean, maybe the one piece of that McKinsey definition that we described that doesn’t really totally make tons of sense at the practice level is the pricing piece where the idea of, “Well, should a firm really be marketing pricing information at a practice level?” Probably not. I mean, pricing should probably be reserved for conversations that occur at the selling level, I would imagine.

Jeff McKay:
Well, unless it’s a pricing model where you’re value pricing or bringing something to the table that actually offers value in how you do price it. And by that, I don’t just mean the cheapest, but there are all different kinds of ways of pricing that can add value.

Jason Mlicki:
Yeah. I mean, that’s a good point. I mean, specifics versus conceptual, right? I think about there’s a firm here in town, it’s an IT services firm that takes 16-year revenue-share agreements on all their deals. And so they don’t do any fee-for-service work. It’s all early-stage startup and they take a 16-year contract where they get a piece of the revenue over 16 years. And that’s relatively public, right, because it’s not… That’s the business model, hence it’s the value proposition, right? It’s sort of like a little upfront investment with us in exchange for a long tail. And a lot of times that stuff happens behind the scenes in a value conversation, but it’s not public and in a value proposition.

Jason Mlicki:
I guess at the end of the day, to me the value proposition, and when you think about the three things you described, is something that is marketed outwardly to the market. Firm to market or practice to market versus a selling proposition feels more one-to-one. I mean, it flexes to the specific needs of the client, the specific opportunity. You’re navigating through how you’re going to help the client and the problems they have, and the solutions you’re going to bring to bear, and it’s more specific and more narrow. And so, I don’t know that it helps, but that’s how I would reconcile the three.

Jeff McKay:
So it’s an interesting point that you make there. In my experience, firms tend to get lost in value proposition development and start confusing those three levels. Somebody that may not be good at selling blames it upstream on a practice or the firm’s value proposition and therefore feels we have to rework everything above us. And when firms have trouble with value propositions, more often than not, it is because they’re confusing cause and effect. And that’s when things kind of get confusing, I think throughout the firm and potentially for clients as well.

Jeff McKay:
But you said something that struck me, and I wonder if we have listeners who are thinking the same thing, that you say a value proposition is something that’s offered externally. I would argue that a lot of firms and particularly firms that have multi-disciplinary capability, they’re developing value propositions internally. And particularly if those are types of firms that are structured around key accounts or account ownership, and they feel like individual partners or practices have to create a value proposition that speaks to the gatekeeper of their firm who has the relationships with a potential client.

Jeff McKay:
So all of a sudden, now you have two value propositions. Here’s what your client gets. Oh, by the way, here are the benefits to you, my partner, my coworker, for bringing me into your client. And now you’ve got this mix of value propositions that start to create more chaos.

Jeff McKay:
And I want to pivot here. We can come back to that if you want, but the question that firms often do not answer or don’t understand in my mind is the definition of value. We have this value proposition, what’s the value that we offer? But 9 times out of 10 people or firms don’t understand how clients, number one, define value and the weight or importance that they put on a particular definition of value. Would you agree? Do you have the same sense?

Jason Mlicki:
Yes. I’ll define value in this particular context as being a combination of problems and benefits, meaning that a lot of times they know what the client bought as a solution, but they’re not really clear on the central problem that the solution was bought for. And a lot of times they don’t have a complete context on the benefits of what was sold, and that’s ultimately, the derivation of value.

Jason Mlicki:
I mean, the one thing about value that we know from substantive research on value is that it’s entirely within the eye of the beholder. I mean, the old phrase, right? So that what is valuable to one client is not valuable to the next. And so ultimately, if you really are a value-driven organization, meaning that you’re trying to build a creative client value, then really the way that that value is determined is a function of the way that the sales conversation is had. So you can actually probably make the argument that the notion of a value proposition above a client level is virtually impossible because every client has a different set of value drivers. And that only comes out of a sales conversation, right?

Jeff McKay:
Can you say that again? Say that again for our listeners.

Jason Mlicki:
The definition of a value proposition is… I think if you look at the definition of the value proposition, it’s a market-facing thing. So I totally understand what you said about internal constituencies and the need to address that, especially in a really large complex firm, right? That makes total sense to me. But by definition, a value proposition uses the word customer for a reason, right?

Jason Mlicki:
So it’s targeting a customer, but every single client has different value drivers. And ultimately if you truly embrace value creation and value-based pricing as a firm, then the only way to do that properly is to have meaningful conversations about the value to be created, which ultimately is driven entirely by the client’s point of view on the value that they want to unlock. And so it’s extrapolating that out to a practice or a market technically is impossible because value is subjective.

Jeff McKay:
Yeah, but that’s the whole key and that’s where most firms I find go awry. They think, like an elevator pitch, that there’s a one-size-fits-all, or we can group it into kind of three overarching value drivers if you will. But it just doesn’t work that way and what might be of value with this client in this firm on this opportunity could be very different than how value is defined with the same company, the same firm, in a different opportunity. And that’s why the cascading down of those various propositions, the brand positioning, the value proposition, and the unique selling position are so important to understand in terms of the type of messages, the types of questions that are exchanged in those situations, and in each situation in each communication or interaction.

Jeff McKay:
When I work with clients, I find… And this is really hard for people to get, but if we really put ourselves into the shoes of a buyer, there are, I’ve found, three buckets of overarching value for business-to-business. Now, this is business-to-business, B to C is something totally different. But a firm is either going to… is trying to grow, so growth is one. They’re trying to increase profit, which means increase efficiency. So take out costs, increase production. So efficiency is a second bucket.

Jeff McKay:
And then the third is something I would call financial. It’s about having these assets tied up and having them produce more for every dollar invested. So, I mean, that’s reducing the cost of capital, increasing working capital, turnover of inventories, reducing AR, and any number of things related to financial management. But that is the starting point for every value proposition on a company in buyer-wide basis.

Jason Mlicki:
I agree with that. I mean, those are your three macro drivers. But just to make sure we’re clear, it’s revenue growth, it’s cost production efficiencies, which ultimately would lead to more profit on the same revenue. And the third is a macro group of financial things. So yeah, I conceptually agree with all three. It’s a good simple way to look at the world, right? To say, as a business, these are the three things that you can do, create value for your clients. Three ways you can create value.

Jason Mlicki:
One of the things I like to look at a lot is just problems. I see this all the time and you heard me say it earlier in this podcast. I just find so frequently, firms just do not understand the problems that their clients have, that they’re buying their solutions to solve. And getting to the heart of that to me is essential to defining any one of those things. Because a lot of times they think the solution is bought for one reason when it’s bought for a whole different reason, right?

Speaker 1:
You’re listening to Rattle & Pedal, divergent thoughts on growing your professional services firm. Your hosts are Jason Mlicki, principal of Rattleback, the marketing agency for professional services firms, and Jeff McKay, former CMO and founder of strategy consultancy, Prudent Pedal. If you find this podcast helpful, please help us by telling a friend and rating us on iTunes. Thank you. Now back to Jason and Jeff.

Jason Mlicki:
Yeah, just throwing out real quick, and I know we’re short on time, but is there a fourth one around risk reduction? Just, is that a fourth driver? Or does it lump into one of those other three? I mean, even right now, you look at like, there’s a lot of consulting services getting bought and sold right now around trying to reduce risk in the supply chain, reduce risk across the enterprise as it relates to what we’ve seen play out in a pandemic situation.

Jeff McKay:
Ooh, that’s a great point. I am just fascinated by the concept of risk and business risk in particular. And to me, you’ve hit on something very important in developing value propositions, and that’s, what’s your point of view or perspective on a particular issue. And I see this a lot with the SAS clients I work with because you have software providers who started out maybe in one particular feature or functional area and then build out from a modular perspective around that core. Then you have another software firm that takes one of the first firms modules, that was their core but now they’ve added on something that compliments that. So firms come at problems from very different perspectives.

Jeff McKay:
If you look at something like risk, you could argue that risk is the singular value driver, and you either want to reduce it or you want to identify it and exploit it. And when you’re reducing risk, in your example in terms of the supply chains, you’re really talking about managing your ability to produce income to achieve your goals. And some people will look at that and say, “Well, to reduce the risk, I need to diversify. I need to bring these in, or I need to change my part suppliers or have some backup part suppliers.” But the way you describe that, it’s just so critical.

Jeff McKay:
If you just look at something like growth, they’re going to be a lot of things standing in the way of a firm’s ability to grow or a company’s ability to grow. Some people may define it as, “Well, it’s a marketing problem.” Some people may define it as a sales problem, some may define it as a product or an R&D problem. The value that you’re going to offer on growth is going to come from your core capabilities and your point of view on growth through that lens. I don’t know that most firms think that way. They jump right down into as you said, “We’re an audit firm. We audit.” And I think, if you think about an audit, what is somebody buying?

Jason Mlicki:
Oh, are you asking?

Jeff McKay:
When a company buys an audit, yeah, what are you buying?

Jason Mlicki:
I think, ultimately, you’re buying assurance for creditors. You’re buying risk reduction for your creditors or you’re buying risk reduction for you as the owners and operators, that you’re looking for improprieties inside your system, right?

Jeff McKay:
Right. So you’re buying the ability to-

Jason Mlicki:
Buying the ability to borrow on one [inaudible 00:20:09].

Jeff McKay:
Borrow money, right? So you really, you could ostensibly not care about methodology or anything like that as long as the company who signs off on the audit says, “Yes, it’s okay to lend to this company.” That’s what you’re buying. You’re just buying the… You’re not buying any of that other stuff, just sign off on this. So when I need money, I could go get it. But if you said that to an auditor, they’d be insulted, wouldn’t they?

Jason Mlicki:
Well, they would. And it’s funny, it kind of brings me full circle and it may be it’s an interesting place to move to wrap, which is, it just reminds me of my opening story, right? That was my pushback to my son was, “I don’t care how fast it’s done. I don’t care how strong you are. I don’t care how hard you work. All I care is that it gets done correctly.” And so it was in that instance, he wasn’t thinking… He’s 12. He wasn’t thinking through, he wasn’t thinking about what are the drivers of value for me and why I’m hiring this task to be done, right? And I feel like that’s the same thing that happens in that audit story, right? Because they’re not thinking about why the client’s actually buying the audit in the first place.

Jason Mlicki:
It’s funny, and I’ll get us closer to close. Years ago, we do a financial review with our CPA every year, it’s not a full audit-audit, it’s some tier down from that. And we talked about this once and he really couldn’t articulate to me why I needed a financial review versus an audit versus nothing. He really didn’t have an answer to what the difference between one or the other was or why you might want it or not want it.

Jason Mlicki:
And like you said, to him was mostly about the cost of input. What are the inputs into the process for him? And what was that going to cost me in return? It wasn’t about why would I want one or the other? It wasn’t, “Well, you want an audit if you’re going to go raise capital, or you want a financial review, or if you want to apply for credit at your bank or…” That answer wasn’t at the tip of his tongue, which just goes back to your point of a lot of the practitioners, the delivery mechanisms of these services, the people that do this work just aren’t real clear on why the work is getting bought in the first place. They just know how to do it well.

Jeff McKay:
Well, they are doing what you say, they’re a solution in search of a problem. And for me, and this is maybe kind of a derivative of the definition that you gave earlier. But the simple way to think about a value proposition to me is, you have to fill in three blanks, we help whom, who’s your ideal client, and you have to get specific because as we’ve talked about, people look at growth, or efficiency, or risk, from very different perspectives. And you need to understand that ideal client and how they define the problem.

Jeff McKay:
And there will be a set of strategic CFOs, or strategic CIOs, or unstrategic CFOs, or CIOs, that will define problems differently and have different capacity for implementing certain types of solutions. So you have to get very clear on the ideal client. So you help what ideal client, two, and then fill in the value and be very specific about the value, grow, cut costs, reduce risk, and say it in their words, not your words. And the only way you’re going to know their words is if you’ve done the really hard work of understanding the client. Not a buyer persona, but the client themselves.

Jeff McKay:
And then the third is buy, we help ideal client to value buy, and you have to fill in the how, and how we’re going to do that. And if you can get that, you’ll be so much better than 90% of the firms, but I would caution two things. One, one size does not fit all. So you can’t speak that, that’s the top of the iceberg. There’s a lot more conversation as we said, brand positioning, value prop, unique selling, proposition below the waterline. And second, I know you have this, a list of words that should be avoided.

Jason Mlicki:
Well.

Jeff McKay:
[inaudible 00:24:24] adjectives, adverbs, and verbs that you shouldn’t use.

Jason Mlicki:
Do you want me to rattle them off?

Jeff McKay:
Yeah, I’d love to hear. Do you have some that you avoid?

Jason Mlicki:
Yeah. I mean, I have a list. I mean, it’s, clients that are on-time on-budget, partners, partnership, faster, cheaper, better, solutions. Actually, help. Help is a word that we try to avoid if we can because it’s a weak word. Doesn’t imply that you’re solving the problem. It’s sort of like, “You’re going to help me solve the problem. You’re not really going to solve it. I’d rather see you solve it once and for all.” It’s a hard word to avoid because to your point, it’s sort of baked-in to the way you frame a value proposition in the first place. That’s a short list, anyway.

Jeff McKay:
It is. Yeah. Yeah. That’s a great piece of feedback and you know why people put help in there, and because I agree with you that it is a weak word, but most firms say, “Well, we can’t do it on our own. We can’t come in here and just fix this and just do this. We need to work collaboratively to solve it.” So I get that. The word that I absolutely hate, hate, this is my number one word is strive. We strive to, because unlike help, it says, “We strive to. We never get there, but we strive to.” It is just the absolute worst word in a value proposition.

Jeff McKay:
Trust, trusted advisor, this kind of is like your partner and partnership. Never add trust to your value proposition. You don’t get to label yourself that way, just like you don’t really get to label yourself as thought-leader or industry-leader unless you have some proof point that says you are the leader, and the leader means the biggest more often than not.

Jeff McKay:
Integrated is another word. Clients don’t buy integrated. They really don’t. They might say, “Yeah, it was nice that you brought in this other practice and they helped out.” But they’re not buying integrated, they’re buying solutions. So world-class, state-of-the-art, cutting edge, those types of things. Try to keep as many adverbs and adjectives out as possible. Don’t use words like optimize, utilize. I don’t know. I can keep going. [crosstalk 00:26:51].

Jason Mlicki:
[crosstalk 00:26:50] the challenge is, what words can you use? And maybe closing thoughts would be just if you’re actually trying to derive a value proposition, you’re in the process of doing it, the thing I always come back to is, is simple is usually better. So anytime you’re using language that’s complex and requires extra cognition, is there an easier way to say it? Is there a simpler word, a word that’s more concrete, that’s simpler. I mean, I-

Jeff McKay:
What’s cognizant?

Jason Mlicki:
I know EBITDA was one that I went on with a client. It’s like, “Yeah, business owners don’t know what EBITDA is, but why can’t we just call it profit?”

Jeff McKay:
I don’t know what cognition is.

Jason Mlicki:
What, you don’t know what cognition is? I’ve said that about you for 84 episodes. On that note, we are well past our allotted time, so we do need to take this to wrap. This was really good. It was a combination of introspective and thinking about kind of concepts of value, concept of value proposition, and then also a little prescriptive there at the end. So hopefully listeners found value in both halves of the conversation in terms of the concept of value proposition, and then, of course, the practicality of deriving one. It pains me to say it, but you picked a pretty good topic today.

Jeff McKay:
Well, good. Good. And welcome back.

Jason Mlicki:
Talk to you next week.

Jeff McKay:
Goodbye.

Speaker 1:
Thank you for listening to Rattle & Pedal, divergent thoughts on marketing and growing professional services firms. Find content related to this episode at rattleandpedal.com. Rattle & Pedal is also available on iTunes and Stitcher.