Shaping Ideas

for Growth
The Guide



Version 1.0
by Paolo Paganelli Bluegreen Strategy 2014

- - ii
Copyright 2013 - 2014 Bluegreen Strategy s.r.l.
All Rights Reserved
No part of this publication may be reproduced, stored or
introduced into a retrieval system, or transmitted, in any form, or
by any means (electronic, mechanical, photocopying, recording,
or otherwise), without the previous permission of Bluegreen
Strategy s.r.l.


- - iii
Table of Contents

Introduction 7
Welcome to ValueMapp 7
Who should use ValueMapp 8
Why ValueMapp 9
Structure of this Guide 10
1. Overview 12
Motivation 12
Inspiring Principles 15
Key elements of a new business 16
The ValueMapp Process 21
Wrap up 24
2. Ideate 25
Customers 26
Needs 31
Features 36
- - iv
Barriers 38
Checking the product denition 40
3. Strategise 47
Competitors 47
Competitive Positioning 49
Strategy Revision 53
4. Implement 61
Business Models and ValueMapp 62
The Essential Business Model 65
Customer Acquisition Cycle 67
Value Exchange Cycle 73
Testing the Model 79
5. Validate 86
The risk of over-design 87
Assumptions to be validated 90
How to validate 93
Stay Up To Date 97
References 98
- - v



About The Author 100
Acknowledgements 101
- - vi
Introduction

Introduction
WELCOME TO VALUEMAPP
ValueMapp helps startups and established companies to
transform innovative ideas into successful products, fullling
customer needs and ensuring growth on the market.
While the importance of innovation is universally recognised,
many still think that successful new products result from a
combination of casual factors: uncommon intellect and
determination, being in the right place at the right moment,
getting sudden inspiration from trivial things, and so on.
We think differently: we believe that new ideas can be
developed and successfully brought on the market through a
structured strategy-driven process.
ValueMapp implements such a process, integrating various
concepts and tools into a coherent approach that goes from idea
conception to business model validation and revision. For each
stage of the process, we provide:
Dedicated methodological guides and examples,
Software tools for information collection, visualisation and
sharing,
Online consulting and training services.

- - 7
Introduction
WHO SHOULD USE VALUEMAPP
If you recognise yourself in any of the following user proles,
then you are welcome to try and apply ValueMapp to your case:
Entrepreneur
Entrepreneurs have a vision. An entrepreneur knows how his/
her product is going to change the world, and needs to put things
in motion to achieve that vision.
If you are an entrepreneur, ValueMapp can help you to:
Transform your vision into an actionable strategy,
Share the strategy with investors, partners and employees,
Validate the vision and strategy through direct actions on
the market.
Innovation Executive
Innovation executives have to ensure their companys long-
term prosperity through innovation. They manage investments on
ideas, technologies and skills to keep the companys product
portfolio competitive and up-do-date.
If you are an innovation executive, ValueMapp can help you
to:
Discover innovation opportunities,
Assess potential product ideas,
Evaluate market response to the companys innovation
strategy.
Product Manager
Product managers are the voice of the customer. Their role
is to translate customer needs into ideas and requirements for
product innovation.
- - 8
Introduction
If you are a product manager, ValueMapp can help you to:
Identify the products key features and barriers to
adoption,
Position your product versus competing solutions,
Validate the product implementation through feedback
from the customers.

WHY VALUEMAPP
Traditionally, innovation management tends to focus on
everything that happens after a new product idea has been
conceived, concentrating on implementation activities such as
product design, testing, marketing and business planning.
The ValueMapp process takes a different perspective,
introducing market-related aspects, such as value created for the
users and competitors positioning, since the early stages of
product conception. The goal is to help entrepreneurs, innovation
executives and product managers to drive innovation investments
towards products that are most likely to make a difference on the
market.
Furthermore, ValueMapp is an iterative process, allowing
companies to progressively rene the idea, strategy and
implementation while doing real business with customers. The
goal is to waste as few resources as possible on product features
that users do not need or do not want, and to avoid committing to
long-term business plans based on unveried assumptions.
What ValueMapp is about
ValueMapp is a set of operational tools for early-stage
innovators, who have to explore new markets and implement new
ideas quickly and efciently.
- - 9
Introduction
What ValueMapp is not about
ValueMapp is not about enterprise design, lling
organisational positions or redistributing yet-to-come prots. In
this, our approach is different from popular business modelling
and business planning practices.
Our users do not have complex companies to re-organise, and
they cannot follow blindly a long-term business plan. Our goal is
to help them to develop products that are immediately valuable to
the customer, and that can grow steadily on the market.

STRUCTURE OF THIS GUIDE
This guide is designed as a working instrument to help
innovators to put their ideas into practice. Explanations are
accompanied by essential examples, all built around the same
ctional business case. We have tried to limit as much as possible
academic references and theoretical explanations. Even case
studies are kept out of this guide book, for leanness sake, and will
be made available in a dedicated area at www.valuemapp.com.
Chapter 1 Overview provides the motivation and inspiring
principles behind ValueMapp. The overall process is described
and the main phases are presented, to be further detailed in the
next Chapters.
Chapter 2 Ideate deals with the initial phase of product
denition. Concepts and instruments are introduced to dene
product ideas referring to the customers needs, features and
barriers.
Chapter 3 Strategise deals with the formulation of product
innovation strategies. Concepts and instruments are introduced to
map the competitors offerings and to devise strategies for
differentiation on the market.
- - 10
Introduction
Chapter 4 Implement deals with translating a product idea
into an operational business model. Concepts and instruments are
introduced to describe how the business creates value and
acquires new customers.
Chapter 5 Validate deals with assessing a new business
potential through real tests on the market. An iterative validation
approach is presented to reduce the risks and wastes associated
with new products development.

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1. Overview

1. Overview
MOTIVATION
Developing innovative products and services is the key to
sustained growth in todays turbulent markets. The correlation
between innovation and growth has been assessed by recent
studies (see Figure 1 below) and it is valid for both startups and
consolidated companies.
Successful innovations allow entrepreneurs to start new
businesses in uncontested markets, the so-called Blue
Oceans (Kim and Mauborgne, 2005). One of the best-known
examples is Apple. By introducing iTunes over ten years ago,
Apple created a market for legally-downloaded music and media,
providing an easy and low-cost way to access digital content for a
vast number of consumers, as alternative to traditional media
distribution.
For companies operating in mature markets, innovation is
essential to reinforce relationships with customers and to defend
market shares against both traditional competitors and new
entrants. By launching the Wii in 2006, Nintendo introduced an
easier, more socially-engaging approach to game playing,
renewing its image and increasing its sales in an extremely
competitive market.
The Growth Champions group (growthchampions.org) has
recently published the results of an analysis comparing share-
value performance of the most innovative companies on the stock
- - 12
1. Overview
market, represented by two aggregate indexes - Innovation
Leaders Fund (ILF) and a BCG / Business Week Fund (BW),
versus conventional market indexes. The analysis results (see chart
in Figure 1) show that innovative companies have performed
signicantly better than traditional businesses over the last 10
years.

Figure 1 - Stock market performances of innovation leaders
1


While there is general agreement on innovation as an essential
vehicle to growth, there are clearly different views on how to
develop and assess innovative ideas. Traditionally, a fatalistic
approach to innovation prevails. Many seem to believe that
innovation simply happens, by some lucky strike of somebody
- - 13
Innovation Leaders, Tim Jones, Modeling the link between
1
innovation leadership and sustained growth, ISPIM magazine
11/2012 (http://magazine.ispim.org)
1. Overview
in the R&D department who has stumbled on the next world-
changing invention. This approach leads to two questionable
assumptions, or false myths.

False myth 1:
Innovation leadership is a matter of investment power.
A quite widespread opinion is that, to cultivate successful
product ideas, companies should spread investments in as many
directions as possible. Launching a variety of research and
innovation initiatives should increase the probability that
somewhere, sooner or later, the lucky strike will occur.

Conversely, high impact innovations are often born from
limited but focused initial investments, gaining rapid diffusion
through end-users appreciation and word of mouth. Skype
started this way, by selling voice-over-the-internet services as a
small startup, and forcing major telecommunication companies to
play as followers on this new market.

False myth 2:
Innovative ideas should come unconstrained by
market considerations.
Another common opinion is that the inspiration of skilled
researchers and technicians is by itself sufcient to generate
innovative products. Therefore researchers and innovators
should not be concerned with mundane aspects such as
competition and users adoption barriers.

Yet, more often than not, bleeding-edge technological
innovations have resulted in big failures on the market. Sony
pioneered e-ink technology and launched the rst e-book Reader
in 2006, never to achieve substantial market-shares. One year
- - 14
1. Overview
later Amazon launched the Kindle, from all technical viewpoints
an inferior product, and brought forward the e-book revolution.
An in-deep analysis of this case (Adner, 2012) reveals that, while
Sony focused on technology innovation per se, Amazon focused
on understanding the market and the users barriers to adoption.
Besides developing the Kindle product, the company created the
conditions for different players (publishers, resellers) to join in a
business ecosystem, with the ultimate goal to deliver a valuable
and accessible solution to the reader.

INSPIRING PRINCIPLES
Many research managers still consider innovative ideas as a
casual occurrence that cannot, and should not, be inuenced by
business considerations. Therefore traditional innovation
management approaches concentrate on how to intercept good
ideas and make the best out of them. For example, the popular
Stage-Gate

process focuses on everything that happens after the

idea is formulated, from idea assessment through market analysis,
prototyping and a number of other stages until product launch.
Only after its conception the idea undergoes some confrontation
with the market reality, through identication of customers and
business cases. Aspects such as user needs and barriers have no
inuence on the ideation phase itself.
Our viewpoint is different: we believe that innovation can be
systematically targeted and managed, to achieve sustained growth
for companies and tangible benets for consumers and the society.
Therefore our approach relies on two basic principles:
Innovation requires a strategic approach that
keeps specic targets in focus throughout the business creation
process, from research to product development and business
planning. This goes against the common belief that
- - 15
1. Overview
innovation is a casual, impossible to manage, factor. Ideation,
product development and business planning are often
presented as independent, sequential steps, based on the
assumption that successful ideas are born randomly, free of
business-related constraints. On the contrary, we believe that
successful innovations require an integrated strategy-driven
approach, encompassing all the steps to translate from idea to
marketable product .
2
Innovation must generate value for the nal user.
According to the Blue Ocean Strategy principles (Kim,
Mauborgne, 2005), value without innovation produces
incremental improvements on consolidated products and
markets, as such with limited growth potential. Conversely,
innovation without value tends to be technology-driven and
visionary with no link to concrete user needs, as such with
scant possibilities to be really applied. Therefore, research and
business creation efforts must be strategically oriented towards
those functions and product features recognised as valuable by
the user and differentiating from competition.

KEY ELEMENTS OF A NEW BUSINESS
To develop an innovative business idea, actually to develop any
new business, three essential elements are needed, as shown in
Figure 2.
The idea of product or service to be put on the market is the
starting ingredient of any business venture. The idea is also
- - 16
More often than not, the true disruptive power of an
2
innovation lies not in the features and functionalities of the
offering, but in the business models that encases the product or
service. (Anthony, 2008)
1. Overview
regarded as a most esoteric factor in innovation-related
literature. There is indeed a tendency to overestimate the ideas
impact in determining the success or failure of new business
attempts. Recently, business experts have started observing that
the product originality (e.g., a patented technology) does not by
itself ensure success in business . Conversely investing too much
3
on the product idea, considered original and thus able to sell
itself , has been observed as one of the primary causes of
business failure (Trias De Bes, 2008). It happened for example to
Sonys Betamax videocassette standard, introduced in 1975 to be
replaced in a couple of years by VHS, introduced later by JVC.

False myth 3: The irresistible power of the idea.
No matter how new and good an idea may look, it is almost
certain that somebody else has already had the same idea. In
most cases, the same idea is already on the market in some
form. For a few cases of breakthrough inventions that are able
to sell themselves, there are many more cases of entrepreneurs
who failed trying to deliver the next big thing. What is more
important is the shape if the idea, i.e., what makes it
distinguishable in the eye of the user.

The shape of the idea is the combination of technology,
service and business model features that will convince users to buy
your product. Finding the idea shape means dealing with the
motivations for a user to select your product over competition
offerings. This requires identication of the advantages the
product is able to bring into the users life, in terms of solved
problems and lesser costs. There are few technological
- - 17
Patents? You Don't Need No Stinking Patents!, Eric Sherman
3
on Inc. Magazine Apr. 2012, http://www.inc.com/erik-
sherman/who-needs-a-patent-innovate-to-succeed.html
1. Overview
breakthroughs that afrm themselves by radically changing the
life of the users. In all the other cases, it is necessary to work on
the shape of the idea to nd new solutions to common user
problems, or to make solutions available to a larger audience of
users. This is why successful innovators are often not the original
developers of the ideas they bring to success. Ray Kroc, founder
of Mac Donald, took the basic innovative idea from the
McDonald Brothers restaurant in San Bernardino, and shaped it
for country-wide, and then world-wide, replication (Kroc, 1977).
The idea implementation is the model selected by an
entrepreneur to implement the idea in a nancially sustainable
way. The implementation model is a way to put the idea into
practice through the usual elements of every entrepreneurial
activity such as nancial resources, technology, suppliers,
employees and partners. Typical business plans tend to focus
essentially on implementation dimensions (organisational
structure, funding, number of employees, branding and
marketing) applicable to any business, regardless of the idea or its
shape. In reality an implementation model, no matter how well
designed, cannot save a poorly formulated idea. Conversely, the
implementation model might result incompatible with the idea
even when this is well formulated. Let us consider the father of all
PDAs and ancestor of modern tablets: the Apple Newton .
4
Looking at todays growth of the tablets market nobody can deny
that it was a terric idea, technically innovative and potentially of
extreme value to users. Nevertheless, it never sold as expected and
it was discontinued by Steve Jobs after his return to Apple in
1997. The Apples PDA implementation was probably too
ambitious for the technology and market of the time, resulting in
- - 18
Newton, Reconsidered, Harry McCracken on TIME Tech,
4
June 2012, http://techland.time.com/2012/06/01/newton-
reconsidered/
1. Overview
dissatised users, e.g., for aws in handwriting recognition, and
too high prices. A few years later, Palm succeeded in the PDA
market with a cheaper, leaner device with no handwriting
recognition feature.

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1. Overview




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- - 20
1. Overview
THE VALUEMAPP PROCESS
As shown in previous Figure 2 the same idea can be shaped
into different products, and the same product can be
implemented through different models. What is important is that
the transition from one stage to the other follows a consistent
vision and strategy. For example, in trying to shape an apparently
promising idea we might discover that it does not differentiate
from competition or it fails to provide exceptional value to users.
Similarly, we might nd that a sound idea has no viable
implementation model under the current market conditions.
Therefore it is extremely important that the three elements
idea, idea shape and implementation are not seen as stages in a
linear process of business creation. Rather the process should be
an iterative one, in line with the Lean Startup approach
recently introduced by Eric Ries (Ries, 2011). The aim is to
progressively rene all elements in the business, reducing the risk
of wasting resources in products that customers do not want or in
unsustainable business models.
The ValueMapp process, represented in Figure 3, includes
four main phases:
Ideate means to specify the product idea, identifying the
target customers and their needs to be fullled. ValueMapp
provides support for describing the potential buyers of a
product or service, analysing their needs and identifying the
products features and adoption barriers.
Strategise means to shape the product idea, identifying
key elements of value for the customer and positioning the
product versus competing solutions. ValueMapp provides
support for translating an idea into an innovative proposition
that is appealing to the customer and clearly differentiates
from competition.
- - 21
1. Overview
Implement means to deliver the value proposition, by
building a business that is economically sustainable and can
grow on the value it generates. ValueMapp provides support
for dening how the business will acquire customers and
conduct a positive value-exchange with them.
Validate means to test if the product idea, strategy and
implementation are working as expected or if changes are
needed. ValueMapp provides support for identifying key
assumptions to be tested, and for assessing each assumption
using real implementation data.

Figure 3 - The ValueMapp Process


Ideate
Strategise
Implement
Validate
- - 22
1. Overview
Although the phases indicated in Figure 3 are rst executed in
sequence, and each phase includes sequential steps described in
the following Chapters, the process is fundamentally circular.
Iterations are not only possible but also necessary to rene the
idea, the strategy and the implementation based on validation
results.
Bringing an innovative product on the market means dealing
with uncertainties in a far greater measure than for a
conventional business. Uncertainty affects the key assumptions at
all levels: from the initial idea, to the identication of customers,
to the features and barriers that have to be addressed and how.
The purpose of the ValueMapp iterative process is to test as early
as possible these assumptions.
In any iteration the implementation must include key aspects
of the business, to be validated through direct interaction with the
users. Early implementations will be mostly limited in time and
scope, but they will allow verifying and revising the main
assumptions on the product idea, the strategy and the business
model.
The iterative revision process aims to progressively rene the
product, based on the feedback gained through focused
implementations. This reduces the risk of implementing products
that customers do not want, or of committing to a business model
that cannot sustain itself.
Many innovative businesses have been created in this way,
from Dropbox, whose founder developed an explainer video to
attract and get feedback from early adopters, to the Zappos online
shoes store. Zappos creator started without any logistics or e-
commerce infrastructure, but went physically to normal shops to
full each customer order. This allowed him to start building a
customer base and to gather insight about features valued by
customers, before going for a complete implementation.
- - 23
1. Overview

WRAP UP
Developing innovative products does not mean a light-bulb
ashing at the start, and then all the rest is business as usual.
Instead an integrated process is needed, ensuring consistency of
the business idea, strategy and implementation, and allowing
revision of previously made assumptions.
The bad news is that original self-selling ideas are hard to
come by, and betting too much on the idea is a sure pathway to
failure. The good news is that there is much more to innovate
besides the core product, since most of the value perceived by
users depends on the way we shape and deliver the idea.
The ValueMapp process can help you and your organisation
to dene, shape and implement innovative product ideas. For
each phase in the process the following Chapters provide
methodological support, based on state-of-the-art tools and
frameworks, and examples on how to apply the process in
concrete cases.

- - 24
2. Ideate

2. Ideate
The initial phase of the process is where new product ideas
are dened, including four main elements.
Target customers have to be identied in unambiguous
terms. For innovative products, these customers often do not
reside among our best buyers. Rather, we probably have to look
among the non-consumers, i.e., the ones whom we are not used
to consider as potential customers, and the overshot customers,
i.e., the ones showing signs of tiredness and disaffection for our
current offering.
Then we have to try and identify unaddressed user needs
representing opportunities for our product, i.e., where it can
perform a useful job that is not satisfactorily addressed for a
certain customer under precise circumstances.
Third, we have to nd out the main objectives the customer
has when looking for a solution to that particular problem. These
will represent the main features to be included in our solution in
order to look attractive.
Fourth, we look at the barriers that customers face in trying
to solve the problem with existing products. Together with the
customers objectives, barriers represent an important element for
shaping our value proposition and to try and distinguish from
alternative solutions.

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2. Ideate
CUSTOMERS
Customers are the targets of our value proposition. They are
categories of users whose needs we are able to identify and satisfy,
and who represent the better opportunities for product
innovation.
When looking for innovative value propositions, conventional
market research can be of little help. By surveying those who
already buy our product, or similar products, you will learn that
they want more of the same, for less. Or we will learn the
specic requirements of restricted users communities, suggesting
specialised product versions. This might grant us a temporary
advantage on competitors in specic market niches, but it will not
last. Segmentation does not make the overall market any bigger.
Product enhancements suggested by our most enthusiastic
customers are likely to be irrelevant to the mass of potential
buyers.
Instead of segmenting our current market or interviewing our
best customer, the attention should be focused on those who do not
buy the current solutions on the market. These non-customers
belong to two main groups:
Unexplored customers. These are customers sitting
outside the market boundaries, as they are currently dened.
In other words, these customers are outside the current target
of our products and our competitors products. These out-of-
target customers have needs that might be addressed by our
companys solutions, but they have never been explored as
such.
Overshot customers. These are the ones to whom
current solutions are too much of a good thing.
Overshooting happens when users manifest unwillingness to
buy improved products or new versions of a product. This
- - 26
2. Ideate
does not mean that the customers reject the product: they are
aware of it as a solution to their needs. Overshot customers
are simply unwilling to bear the extra cost and burden for the
offered improvements.

Sample case: Nintendo Wii
TM
In the game consoles market, both Sony and Microsoft are
used to compete on advanced features such as graphic
performances and online gaming to appeal expert players.
Playstation 3
TM
and Xbox 360
TM
of course thrilled power
users. For the average users, advanced graphics and more
complicated gaming were not such a thrill. These are the users
targeted by the Nintendo Wii
TM
, designed to simplify gaming
and make it a social experience, involving family and friends.
These overshot customers have been the main targets for the
successful market launch of the new console.


Dealing with non-customers
By looking into the two groups of non-customers,
opportunities for innovative products and services can be spotted:
Unexplored customers constitute a completely new market.
Their needs are currently addressed by radically different
solutions from our products and services. Not only the customers
are unknown, even the competitors are different from those found
in our traditional market. Through an analysis of the customer
needs it is possible to spot opportunities for our product to enter
this new market. An opportunity is there if the product, although
different, appears as a valid substitute of solutions currently used
by the customer.
- - 27
2. Ideate
Overshot customers offer opportunities to apply Disruptive
Innovation strategies, of two kinds:
Innovating in different directions. Overshot customers are ever
less responsive to functional or technical improvements aiming
to provide above the average performances. In such
circumstances there is room for new products with good
enough performances but innovating along previously
overlooked directions. This is the case of the Wii
TM
: the
product was conceived for customers who, while not caring
much for technological excellence, were looking for an easier
and funnier gaming experience.
Lowering the barriers to adoption. Whenever overshot
customers appear, there is a chance to offer them good
enough performance at lower cost and/or greater
convenience. In this case innovation should focus on
technology and business model improvements aimed at
reducing the cost and increasing the accessibility of our
product.

Example
Our company is a manufacturer of electric cars. The current
target market can be dened as: drivers caring for the
environment and with sufcient motivation and funds to accept
the high cost and limits of electric cars (short driving range,
recharge time, lack of recharging stations).
The market is showing signs of overshooting: new car versions,
with improved batteries, higher speed and new luxury features
are not selling as planned.
Looking at non-customers, two opportunities are identied:
- - 28
2. Ideate
City dwellers who are not car owners. These are people living
in downtown areas who for various reasons (no parking
space, trafc restrictions, cost) use other transport means
like bicycles, scooters and public transport. These are
unexplored customers that might be attracted to the electric
car, provided this product becomes a valid substitute for the
other urban transport means.
Family car owners who would buy an electric car but are
restrained by the cost and convenience hurdles. These are
overshot customers, as clearly no improvement in batteries,
speed or new features is sufcient to attract them towards
buying an electric car. The only way to approach this
market would be to signicantly lower barriers to adoption:
cost, recharge time, lack of recharging stations.

Capturing non-customers: Disruptive Innovation
The concept of Disruptive Innovation, as introduced by
Clayton M. Christensen (Christensen, Raynor, 2003) consists in
disrupting an existing market by providing cheaper, more
convenient and easy-to-use products. This is opposed to
sustaining innovation, which is based on functional
enhancements, i.e., implementing ever more sophisticated
functionality that would further restrict the audience of potential
buyers.
As shown in Figure 4, average customers acceptance (dashed
line) grows at a slower pace than technological innovation (dotted
line). This reduces the population of potential buyers of
functionally improved products. New product versions will attract
only a limited number of top-demanding customers, the rest
being overshot customers.
- - 29
2. Ideate
Disruption consists in using existing technology to offer good
enough functionality with lower price and higher accessibility,
thus making the solution accessible to a larger population of
users. The key to disruptive innovation is lowering adoption
barriers. In this way, an increasing number of customers can be
captured (continuous line) who nd the available products too
complex or unaffordable.

Figure 4 - Disruptive Innovation



t
Performance
/ Functionality
Technically possible
innovation
Innovation accepted
by users
Disruptive
innovation
Overshooting
Functional improvements
for top demanding customers
Disruption
Make basic functionality
available to average
customers
Number of users
distribution
- - 30
2. Ideate
NEEDS
Having identied the target customers, the next step is to
specify what our product does for them. Customers do not buy
products, they look for solutions to their problems. To dene new
products and services, we should try and identify jobs that users
are not able to get done satisfactorily with current solutions on the
market.
The job-to-be-done concept is a well-known tool in
innovation management, introduced by Christensen and Raynor
in The Innovators Solution (Christensen, Raynor, 2003). A job
is made of three elements:
The customer is a precisely identied typology of user
who is trying to solve a fundamental problem, related to his/
her own specic objectives and motivations.
The problem is a precise need experienced by the
customer, currently unaddressed or not satisfactorily
addressed by existing solutions.
The circumstance further delimits the scope of the
solution in terms of where, when and under which
conditions the need has to be addressed.
Basically, to apply these concepts for our product denition we
have to go through four main steps:
First, target customers have to be identied in
unambiguous terms. For innovative products, these customers
often do not reside among our best buyers. Rather, we will
probably have to look among the unexplored customers, i.e.,
the ones whom you are not used to consider as potential
customers, and the overshot customers, i.e., the disaffected
ones who should be targeted by Disruptive Innovation (see
above).
- - 31
2. Ideate
Then we will have to try and identify unaddressed user
needs representing opportunities for our product, i.e., where it
can perform a useful job that is not satisfactorily addressed for
that customer in those circumstances (see next Example).
Third, we should nd out the main objectives the
customer has when looking for a solution to that particular
problem. These will represent the key Features to be included
in our solution in order to be suitable to target customers.
Finally, we will look at the Barriers that customers face in
trying to solve the problem with existing products. Together
with the Features, barriers represent an important element for
shaping the value proposition and to try and distinguish from
alternative solutions.
The product denition process is outlined in Figure 5.
- - 32
2. Ideate
Figure 5 - Product Denition Process




Unexplored
Overshot
customer
Who are the target
customers?
Which problem is
the customer trying
to solve?
Which features
does the customer
expect?
Which barriers limit
current solutions?
Product Definition
Need
Circumstance
Functional
Features
Non-
functional
Features
Cost,
Skill
Accessibility,
Time
- - 33
2. Ideate
Example
Having identied the target customer, the next step is to state
with precision what problem the customer wants solved.
We must identify a need and the circumstance when the
customer experiences that need. A sufcient level of detail is
required to pinpoint needs that are not too generic, but clearly
indicate an opportunity for new products development.
Coming back to our electric-car manufacturer, let us consider
the needs of the target customer City dweller. A basic
mobility need can be expressed as in the following Table 1:

Table 1 - Initial job denition

Of course the need for efcient mobility is still too generic. We
can then distinguish between mobility within the city and
outside, e.g., for vacations or business trips, in Table 2:

Table 2 - More job denitions

Customer Need Circumstance
City dweller needs to move efciently
Customer Need Circumstance
City dweller needs to move efciently in
the city
City dweller needs to move efciently
between cities
- - 34
2. Ideate
We still have not looked at the Circumstance, which is essential
to precisely dene jobs. We can spot very different
circumstances related to in-city mobility, for example: going to
the ofce and back is different from moving in the city for
leisure, social and family-related activities. Similarly, moving
from and to the city may happen for vacations or for business,
and these are rather different circumstances. These different
jobs are shown in Table 3.

Table 3 - Detailed job denitions

We have so far identied four jobs that will be the starting point
of our analysis. The following step will consist in going into
more detail on the needed features and the barriers to be met
by our product.


Customer Need Circumstance
City dweller needs to move efciently in
the city
for going to the ofce
and back
City dweller needs to move efciently in
the city
for leisure, family and
social activities
City dweller needs to move efciently
between cities
for business trips
City dweller needs to move efciently
between cities
for vacations
- - 35
2. Ideate
FEATURES
Product features are the criteria users adopt to evaluate
solutions to their problem. The needs analysis indicates which
problem the user wants solved, while features describe how it
should be solved.
Having identied a customer, need and circumstance for a
potential new product, the next step consists in identifying the
product functional and non-functional features. These features
are those that a customer will expect to nd in our product, as
well as in our competitors products. There are two main
categories of features to be considered for a new product
denition:
Functional features describe the product itself, in terms of
functions provided to the user. Functional features are the key
elements your product includes to perform a certain job. In
the case of an electric car functional features are, for example,
number of seats or infotainment system.
Non-functional features describe criteria to evaluate the
product versus other solutions for the same job. Typical non
functional features are related efciency, performance or
accessibility. In the case of an electric car these include, for
example, speed and driving range.
The list of features should not be an exhaustive product
specication. Rather, only essential features should be identied,
i.e., those that really matter to the user and that can be used to
differentiate your offer from competition.


- - 36
2. Ideate
Example
Let us consider the two needs previously identied for in-city
mobility. The needs can be fullled with rather different lists of
features, which would lead to different product denitions.
When moving from the ofce and back, a city dweller will need
transport for him/her alone, will want not to care about the
trip but possibly do something else (work, read, call on the
phone), will need xed start and arrival times and will need
connections between residential areas and ofce locations. As
non-functional features, punctuality and reliability are essential,
but of course our worker will not want to invest too much time
(speed) and money on the trip. Hence the features can be
dened as follows:
Job
City dweller needs to move efciently in the city, for going to
the ofce and back
Features
Mobility for one person
Perform other activities while moving (work, read, phone
calls)
Regular transport (xed time and duration)
Connect residential areas with ofce districts
Punctuality
Speed
Reliability
Low cost
When moving for leisure, social and family-related activities,
our city dweller will need to carry friends or family members,
- - 37
2. Ideate
will move some cargo like shopping bags or luggage, and will
want the maximum exibility about where and when to go. As
immaterial features, the user will care for speed and efciency
of transport but also for the possibility to have the transport
means customised to his/her preferences. These include user-
specic needs and personal inclinations, even of immaterial
nature, like adhering to certain fashions and life styles.
Job
City dweller needs to move efciently in the city for leisure,
family and social activities
Features
Mobility for more persons and small cargo
Flexible transport (user decides time, duration can be
variable)
Connect any place in the city
Speed
Efciency
Customisation
As we can see apparently similar needs, when looked at from
the users point of view, have very different set of features.
These will translate into very different product denitions.

BARRIERS
Barriers are constraints preventing the customer to adopt
some existing solutions to address a certain need. As for features,
it is important to list the main barriers to be faced by solutions to
our selected need, as these will be crucial in determining our
ideas success or failure.
- - 38
2. Ideate
Barriers make current solutions inadequate for a certain
category of users, and thus make them non-customers. Barriers
typically fall into four categories (Anthony et al., 2008):
Skill barriers. User does not buy because he/she lacks
prerequisite skills.
Cost barriers. User does not buy because available
solutions have prohibitive costs.
Access barriers. User does not buy because current
solutions are unavailable in certain locations or contexts.
Time barriers. User does not buy because the solution is
too cumbersome or time consuming.

Example
Let us consider the job to move citizens for leisure, social and
family-related activities. This job might be performed best by
private transport means, like motorbikes, cars and bicycles. But
private motorised transport has to face signicant barriers,
since downtown circulation of these vehicles is forbidden in
many cities. Furthermore, parking space is normally limited
and very expensive, that may prove a signicant barrier for city
dwellers to own a car, or even a scooter. These are clearly access
barriers.
On the other hand, electric vehicles can be granted access to
city centres as non-polluting vehicles. Nevertheless, there are
currently very few recharging stations available for electric
vehicle owners. This is an access barrier of a different nature,
affecting only this type of vehicles.
Furthermore, current electric vehicles are very expensive. This
cost barrier may discourage the majority of potential buyers.
Hence the barriers can be dened as follows:
- - 39
2. Ideate
Job
City dweller needs to move efciently in the city for leisure,
family and social activities
Barriers
Trafc limitations in downtown areas
Parking space unavailable
Recharge station unavailable
Cost
As we can see, barriers represent both constraints and
opportunities. On the one side, our electric car we will have to
deal with the parking, cost and recharging problems. On the
other side, our product would be favoured by trafc regulations
on conventional motorised vehicles.

CHECKING THE PRODUCT DEFINITION
To check if our product denition is sufciently clear and
consistent before proceeding to strategy formulation, we should
be able to answer two basic questions.
Who is the customer?
The rst question is who is the customer?, aimed at
checking that we really have taken into account user problems to
be solved.
As shown in the Figure 6, there are at least three wrong
answers to this question:
Wrong answer 1: Everybody is.
Why, our technology is so powerful and exible that almost
every user in every market will nd it useful. For example
- - 40
2. Ideate
Stop there: nancial investors, banks, but even your friends
and family did not ask for examples. They want precise
indications about whom you are selling to, and what.
This is a symptom of lack of focus: you still have an
undeveloped idea or no idea at all.
Wrong answer 2: Our clients client.
We do not sell to the nal user. Thats Company XYZs
problem, where XYZ is the business partner who is supposed to
buy your product for its own customers. In the case of electric
cars, we might be looking up to some major automotive company
to take care of the hard job of selling the product to the nal
users.
In this case, investors will move forward to Company XYZ to
assess the potential of your technology or product. You manage
technical resources, know-how and capacity, but XYZ manages
the relationship to users and this nally determines the value of
your product.
You lack a user-facing innovation strategy for your product:
try looking at the problem from the nal user perspective.
Wrong answer 3: Our customers are individuals living in
cities, with spending capacity ranging from X to Y and a
predisposition towards environment protection.
You picture a market populated by demographic categories,
but real customers problems are hardly determined and
constrained by the category they belong to.
Do not start by segmenting the market, start by identifying
common problems that users want to be solved regardless of their
marketing classication.

- - 41
2. Ideate

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- - 42
2. Ideate
What will the product do for the customer?
The second question is what will the product do for the
customer?. The question is aimed at checking whether we have
pinpointed the product denition clearly enough to go forward
with the idea.
As shown in the Figure 7, there are at least two wrong answers
to this question:
Wrong answer 1: We provide a full suite of modules that can
be congured and tailored to match every customer need.
Module 1
Stop there: any candidate user at this stage will start
wondering about your product features and how they t the
problem he/she is trying to solve. This should be your task.
By introducing your product in terms of functional or
technical components you are stating your lack of knowledge or
lack of consideration of the customers problem.
Wrong answer 2: We will diffuse a new concept that will
revolutionise the sector.
Nobody is against innovation, and every listener will support
your attempt to revolutionise the sector. But if the listener is a
prospect customer, he will start asking himself why he should be
the one funding the upcoming revolution. The only valid
motivation would be that the new concept does the job and meets
the customer objectives.
But even in this case, innovation per se is not the aspect to be
emphasised to customers. Quoting famous author Nicholas Carr:
Just because we continue to see new innovations, it does not
mean that it pays to be pioneers (Carr, 2003).

- - 43
2. Ideate



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- - 44
2. Ideate
Example
In our electric car example a clear and consistent product
denition starts from the identication of the customer and
his/her need, and is completed by the identication the main
features provided and the key barriers that we will lower or
remove (Figure 8).

Figure 8 - Product denition example


Looking at the above example, we should observe the following:
The customer is the starting point of the product denition.
It is not identied in generic or demographic terms, but
rather as an individual experiencing a precise need that our
product addresses.
The product is not described in terms of technology,
functions or components. Instead, the denition states
which objectives of the customers are met by the product
- - 45
2. Ideate
(features) and how it makes it easier for the customer to
address his/her need (barriers).
- - 46
3. Strategise

3. Strategise
The second phase in the process is where the products
innovation strategy is formulated, including two main elements.
Competitors solutions have to be identied and
described in relation to the job that our own product is
planning to perform for the users. A mapping of the marketplace
in terms of available solutions is required, focusing on the user
needs rather than on the competitors' technology, marketshare or
corporate performances.
Then our competitive positioning has to be dened
through a number of key characteristics that are valuable for the
user and differentiate our product from competition. This can be
done by comparing key features and barriers with competing
products, to explore alternative differentiation strategies.

COMPETITORS
Competitors are existing products or services alternative to
our own. Competitors represent the available alternatives for the
customer to get a certain job done.
No matter how innovative you think your idea is, it is very
unlikely that it addresses an entirely new or unfullled need. In
most cases, the users will have already found an alternative
solution to get the job done. Often these solutions will be based
- - 47
3. Strategise
on different approaches and technologies from the one you
propose, but this makes these solutions competitors nevertheless.
In some circumstance it might appear that the need is really
unfullled, since solutions for it are not present on the market. If
this appears to be your case, take a more careful look: in most
cases solutions are technically feasible, but they are not present on
the market since cost and access barriers are too high to motivate
the investment on the customer side.
As a rst step to dene your innovation strategy, you should:
List competing solutions, i.e.: the set of common
solutions currently used to get the job done.
Position your solution against competition, thereby
identifying the arrival point of your innovation strategy. This
can be done by mapping your and your competitors solutions
against the key Features and Barriers identied in the Ideate
phase. Graphical tools, such as the Strategy Canvas
proposed as part of the Blue Ocean Strategy (Kim and
Mauborgne, 2005), can be used to this purpose.

Example
Lets get back to our electric car idea. We have previously
identied a number of jobs this product could do for the user.
One of these is:
City dweller needs to move efciently in the city for leisure,
family and social activities.
Looking at this particular job, we can easily identify competing
solutions of the electric car. Our target user, the city dweller,
can go to the ofce and back:
by conventional car,
- - 48
3. Strategise
by public transport,
by bicycle,
by motorised scooter.
All of these are potential competitors of our electric car
offering. They are rather different transport means, each with
its own pros and cons when looked at from a particular user
perspective.
It is important that we take into account all of them, with no
preconceptions on certain solutions being too different and
therefore not comparable with our own. Remember: the
customer does not buy a product for its technology or design.
The customer is looking for the best way to solve a problem,
regardless of the products used to get the job done.

COMPETITIVE POSITIONING
Competitive positioning means assessing a product's relative
performance versus its competitors. The aim is to check our
standing on the market, and to identify which features and
barriers to invest upon to improve our product.
Once we have identied the customer needs and the
competing alternatives to our solution, we have to dene the key
factors on which to build our innovation strategy.
We will call these factors value attributes and, following the Blue
Ocean Strategy approach proposed by W. Chan Kim and Rene
Mauborgne, we will use a simple but powerful graphical
representation to describe our strategy with reference to these
attributes.
The Blue Ocean's authors propose a simple two-axes
diagram, where:
- - 49
3. Strategise
The horizontal axis captures the key value attributes, i.e., the
range of factors characterising the different solutions on the
market. We should select those factors that, according to our
judgment, are the important ones to be taken into account for
strategy formulation. As we will see later on, the range of
attributes may change as we revise and rene our strategy. As
a starting point, we should use the previously identied
Features and Barriers for our product (see previous Chapter 2
Ideate).
The vertical axis captures the attributes relevance for users
and for competitors on the market. For features, a high score
means that the solution offers buyers more performances,
since the solution's provider has invested more on that
particular attribute. For barriers, a high score means a higher
resistance to adoption due to that particular attribute.
This simple diagram captures the current state of play in the
known market space. It tells us where the competition is currently
investing, i.e., which product features are provided and which
barriers are addressed by solutions on the market. It also tells us
what value customers are able to get from the existing offerings,
and which attributes are missing or not properly addressed in
current products.
By mapping our product's features and barriers on this kind
of diagram, we can position ourselves versus existing competitors.
The positioning can then be iteratively revised, to show the
impact of strategy changes on any of the attributes. These
changes are meant to answer four basic questions:
Which of the attributes that the industry takes for granted
should be removed?
Which attributes should be decreased, i.e., given less
relevance than what they have in competing solutions?
- - 50
3. Strategise
Which attributes should be increased, i.e., given more
relevance than what they have in competing solutions?
Which attributes should be added, i.e., new elements in our
offer that are not available in competing solutions?
In each step in our strategy denition process we take
decisions about taking one or more of the above actions, at the
end resulting in one focused, distinctive and clearly motivated
strategy.
By highlighting the actions taken on each attribute, we can
easily verify and communicate the main innovative elements in
our strategy.

Example
Figure 9 is an initial positioning diagram for our electric car
product, based on the features and barriers previously
identied in the examples presented in Chapter 2. As discussed
in the previous example, our product has various competing
solutions, ranging from traditional cars to public transport
services.

- - 51
3. Strategise

- - 52
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STRATEGY REVISION
Competitive positioning is the starting point for revising our
product strategy. By looking at the current positioning we can
assess whether the product denition is sufciently clear, so as to
be easily communicated to customers, and whether it clearly
differentiates from competition. If we are not condent about
how our product meets these criteria, then the strategy should be
revised by acting on the value attributes.
To assess our strategy formulation, we should try to answer
two basic questions:
Who are the competitors?
The rst question to be answered tries to nd out whether we
really have looked at the overall market position of our products,
and at existing alternative solutions.
As shown in the Figure 10, there are at least two wrong
answers to this question:
Wrong answer 1: We are so innovative, that there is actually
no competition. We will beat any competitor hands down.
This is not what has been asked. If your solution addresses a
customer need, there are likely existing solutions available on the
market. Or there are technically feasible solutions that have not
been implemented by users because of too high barriers to
adoption.
Try and look at what is being offered as alternative to what
you are planning to do for the customer.
Wrong answer 2: We are so well positioned in our current
market that the competitors will not be able to enter.
Your current market does not exactly correspond to the new
product market. The new solution will probably nd competitors
- - 53
3. Strategise
that you have never faced before, and a protectionist attitude will
not solve the problem.
Try and look at your market in perspective, determining the
potential population of users for your solution, the alternative
solutions and their maturity.

- - 54
3. Strategise




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- - 55
3. Strategise
How do we differentiate?
The next question to be answered is how our product is
expected to beat competitor solutions, i.e., which is the core of
our innovation strategy.
As shown in the Figure 11, there are at least two wrong
answers to this question:
Wrong answer 1: We completely innovate the technical
foundations for this kind of products.
You have not been asked how you will innovate, i.e., what
kind of technology improvements you will implement. The
question is about what, i.e., what improvements your product
will bring in the users life.
Re-think your innovation strategy in terms of user-relevant
performance improvements.
Wrong answer 2: We will do what our competitors do, only
better.
If you are looking at innovation as a way to grow by creating
new business opportunities, imitation is not the right approach.
Instead, you should look for performance attributes that are
overlooked by your competitors, for other attributes that are paid
too much importance, and for new features that are absent in
current solutions.
You should revise your strategy looking at what attributes you
can add, remove, increase or decrease.

- - 56
3. Strategise

- - 57
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Example
Looking at our competitive positioning as shown in Figure 9,
we can see that the main competitors, features and barriers
have been identied, and that we have an overall idea of what
our product is going to do for the customer.
Nevertheless, we still do not have a convincing answer to the
differentiation question. Our current positioning looks very
similar to that of traditional car vendors. We sell vehicles
similar to normal cars, only greener and more efcient.
Such a proposition will appeal to customers who would buy a
car anyway, but who are overly concerned with the
environment and can afford the cost and burden of owning,
parking and re-charging such a vehicle on their own. This
signicantly reduces our target customers population.
To attract more users we should look at other mobility
solutions, completely different from the car product but
performing the same job for our target users. These solutions,
as previously identied, include personal mobility vehicles like
scooters and bikes, as well as public transport services like
subway and buses. By looking transversally at the features and
barriers addresses by these different solutions we can guess at
what should be added, removed, increased or decreased to
improve our strategy focus.
For example, we should aim at removing the xed costs and
burdens associated to owning a personal vehicle, but still
allowing independent use of the vehicle to the individual
customer. In this way the level of exibility would be slightly
reduced but still it would be much higher than for public
services. While offering higher freedom of movement and
availability than subway and buses, we should have lower costs
per trip than taxi services. Finally we should add new value
- - 58
3. Strategise
attributes in the form of assistance and maintenance services,
aimed at simplifying the life of users who wish to be
independent drivers but without the hassle of nding parking
places and recharging stations on their own.
The result is a new competitive positioning, shown in Figure
12. The changes in strategy are reected in deleted, changed or
new value attributes, highlighting where and to what extent we
differentiate from competing solutions.

- - 59
3. Strategise





- - 60
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4. Implement

4. Implement
Implementing an innovative product idea means organising
the activities and resources necessary to bring it on the market,
with the aim to set up a sustainable business.
We may consider such an endeavour as a startup, according to
the denition given by Eric Ries in The Lean Startup (Ries,
2011):

A startup is an organisation creating new products under
conditions of extreme uncertainty.

This denition applies to any new business based on an
innovative product, either implemented by a new organisation or
by a dedicated team within an existing organisation. For an
innovative startup, implementation must deal with uncertainties
in a far greater measure than for conventional products.
Uncertainty affects the main decisions at all levels: from the
initial idea, to the identication of customers, to the features and
barriers that have to be addressed and how. Each of these
decisions may determine the business success or failure, and for
new products most of these decisions represent leap of faith
assumptions. This means that these assumptions will be rst
validated when we launch the product on the market. Until then
our decisions are based on theories, on subjective opinions and on
our faith in the idea.
- - 61
4. Implement
For example, we assume that our electric car business will
attract customers for its convenience: owning a personal vehicle
without the hindrance of parking and fuelling it. But will it
happen for real? Will the customers buy into this value
proposition? Will we be able to deliver what we promise in
economically sustainable terms?
Implementation will have rst to answer these questions,
before dealing with more conventional management and business
administration issues. It would be very risky, for example, to set-
up an investment plan to acquire facilities in major cities without
having rst veried the attractiveness of our idea for the
customers. It would be even more risky to launch a recruitment
campaign to ll-up organisational roles and functions based on a
long-term business plan, which relies on many unveried
assumptions.
Therefore our approach is not based on conventional
management models and business planning techniques. These are
surely well suited to predictable businesses, with limited
uncertainty, but do not help us to focus on the relevant questions
posed by a startup business.
To this purpose we will use a rather high-level view on
implementation, sparing the details and highlighting the main
assumptions behind the business idea. This is the purpose of the
Essential Business Model, explained in the following pages.

BUSINESS MODELS AND VALUEMAPP
Business Modelling is a recent discipline that is rapidly
attracting interest from entrepreneurs, managers and consulting
professionals. It basically consists in laying down the blueprint of
a business, describing its key components and their relationships.
The goal is to explain how the business is structured, which
- - 62
4. Implement
relationships are established within and outside the organisation,
and how value is created for customers, shareholders and
employees and for the community in general.
Business Models can be built for various purposes, but mostly
they are used for what experts in this area call enterprise
engineering. By looking at alternative business models, even
from different sectors, entrepreneurs and managers can decide
how to change their organisations to make them more
competitive. The popular work by Osterwalder and others
(Osterwalder and Pigneur, 2010) supports this approach,
providing a canvas of business model elements, subdivided by
categories, and a library of business model innovation cases.
Our point of view is different. We are building a new business
around an innovative product idea, not re-designing an existing
organisation. Our concern is to check whether the idea can be
transformed into an economically sustainable business.
In these conditions both the product and the organisation
delivering it are new, that is, are substantially different from
existing products and organisations in the same market.
ValueMapp is an integrated process to address product and
organisational innovation, dealing with uncertainties coming from
both sides, whereas Business Modelling tools such as the
Osterwalder canvas are more focused on organisational
innovation. On the other side, innovation management
approaches, like the Blue Ocean Strategy, focus essentially on new
products introduction. If there is no innovation, either on the
product or on the organisation, then traditional Business Planning
techniques can be used, since there are theoretically no sources of
uncertainty to be dealt with.
Each of these different situations and the corresponding tools
are represented by the quadrants in Figure 13. It is important to
observe that in reality these different approaches are
- - 63
4. Implement
complementary, as they address different situations during an
organisations lifetime. A successful new business will probably
start in the top-left quadrant, experimenting both new products
and business models, and will manage its growth process through
accurate Business Modelling and Planning. An established
company will seek new products through Innovation
Management. This may require organisational innovation as well,
starting up a new cycle from the top-left quadrant in Figure 13.

Figure 13 - Business Modelling, Business Planning and ValueMapp



New
Product
Conventional
Product
Conventional
Organisation
New
Organisation
ValueMapp
Product
Innovation
Business
Planning
Business
Modelling
- - 64
4. Implement
ValueMapp deals with the initial stages of a new business,
when there is still extreme uncertainty and it is not possible to
design each and every detail of the organisation. Not all of the
organisations details have the same importance and not all of
them are known beforehand. We wi l l l ear n duri ng
implementation which business model elements (resources,
activities, partners and so on) are really important, and how they
contribute to the business success.
For example, we might decide at design time that our business
deserves a specialised high-tech manufacturing plant, labelling
this as key resource. For a new business, this will be a
tremendous investment, draining most of the startup resources.
As alternative, we might outsource manufacturing, nding a key
partnership. Would the impact on the product be perceived by
the customer? Would this affect our value proposition? We cannot
know for certain, but either choice will be hard to reverse once
taken.
This kind of decisions should be postponed to later
implementation stages, after the business idea viability has been
assessed. To this purpose we propose a more synthetic
representation of the business, that we call the Essential Business
Model.

THE ESSENTIAL BUSINESS MODEL
The Essential Business Model has the purpose to highlight the
key assumptions underpinning our business idea. These
assumptions are the hypotheses that will have to be assessed and
revised during implementation, since they determine our business
sustainability.
Our denition of a sustainable business is the following:
- - 65
4. Implement

A business is sustainable if it is able to grow on the value it
creates.

A sustainable business can fund its own growth on the value
generated by selling products and services. Each individual
customer generates enough margins to pay for the xed costs and
for the acquisition of further customers. In principle a sustainable
business can grow on its own; the initial investment will only
determine the initial dimension of the business.
Conversely, a business that relies on external funding to
generate growth is not sustainable. Such a business will eventually
dry out when the shareholders and nancial institutions stop
funding it.
To implement this denition, the Essential Business Model is
composed by two cycles:
The Customer Acquisition Cycle includes any activity
and investment that we initiate to acquire new customers from
the market.
The Value Exchange Cycle includes any product and
service that we deliver to the customer, who returns back
value to sustain and grow the business.
The two cycles feed each other in a loop as shown in Figure
14. The external cycle increases the number of active customers.
For each of them, the internal cycle delivers value to the
customer, who returns back value to the business. A share of the
returned value is then used to fund the customer acquisition cycle,
feeding back the loop.
It is important to observe that the value returned by
customers is not necessarily cash. In some businesses the
customers value is the time and information provided using our
- - 66
4. Implement
product. For example many social media companies offer their
basic services for free to consumers, thus creating an audience for
(paid for) advertising services.

Figure 14 - Essential Business Model


By analysing and describing the two cycles, as explained in the
following Chapters, we will be able to formalise our
implementation strategy. This will include the main assumptions
that in the end will determine our business sustainability when it
is implemented on the market.

CUSTOMER ACQUISITION CYCLE
The Customer Acquisition Cycle describes how a business
attracts and acquires new customers. To this purpose a number of
actions are put into practice, based on a marketing strategy and
corresponding marketing plan. These actions vary greatly with
the industrial sector, the size and type of market and, most
importantly, with our own judgment and perception of the
market.
Value
Exchange
Cycle
Customer Acquisition Cycle
- - 67
4. Implement
We will not focus here on how to formulate a marketing
strategy and marketing plan. This is a complex process, requiring
an in-deep knowledge of the target market and supported by a
variety of approaches and tools. There are excellent sources that
explain how to communicate with and attract customers,
including the well-known Kotlers work on Marketing
Management (Kotler and Keller, 2000). There are available
theoretical frameworks, practical guidelines and case studies that
will support us in taking decisions about the target market and the
best ways to approach it.
We will focus here on what happens after marketing decisions
are taken. Regardless of our sector and positioning, and
regardless of the theories and frameworks we might be applying,
at the end of the process we will have to come up with a list of
actions targeted at customer acquisition.
Customer acquisition actions are concrete activities that
we plan to implement to acquire new customers. They are
operative decisions based on our marketing strategy, and directly
inuencing our ideas success or failure on the market. Therefore,
they are an essential element to be considered when assessing and
revising our strategy.
To this purpose, our process includes the denition of
customer acquisition actions as follows:
Each action represents an activity or investment aimed at
attracting a certain number of customers to our product or
service.
Each action has a certain cost per customer. This is
the value paid for each new customer acquired through the
particular action.
A proper set of such actions constitutes the Customer
Acquisition Cycle. It can include different types of actions, for
- - 68
4. Implement
example aimed at different market segments or using different
communication channels. It can also include interdependent
actions operating at different market levels. For example one
broad communication campaign is then followed by cold-calls to
individual contacts, the former action providing prospect
customers as input to the latter action, which will generate the
actual customers.
Overall the Customer Acquisition Cycle, through the
combination of the different actions, does the job of bringing in
new customers. This result is achieved using nancial resources,
expressed by the cost per customer associated to each action.

Example
Our new electric car business poses signicant marketing
challenges. We need a marketing plan to reach a potential
market of mobility users who are environment sensitive but also
have fairly sophisticated needs. The product itself needs global
visibility to be perceived as a reliable solution. At the same time
product diffusion, on a city-by-city basis, can be highly
inuenced by local communication and marketing actions.
This will likely produce a quite articulated marketing plan, for
example split into individual plans detailed at the country- and
city-level.
The Table 4 below shows an example of how a portion of this
plan might be translated into customer acquisition actions,
following the ValueMapp approach:

- - 69
4. Implement
Table 4 - Customer Acquisition Actions


The actions at country level consist of broad advertising aimed
at generating customer contacts, i.e., marketing leads that will
require further actions to become actual customers.
Two advertising channels are foreseen: traditional TV networks
and the Internet. In our example, the TV advertising budget is
100.000, with an expected return of 1.000 contacts with
potential customers. The Internet costs only 5.000, and the
expected return is estimated in 100 contacts. That explains why
the two channels have comparable costs per customer (100 vs.
50), while the cost of the TV campaign is in absolute terms
much higher than the Internet campaigns cost.
Starting from the contacts generated through advertising
(prospect customers), the local dealers action is needed to
complete the customer acquisition cycle. The cost for
transforming a prospect into an actual customer is estimated at
100 per customer, with a 50% average success rate. This means
Actions at country level
Action Cost per customer (contact)
TV advertising 100
Internet advertising 50
Actions at local level (city)
Action Cost per customer
(acquisition)
Local dealers activity 100
- - 70
4. Implement
that, regardless of the funds invested into local dealers activity,
in average 50% of the prospects will be successfully
transformed into customers.
Now, looking at the acquisition cycle as a whole, let us suppose
to have available a budget of 100.000 to spend on a given
period, e.g., monthly or quarterly. The Table 5 below shows the
results achieved imagining a distribution of investment that
favours TV advertising. In this case the acquisition cycle
generates 200 new customers for a marketing investment of
100.000.

Table 5 - Return from Customer Acquisition investment

A different distribution of the same investment is shown in the
following Table 6. The number of customers is actually
doubled by investing more on Internet and local dealers
activity.
Return from customer acquisition investment (case 1)
Action Cost per
customer
Share of
investment
Return
(contacts/
customers)
TV advertising
(contacts)
100 50% 500
Internet
advertising
(contacts)
50 30% 600
Local dealers
activity
(customers)
100 20% 200
- - 71
4. Implement

Table 6 - Different distribution of Customer Acquisition
investment

The example shows how much business models are sensitive to
marketing strategy and planning decisions. These, especially for
new products, are based on unveried assumptions, such as the
cost per acquired customer.
The customer acquisition cycle allows assumptions to be made
explicit, by expressing their impact on costs and business
growth. This is a prerequisite for an iterative process such as
ValueMapp, where assumptions are assessed and revised to
progressively rene the product idea and the business model.

Return from customer acquisition investment (case 2)
Action Cost per
customer
Share of
investment
Return
(contacts/
customers)
TV advertising
(contacts)
100 20% 200
Internet
advertising
(contacts)
50 40% 800
Local dealers
activity
(customers)
100 40% 400
- - 72
4. Implement
VALUE EXCHANGE CYCLE
The Value Exchange Cycle describes how a business delivers
value to the customer, and how value is obtained in return to
sustain and grow the business.
The value received by the customer consists of products and
services, each characterised by its price and by the kind of
relationship established with the provider (e.g., one-time purchase,
long-term subscription). The value returned by the customer consists
of, or can be transformed into, nancial resources for business
sustenance and growth .
5
This apparently simple exchange is the core of every business
model, and as such it includes a huge variety of enterprise
activities, which are often very complex. As for the marketing
strategy and plan, even nding the right pricing strategy and
customer relationship model is a complex exercise. Several
theoretical and practical sources are available on these subjects,
providing insight and examples of how to sell a product and to
liaise with the customer .
6
We will not focus here on how to nd the optimal pricing and
customer relationship model. Again, this process is highly
dependent on your target market and on your own knowledge of
it. Moreover, for innovative products customer behaviour is not
known beforehand. Most likely you will have to experiment with
- - 73
For paid products and services the returned value is a monetary
5
sum. In the case of free services, such as Facebook, the returned
value is not monetary but it is a value nonetheless, e.g.,
information and content produced by the customer while using
the service. All these businesses have ways to transform the non-
monetary returned value into nancial resources (e.g., through
advertising).
For example, see (Buttle, 2004).
6
4. Implement
different models before nding the correct way to sell your
product.
Also, behind the delivery of a product are the resources and
activities that contribute to its value. We are aware of the complex
choices and of the insight required to identify what are called the
key activities and key resources in a business model
(Ostewalder and Pigneur, 2010). However, we believe that
including an organisational point of view in the business model
may be premature when we are building a new business for an
innovative product. The key activities and resources are those we
will need to implement the products features, and to overcome
the identied barriers. As we set out to test our value proposition,
it is most likely that we will have to revise our strategy. The target
features and barriers will change, and so will the corresponding
activities and resources.
Therefore, here we will focus on the outcome of decisions
about pricing, customer relationships and delivery models. The
purpose is to provide a high-level, aggregate view of the value-
generating engine of your business, to understand whether it can
produce enough value to sustain itself.
The Value Exchange Cycle is described as a list of product
and services. For each of them, we have to provide:
The unit price.
The sales type, that can be one of three options:
Free.
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4. Implement
One-off, meaning that the price is paid once per
customer lifetime .
7
Subscription, meaning that the price is paid
repeatedly for a number of periods that constitute the
customer lifetime. For subscription products, one
fundamental parameter is the churn rate, dened in
literature as the rate at which a business looses
customers. In our model this is the percentage of
customers who cancel their subscription.
The parent product, in case the product is an add-on.
This means that customers will buy rst the parent product
and then, in a certain percentage (upgrade percentage) they will
upgrade to the add-on product.
The unit cost. This is the sum of all variable costs
necessary to deliver one unit of the product or service.
It can be observed that our value exchange model is rather
general and missing details. We miss, for example, all the details
of how product costs originate from the companys resources and
activities. We miss as well xed costs and overheads, which can be
expressed as a share of the remaining income after deducting
variable costs.
These details can be described and analysed with
conventional business planning techniques and tools . Here they
8
have been intentionally spared because we need an agile model to
quickly assess and revise a new business idea. The model must
- - 75
The customer lifetime is the full duration of the customer
7
relationship with the supplier, from when he/she becomes an
active customer to the end of the relationship.
See for example the Ernst & Young Guide for Business Planning
8
(Ford et al., 2007).
4. Implement
outline the main strategic decisions and the key assumptions
behind our idea. Detailed organisation models and nancial plans
will be a consequence of these decisions, but including them at
this stage would introduce unnecessary complexity.
A more detailed business modelling and planning approach
would not only require more effort and time to develop, but it
might as well have the undesired effect to freeze and hide some
decisions. Since we have spent so much time in guring out the
details in our business model and plan, we would resist any
indication that we should question the basic assumptions behind
it. Instead, in the early stages of an innovative venture we need a
more agile business modelling approach, in line with the Lean
Startup principles (Ries, 2011).

Example
Going back to our electric car business idea, in Figure 8 we
state that our mobility product must be exible and reliable.
How can we translate this into concrete products or services?
For example, we can imagine an electric car sharing service
allowing citizens to access a pool of electric cars, to reserve one
and to use it for their needs with the maximum exibility.
For this we will set-up a sophisticated online platform, where
the user can subscribe free of charge, nd available cars nearby,
reserve, manage and pay for the service.
Also, users shall have ample freedom to organise the service
according to their needs. The Reliability feature will be
ensured by making a sufcient number of cars available, in
dedicated garages properly distributed across the city.
Looking at the barriers, the parking problem will be addressed
by having available dedicated parking spaces throughout the
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4. Implement
city, available to the customer at any time. To address the
recharging barrier, all the parking spaces will be equipped with
recharging stations, and energy will be included in the service
tariff.
Everything will be offered for a monthly subscription service,
making available the electric cars to users for a certain amount
of hours. For the sake of our example, let us assume a standard
20 hours of driving-time offered per month.
A sophisticated on-board info-mobility platform will be offered
as add-on service, including trafc info, navigation and
dedicated information services for optimisation of the parking
and recharging services.
The list of products and services looks quite simple, as shown in
Table 7:

Table 7 - Product and services as Value Exchange elements

The next step is to estimate the costs of the services proposed.
The online platform, albeit offered for free, will need an IT
infrastructure as well as some technical and service personnel.
These costs can be estimated with relatively little uncertainty.
Let us assume a cost of 10 per registered user.
Product or Service Sale type Add-on?
Online platform Free
Monthly subscription
(20 h driving time)
Subscription
Info-mobility services Subscription Yes
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4. Implement
The cost of the monthly subscription is more complex to
estimate. It will include as main items the cars depreciation,
the energy cost, the parking space rental and the service
personnel. Some of these costs are subject to economies of
scale, but once the scale of our business is set, even these sums
can be estimated quite reliably. Let us assume that the above
costs amount to 180 per 20 hours subscription.
Finally the info-mobility services will have a cost, too, that can
be calculated with criteria similar to the online platform. Let us
assume a cost of 10 per monthly subscription.
Now it is time to assign product prices. Whereas costs can be
estimated, although with uncertainty, in the case of prices we
are just making assumptions. Therefore, analysing the value
exchange cycle allows us to understand and highlight some key
assumptions behind our business model. In our example, these
assumptions include:
Customers will be willing to pay 200 for the 20 hours-per-
month subscription service.
Of these, 50% will be willing to pay 12 more for the info-
mobility service.
Based on these assumptions (see Table below), the average user
will cost us 195 per month, and it will generate 206 income.
The value that each customer will return will be 11 per month,
for the entire lifetime duration (i.e., until he/she will
unsubscribe).
All the above assumptions are summarised in Table 8.

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4. Implement
Table 8 - Value Exchange assumptions

To understand whether or not the value exchanged with the
customer can be sufcient to sustain our business, we will have to
validate the entire model for real. We will know for sure whether
the model is sustainable or not only after experimenting the
customer acquisition and the value exchange cycles with real
customers on the market (see next Chapter Validate).
Before proceeding to the validation it makes sense to test the
main assumptions in our model. We should verify whether the
model might be sustainable, at least int theory, or we have to go
back and revise some of our assumptions. This is the purpose of
the next Sub-Chapter.

TESTING THE MODEL
Having dened our customer acquisition and value exchange
cycles, it is now time to put everything together and test our
business model.
Testing the model means to check whether the business is
sustainable, according to our essential denition of sustainability
given at the beginning of this Chapter.
Product or Service Unit
Cost
Price Upgr.
%
Cost Value
Online platform 10 0 10 -10
Monthly subscription (20
h driving time)
180 200 180 20
Info-mobility services 10 12 50% 5 1
Monthly value generated by average customer: 11
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4. Implement
Referring to the previously introduced concepts, a business is
sustainable if the customer value generated through the exchange
cycle provides sufcient funds for growth. This means that the
value generated is sufcient for the customer acquisition cycle to
attract enough new customers.
Therefore the testing consists in putting together the customer
acquisition and value exchange cycle. This will allow us to check
whether our key strategic assumptions, as outlined in the model,
are consistent with each other or need revision.
The test will answer such questions as:
Are the planned actions sufcient for new customers
acquisition?
Are we retaining enough customers to sustain the
business?
Do we get back enough value from customers to fund
customer acquisition?
Are our prices compatible with business growth?
We can verify whether these conditions are met by our model,
at least in theory, by testing the model on paper, or by running
simulations of the business model. This allows nding out main
strategy mismatches and formal mistakes.
However, the real proof that the business can be sustainable
comes by putting the model into practice. For this we strongly
recommend to apply a trial-and-error approach, like the one
described in Chapter 5, based on innovative concepts as the Lean
Startup.
In this way it will be possible to verify quantitative
assumptions, like the cost of customer acquisition, by collecting
real data from the market. Moreover, all the assumptions in our
strategy will be subject to testing, not just implementation
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4. Implement
hypothesis summarised in the business model. For example we
will be able to verify to what extent investing on certain product
features or barriers impacts on business growth and value
creation.

Example
We have set up a desk simulation to test our electric car
business model. To do this it is necessary to make some further
assumption.
We assume a churn rate of 10%. This means that we hypothesise
to loose just 10% of subscribers per each period (in our case
per month).
We assume an initial investment of 100.000. This is the fuel
that we will feed into our engine in order to start the business.
The amount of investment will determine the scale at which we
intend to start the business. Investing more means that we start
on a bigger scale, while a small investment will necessary result
in smaller start-up numbers.


Warning: Do not invest too much on an untested
model
We must be aware that no amount of investment can save a
poorly designed or ineffectual business model. Sooner or later
the startup money will dry up, and the business will have to
survive on the customer value it creates. Big initial investments
can only delay this crucial moment when the business
sustainability is put to the test. Therefore we should be careful
about models based on extensive start-up investments.


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4. Implement
It has to be observed that the 100.000 investment is only for
customer acquisition activities. It allows us to get an initial
number of customers to work with in the starting months. All
other expenses are either variable costs, summed up in the
product cost, or xed costs for organisational and
administrative functions. These functions do not contribute to
the value exchange cycle, therefore they will have to be funded
with a part of the margin generated. In our example we
assume the margin to be a 20% of the customer value, while
the remaining 80% is re-invested in customer acquisition
actions.
The other parameters for the simulation are those given in
previous examples, shown in the Tables included in the
Chapters on Customer Acquisition Cycle and Value
Exchange Cycle.
The simulation results are shown in the following Figure 15. It
runs for 36 months and it shows a potential sustainable
business. Each month new customers are acquired, and the
customer base grows steadily if not dramatically. The same
happens for the customer value and margin generated.

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4. Implement





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4. Implement
The next Figure 16 shows the results of another test, where the
only value changed is the churn rate, increasing from 10% to
20%. The picture is radically changed. After month 12, when
the initial investment is spent, the business does not produce a
sufcient margin to fund its growth. Fewer customers are
acquired as the months progress, the customer base is
inevitably eroded and ever less value is available to re-invest in
the business. In short, the business is no longer sustainable and
it will dry up, sooner or later.
This tells us that this business model, as conceived, is extremely
sensitive to the churn rate. That is understandable, since the
model is based on subscriptions and its success depends very
much on customer retention. But if we try and change other
parameters in the customer acquisition or value creation cycle,
we will discover that many of them will have as well a
signicant impact on the simulation result.
Beside the specic case, the example shows how success or
failure of a new business depends on the many assumptions
that we formulate in our business model. Most of the
assumptions can only be veried by putting the model into
practice on the real market. This will allow us to collect actual
data on the effectiveness of our strategy. In our example case,
only experimenting the model in reality we will be able to assess
the churn rate, use this information to revise the strategy and
nally act to improve our customer retention.
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4. Implement

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5. Validate

5. Validate
The process described in the previous chapters is aimed at
conceiving a new product that:
1. results from a properly formulated idea,
2. relies on an innovation strategy taking into account
customer needs and competitors,
3. implements a theoretically sustainable business model.
At this stage the product idea, the strategy and the business
model are still untested possibilities. A number of "leap of faith"
assumptions have been made on all three levels, due to the
inevitable uncertainties associated to every innovative product.
It is positive to have faith in our own assumptions, since they
result from our efforts, our experience and knowledge of the
market. Faith also stands for condence and motivation towards
the company vision, that are fundamental qualities of every
entrepreneur.
However we must be aware that many of these assumptions
are still unveried. We will not know if we have assumed right
until we try and bring the product on the market.
Therefore the nal step in the ValueMapp process consists in
validating the key assumptions underpinning our new business, by
assessing it on the real market.

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5. Validate
THE RISK OF OVER-DESIGN
As pointed out very well in The Lean Startup" (Ries, 2011),
the greatest risk we face when developing a new product is to
waste time and resources in features and activities that we feel
necessary but do not help us understand the customer and the
market.
Typically startups tend to postpone the product launch until
they are condent to have a good enough product, a fault-proof
strategy and an efcient organisation to properly serve customers.
This caution is motivated, for example, by the fear of spoiling the
product image, of appearing unprofessional, of discouraging
investors or of having our idea stolen while we are still
unprepared. Several documented experiences show how these
feared effects rarely concretise themselves .
9
What is more concrete is the risk of "over-design". By
postponing our confrontation with the market we delay the
moment when our product, strategy and business model are put
to the test by real customers. The more we delay, the more energy
and resources are spent in rening our product's design,
introducing a higher number of unveried assumptions.
Figure 17 shows a typical startup plan, based on some
sequential stages that are common to most new business ventures.
The initial months are dedicated to formulating the company
vision and value proposition, for example using techniques like those
presented in the previous chapters. This phase includes a lot of
brainstorming, whiteboard strategy formulation and, if budget
- - 87
Dropbox started with a widely popular video of its founder
9
explaining how the product worked, or was supposed to work
since it was not yet ready. This did not discourage potential
customers, whose interest grew even in absence of the actual
product. Also, no competitor appeared to steal Dropboxs idea.
5. Validate
allows it, gathering of market information through analyst
services or focus groups. At the end we have a sufciently clear
vision, if yet untested, around which to design the business.
The next stage consists in preparing a detailed business plan,
typically covering a three-years horizon. This plan includes a
breakdown of the organisation and its costs, a sales forecast, a
marketing plan, a cash-ow analysis and Return On Investment
estimation, all based on metrics and approaches well known to the
investors community. These elements are often quite detailed, to
provide investors with quantitative assessment of the business
potential.
Having committed to a business plan and gotten the investors'
support, the next stage is product development. This is normally the
longest and most resource-intensive activity undertaken before
product launch, with the objective of obtaining the best possible
product from the available resources.
When these preparatory tasks have been accomplished, the
product is nally launched. From now on the organisation starts
working in a "business as usual" setting. The objective is to follow
as best as possible the established plan, and the assumptions
contained in the plan are taken for granted.
This may well lead to a situation where the planned actions
and organisation are perfectly in line with the plan, but the
business fails as soon as the investors' cash is used up. As well
pointed out by Ries in The Lean Startup, we have "achieved
failure": the plan was implemented correctly but it was founded
on wrong assumptions. This is a very concrete risk: startup failure
rates within the rst 3 years are often in the range of 70-80% .
10
- - 88
Entrepreneur Weekly, Small Business Development Center,
10
Bradley Univ, University of Tennessee Research (27 July 2013).
5. Validate
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5. Validate
By over-designing the product and the business we make more
and more unveried assumptions, thus raising the level of
uncertainty and putting more resources at risk. In the next Sub-
Chapter we discuss the main assumptions made in each phase
and the risks associated to them, providing some examples of how
each of these risks can lead to a signicant waste of resources.

ASSUMPTIONS TO BE VALIDATED
The above described activities, shown in Figure 17, are
necessary to translate from the initial idea to a marketable
product, but each of them introduces a measure of risk. The risk
derives from assumptions that, if not veried, may generate
signicant waste of time and resources.
The following Table 9 lists the assumptions made at different
levels, and the corresponding potential waste.

Table 9 - Assumptions to be validated
Level Assumptions Vaste
Strategy Value Proposition
Market Positioning
Differentiation
Nobody wants it
Wrong customer
Competitors already
there
Wrong price
Wrong channels
Wrong partners
Business Plan Customer lifetime
value
Cost per sale
Negative value
exchange
Sales too costly
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5. Validate
At strategy level, unveried assumptions concern the
product idea itself and how we intend to shape it for the
customer's benet. We assume to have a valid value-proposition
for a certain category of users and to play a determined role on
the market, clearly differentiated from competitors. The reality is
that we still do not know what value, if any, customers will nd in
our product. We may even not know who the customers really
are.
Referring to our previous example, we assume that city
residents will recognise the value of having an electric car
available without the hassle of owning, parking and recharging it.
What if our target customers are resilient to sharing "their" car
with others? What if our product will result more attractive to
non-residents, like tourists or business travellers? The assumptions
on our product's key features and barriers will be undermined.
Moreover, we will nd ourselves in a completely different position
on the market than originally planned. We will be competing with
car rental companies whereas we thought to be alternative to
public transport and scooters. Other strategic assumptions will be
affected. Our pricing strategy would be inappropriate for
occasional, transient users, as it was conceived for long-term
subscribers. Nation-wide reach would be more important than
local channels and partnerships.
It can be easily seen how one wrong key assumption at
strategy level can unravel an entire business model.
Product Development User Requirements
Development
priorities
Unwanted product
features
Real users have
different priorities
Level Assumptions Vaste
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5. Validate
At business plan level unveried assumptions concern our
business' sustainability and capacity to grow. We assume to be
able to get a positive Customer Lifetime Value. This means
generating a positive balance between the costs for serving the
customer and the value returned back by the customer
throughout its relationship with us. Moreover, we assume that
part of this value can be invested to fund more sales, thus
producing sustained growth.
In reality there are many uncertainties on the actual price
customers will be willing to pay, and consequently on the returned
value available to sustain the business. For example, nding
ourselves in competition with established car rental companies,
we might have to adapt to their pricing strategies. Finally, we
might nd out that the Cost per Sale is too high: current
customers do not generate enough value to fund new sales.
At product development level assumptions concern which
features to implement and how. The product is specied in detail,
trying to gure out what "the customer really wants" and "what
the product absolutely must have". The problem is, regardless of
the effort and market intelligence spent in the preparatory stages,
nobody knows what the customer really wants. Our choices are
inuenced by our experience and personal convictions, and often
by the struggle between competing departments in the
organisation, for example Marketing versus Research and
Development.
Cost and time limitations often impose a strict selection of
features to be implemented. This makes unveried assumptions
all the more risky: we might be investing in features the customers
do not really want, disregarding others that might mark the
success of our product.
Returning to our example, we have decided that the
intelligent navigation system with real-time parking availability
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5. Validate
information is a must-have. Our cars cannot be offered to the
customer if they are missing this. Unfortunately this is also a quite
expensive and time-consuming feature to implement, requiring
complex ICT systems to integrate our eet management with the
various parking providers. The technological challenge even
strengthens our belief that we really need this feature, since it will
be a real differentiator. So we invest a lot and postpone our
product launch until we are fully satised of how the feature has
been implemented. When we nally go on the market we might
nd out that the customers are mainly non-residents, who just use
the big parking facilities at the train station and airport and could
not care less for our sophisticated information system.
By following our assumptions blindly we create a lot of
opportunities for waste. While implementation proceeds "in line
with the plan", time and money is wasted in advertising to the
wrong customers, in striking deals with the wrong partners, in
nancing a business that cannot grow on its own, and in
implementing the wrong product features.

HOW TO VALIDATE
To reduce the risk of wasting time and resources, assumptions
need to be validated as early as possible. Following the iterative
approach introduced in the Overview Chapter, validation will
provide essential inputs for subsequent strategy revision and
renement of the implementation.
Validation includes the following steps:
1) Identify key assumptions to be validated.
This should happen before the implementation phase starts,
because implementation will serve as the reality check for our key
assumptions. The product denition, business model and business
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5. Validate
plan should be carefully screened to identify the most relevant yet
unveried assumptions, that would unravel the entire business if
proven wrong.
2) Specify metrics for assessing each assumption.
These should be specic metrics directly linked to the
assumptions, and not generic enterprise performance indicators
like, for example, gross turnover increase or number of new
customers. These generic indicators would tell us nothing about
key assumptions like, for example, the return generated by a
product feature that we assume essential, or the number of new
customers acquired from a specic target group.
3) Test the assumptions in a real business implementation.
This should include the essential activities and product
features to assess the key assumptions, but with minimal
investments in other untested areas of the business. This
implementation is often referred to as a Minimum Viable Product
(MVP). A MVP can be a largely incomplete version of the
product, or a simple smoke test (e.g., a video) to communicate
our value proposition. What is important is that the product is
tested for real, going on the market and interacting with the target
customers. The MVP should be specically designed to assess the
impact of each key assumption, by measuring the related metrics.
The output of the validation will tell us whether the initial
assumptions are valid, i.e., they have the expected impact on our
business, or not. In the latter case we should revise our strategy,
reconsidering the assumptions that have proven wrong, and start a
new ideate-strategise-implement cycle.

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5. Validate

Warning: individual tests needed!
There are no predened validation methods and metrics that
might work for every business, or even for specic business
typologies. The variety of assumptions made by entrepreneurs
and innovators is so wide, and so specic to the business
context, that any attempt at generalisation would be purely
academic. Each individual case requires the design of specic
tests, tailored on the assumptions that have to be validated. To
test the value proposition we have to analyse the customers
experience in detail to assess the key aspects that users nd
valuable. To test the growth potential we have to monitor the
impact of our specic actions aimed at customer acquisition
and retention.


Example
Before launching full-scale implementation of our electric car
business it makes sense to test the value hypothesis behind it.
We have assumed that our service will be attractive to city
residents, as alternative to other less exible ways to move in
the urban area. To test this assumption we implement a
minimal version of the service, aimed at verifying that we can
attract customers from our target population, for the very
reasons that we think would attract them.
The test must be reduced in scope, to avoid too big investments
in a new untested idea, but it must allow us to assess the
response from real users. To this purpose we set up a trial
service in a medium-large city, renting a small eet of electric
cars and setting up a few parking locations in the city centre.
Since we assume that our service is alternative to other urban
transport services, the objective of the trial will be to test
whether users will chose our cars instead of, for example,
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5. Validate
existing taxi services. Therefore our parking areas will have to
be located close to taxi lanes. In this way the alternative will be
visible to customers when they decide how to travel. Also, the
service price should be comparable to taxi rates. If we manage
to be available at the right time and place, and at comparable
price, then we will be able to assess whether users see our
product as a viable alternative. The selection then will be
essentially based on the features we offer.
If none or few customers come we will have to revise our entire
vision and strategy. But even if the numbers are not
discouraging, the customers population has to be screened
accurately. We will want to know, through specically designed
surveys, how many city residents have bought our service as
alternative to other urban transport means, and why. If these
customers are too few, or their reasons are different from what
we guessed, then we have to revise the product to make it more
attractive to our target users, or we must change strategy to
address a different type of users.
The second hypothesis to be tested as early as possible concerns
our business capacity to grow. In the example discussed in
Chapter 4 we have discovered that this particular business
capacity to grow relies on customer retention. The largest part
of the value is generated by long-term subscribers who
regularly use the electric car service. For such a business an
essential indicator to be monitored is the churn rate, that is, the
percentage of customers unsubscribing per month. Our
simulations have shown that the business sustainability is very
sensitive to this parameter: the business success or failure is
determined by churn-rates between 10% and 20%. Therefore
rather than focusing on generic growth indicators, like the
number of new customers, our tests will have to monitor our
capacity to retain customers in time.
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This is a living document. We at ValueMapp.com provide
regular updates of this guide and the supporting software, based
on the experience gained in our daily work with startups and
leading customers in different industries.
The ValueMapp guide, apps and services have been
conceived as working tools for practitioners in entrepreneurship
and innovation. These tools can only grow and improve through
feedback and contributions from the users. We count on your
input questions, comments and criticism to improve and
extend ValueMapp in the right direction.
To have access to the latest version of the ValueMapp guide
and tools, exchange ideas with other practitioners and have access
to videos, presentations and case studies, you are welcome to join
our community at www.valuemapp.com.




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References

References
Kim W.C., Mauborgne R.,Blue Ocean Strategy, Harward
Business School Press, 2005.
Adner R., The Wide Lens A New Strategy For
Innovation, Penguin Group (USA), 2012.
Anthony S. D. et al., The Innovators Guide to Growth,
Harward Business School Press, 2008.
Trias de Bes F., Little Black Book of Entrepreneurship, Ten
Speed Press Berkeley, 2008.
Kroc R., Grinding It Out: The Making Of McDonald's,
Contemporary Books, 1977.
Ries E., The Lean Startup, Crown Business New York,
2011.
Christensen C. M., Raynor, M. E., The Innovator's Solution:
Creating and Sustaining Successful Growth, Harward Business
School Press, 2003.
Carr, N. G., Does IT Matter? An HBR Debate, Harward
Business Review, June 2003.
Osterwalder A., Pigneur Y., Business Model Generation,
Wiley & Sons, 2010.
Kotler P., Keller K.L., Marketing Management, Prentice
Hall, 2000.
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References
Buttle F., Customer Relationship Management, Elsevier,
2004.
Ford B. R., Bornstein J. M., Pruitt P. T., The Ernst & Young
Business Plan Guide, Ernst & Young, Wiley & Sons, 2007.



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References
ABOUT THE AUTHOR
Paolo Paganelli is the founder of Bluegreen, the strategy
consulting company which has developed ValueMapp. Paolo has
a degree in Electronic Engineering and is a recognised expert in
innovation in the logistics, manufacturing and IT sectors, with
over 20 years of experience working for industry and public
administrations on large-scale innovation projects. Paolo has been
coordinating some multi-year, multi-million euros European
Commission projects, and he is author of over 40 papers and
presentations on international level.


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References
ACKNOWLEDGEMENTS
This book is not a standalone work. It is part of the wider
ValueMapp approach, based on concepts but also on the tools
and services to apply these concepts in concrete use cases. As
author of this guide I am proud to acknowledge the work of two
colleagues at Bluegreen who have provided essential contributions
to the development of ValueMapp: Valentina Boschian, whose
work on pilot cases and examples is going to be fundamental for
practical implementations of ValueMapp, and Lorenzo Pondrelli,
the designer of the app and of the web services that are at the
core of our model. Both should be proud of the work done, and I
am sure that they will give a fundamental contribution to the
growth and further development of ValueMapp.

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