Don’t let them eat your lunch: When a value proposition seems obvious and easy to replicate, SCALE FAST!

By Kristie Gan

We’ve seen some products that require radical behavioral change by consumers (e.g., Aardvark, Lit Motors); others have leveraged more familiar product formats (e.g., Plastiq). Can we generalize about whether lean startup management practices are better suited to one type of product than the other?

"Lean Startup" is an approach for launching businesses and products that relies on validated learning, scientific experimentation, and iterative product releases to shorten product development cycles, measure progress, and gain valuable customer feedback.  But when an industry ripe for disruption fundamentally wants to change consumer behavior, what should it do?  The answer:  it depends.

For consumer facing companies, lean vs. non-lean depends on their understanding of the strength of their customer value proposition.  If they truly understand it, then companies should implement a winner-take-all strategy and go all out to scale the business.  For companies still trying to determine the appetite for a product, despite a customer’s familiarity, then lean seems to be the way to go.  

For example, some historians argue that the first Greeting Card originated from the Ancient Chinese who wrote messages of "good will" to celebrate the New Year or was created by early Egyptians when they wanted to convey greetings on papyrus scrolls.  However, it is widely accepted that the first “published” greeting card was by Sir Henry Cole who published the first Christmas Card in 1843.  Since then, there haven’t been too many advances or iterations, and the tradition of card giving has been adopted by just about every culture in the world.  It’s typically still the same sentiments, pretty much the same form factor, and for the most part, the same method of delivery.  However, when companies like Treat.com, Sincerely.com, and PaperlessPost.com think of timeless card giving occasions, they’re all scratching their heads trying to figure out how to revolutionize the $6.8bn offline industry that really hasn’t changed too much in the last century. 

Nonetheless, all three companies have learned that although greeting cards are still sent for similar reasons, the underlying consumer behavior of how they are made, purchased, and distributed hasn’t radically changed – although they should.  All three of these companies are trying to disincentivize everyday customers from going to the local drugstore or mass market retailer and stock up on their year’s supply of greeting cards.  What they don’t fully understand is if people’s biggest complaint about card giving is “convenience”, then why go through the trouble of having to get in your car, handwrite, and deliver a greeting card when Treat.com allows you to send a personalized card right from your fingertips (online), Sincerely.com lets you make it and send it from your mobile phone, and PaperlessPost.com even has tried to make the user’s experience as close to real life as possible?  I believe it’s because people don’t actually find it  “inconvenient” when picking up a card when they go to the grocery and don’t fundamentally want to change their in-store “browsing” behavior.  Thus, in developing these types of products where consumers may or may not want to change their behavior, offline to online, the lean methodology seems the most appropriate.  Fundamentally, before a company sinks millions of dollars into building, distributing, marketing, and partnering, it needs to figure out if consumers actually want to change their behavior.      

Nevertheless, in stark contrast, Groupon, LivingSocial, and every other daily deal site has radically changed consumer behavior forever.  I believe that Andrew Mason, founder of Groupon, fundamentally believed in the strength of his initial customer value proposition.  Does the average customer want discounts?  Yes.  Does the average customer want to try new products? Yes.  Does the average merchant want more new customers to try their products (even at discounted rates) in hopes that they become loyal, repeat customers?  Yes.  So what else was there to validate?!?  Many would argue that Groupon’s value proposition was pretty compelling to begin with, probably just incredibly difficult to execute.  Thus, in what could have been a winner take all market, Groupon needed to scale fast before copycats saturated the market.  Hiring large salesforces to knock on merchant’s doors, sophisticated CRM campaigns, and steep discounts to lure first-time customers were critical in its initial success.   

I used greeting cards as an example as it is cross cultural, a relatively ubiquitous tradition, and thousands of companies have tried to disintermediate its use in the last hundred years.  Everyone from Paperless Post to Post-a-gram to Moonpig have tried to reinvigorate the product, but no one seems to have radically changed customer behavior (offline to online) despite the significant value proposition that many companies bring to the table as most 1:1 greeting cards are still mainly store bought.  Nonetheless, when a value proposition seems obvious and easily replicable, companies need to scale fast and thus don’t have time test, learn, and iterate when it lives in fear that many other companies would love to eat their lunch.   



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