I'm in the middle of due diligence on a Portland software start-up (
Prolifiq) that did a very nice, crisp job when they presented to my partnership in describing their value proposition. With their permission, I thought I'd pass along a framework they used in case it is helpful to any of you.
They laid out the possible reasons customers might buy a product such as theirs as "vitamin, aspirin, or vaccine." Is it something to help you do better (a vitamin), something to take away current pain (an aspirin), or something to avoid serious pain later (a vaccine)? In many ways, this mirrors the way we think about how compelling a start-up may be on the "nice to have - have to have" continuum, but with more specific descriptions.
While they didn't make the point explicitly, it is clear that most of the time people will pay more for aspirin than for vitamins, and that if the risk of future pain is high enough, may pay the most for vaccines. I must admit, our bias has always been to invest in companies more on the aspirin dimension, since corporate budgets seem to flow better to current pain, than potential pain or potential gain. However, in business segments where regulatory risk rears its head, a vaccine may be just as powerful to dislodge budget dollars.
Now, given how clever the Prolifiq team is, they managed to make the case (still to be verified during my diligence calls) that they are essentially all three, depending on the customer's need set. Nice work if you can get it! "Less Filling. Tastes Great! Gives a Great Buzz!"
For most start-ups, your products probably hit just one of the dimensions. But, as long as you understand which one is your primary value, you can focus on how that flavor of budget dollars gets released, and how you get to stand at the head of the line when they do. Then, if you can articulate that to your friendly local VC, you'll have a much better chance of convincing us you are in the "have to have" category - regardless of vitamin, aspirin or vaccine.