Unlocking Customer Value: The Importance of Differentiation in Business Strategy

1. Tom Kalchik, Assoc. Director MSU Product Center Are You Ready to Take the Plunge?

2. The “Plunge?” • Creating CUSTOMER VALUE • All products/service must create this! • It is the key to uniqueness, marketability, and profit! • Through DIFFERENTIATION • Being different to the point of unique. • Differentiation: leads to the uniqueness that creates customer value.

3. Differentiated Products:The Means to Value-added • Creating customer value and competing against others based on increasing the bundle of benefits rather than decreasing the price. • Alternative Names for Value-added • PRODUCT AGRICULTURE • CONSUMER-RESPONSIVE AGRICULTURE

4. Creating Differentiation Means Source

5. How does this apply to niche markets? • Can’t be all things to all people • Need to focus • Need to know your customer • Direct? • Channel? • Ultimate?

6. Production Strategy Differentiation Lower Cost Broad Target Cost Leadership Differentiation Customer Scope Narrow Target Cost Focus Differentiation Focus Source: Michael Porter, “Competitive Advantage”

7. But will you be able to swim? • Time • Money: Financial Capital • Technology • Property, Plant, & Equipment • Intellectual Property • For production, marketing, & distribution • People: Employees and Advisors

8. Why a Business Plan? • You cannot supply all the resources yourself! You need others! • Others must thus be convinced that your innovative idea is unique, marketable, and profitable. • A plan is your sales brochure for them. • The plan is essential to your knowing what you need and when!

9. The Challenge You Face • To systematically turn a business or product idea into a real start-up or launch. • Desire often overwhelms reason. • The glory of the idea • “Build it and they will come.” • “Everyone will want it.” • “It’s the greatest thing since sliced bread.” • Missing the logical flow of development • Operational detail before concept/strategy development • Production before marketing • No consideration of the real return potential

10. The Intuition about Process • First, can you tell a plausible “fairy tale” about the idea of the venture? • Market/customer driven • Internally consistent and appealing • Then, can you reasonably make a profit from the venture if everything goes well? • Finally, can you “prove” to yourself and to others the venture’s potential to work (feasibility)?

11. So What’s in a Business Plan? • Executive Summary • Mission Statement, History, & Objectives • Business Organization/Operations • Marketing Plan • Management/Human Resources • Financial Plan • Supporting Documents

12. Mission, History and Objectives • General description of the business • Mission and vision • History • Keys to success • Goals and objectives

13. Organization/Operations • Business structure • Location • Plans for production/operations • Critical resource needs

14. Marketing Plan • Market research • Environment and industry analysis • Target markets • Competition • Marketing Mix • Product, Place, Promotion, Price

15. Management/Human Resources • Organizational chart with planned positions and numbers • Critical job descriptions • Resumes of principals

16. Financial Plan • Personal financial statements & needs • Costs of start-up, production, marketing, distribution, etc. • Sources and uses of proceeds • Pro forma profit/loss, balance sheet, & cash flow • Breakeven and related financial analyses

17. Supporting Documents • Appendices detailing assumptions and supporting analyses • Letters of intent from suppliers, customers, and other critical partners • Legal documents • Anything else that might increase the chances of making the venture successful.

18. Is All This Really Necessary? • The process can be made simpler or more complex depending on: • How big the venture needs to be • Out of your garage vs. millions of $ in assets • Whether you’re building a new business or expanding an existing one • The ability to experiment as you plan • How risky the venture really is

19. Conclusions • Customer value is created through differentiation • There are means to create differentiation and sources for the bundle of benefits • Niche markets require focus on either cost or differentiation • There are degrees of niche markets

20. Conclusions • New venture ideas can be worked through a reasoned process: • Concept Definition • Initial Business Plan • Detailed Business Plan • The goal is to analyze, develop and empower within a process that matches level of investment with quality of idea.

21. Conclusions • The Business or Product Plan brings together: • The innovative idea • Documentation of the entrepreneurial drive • The detailed analysis of and need for resources • Without a plan the venture won’t go. • With a plan, the venture is still not a sure thing!

22. Resources • MSU Product Center: • www.aec.msu.edu/product • www.aec.msu.edu/product/counselor_alpha.htm • NxLeveL: • www.nxlevel.org • MI SBTDC: • www.misbtdc.org/ • Purdue AICC for on-line business plan: • www.agecon.purdue.edu/planner/