Greg Bernarda Discusses Value Proposition Design

Alzay Calhoun: Well, hello, everyone. It's Alzay Calhoun with Coveted Consultant, and today I'm here with Greg Bernarda. He is a specialist in innovation, reinvention, business concepts, and ideas. I think it would be fun for us to have this conversation so we can get our own heads around what it means to take what you currently have as a company and re-position it, recreate it so that it can have more value in the marketplace. First, let me say hello to Greg. Greg, how are you today?

Greg Bernarda: Hello. Very good. Thanks for having me.

Alzay Calhoun: Yeah. Let's start at the very beginning. For folks who may have heard your name, but may not know where they heard your name from, where might we know you from?

Greg Bernarda: I co-authored a book called Value Proposition Design, which is a sequel to a book that was focused on business models, which was called Business Model Generation. It was really the first book that started to talk about business models in a simple way and in a use-able way. With the second book, we're taking these same ideas deeper and diving into the world of value propositions and experimentation.

Alzay Calhoun: Let's continue with that and make sure we've got some vocabulary clear. Let's define a business model. Can you give us a very tight understanding of that? What's a business model?

Greg Bernarda: Sure. A basic definition of business model is how you create, deliver, and capture some of the value that you create for yourself, if you're an organization or a project team or a startup. That's a business model, and the tool behind that is what we call the business model canvas. It's basically the 9 most essential building blocks of a business model. People might have seen that.

Alzay Calhoun: Okay. Now, let's differentiate that from an actual value proposition. Does one fit in the other? Are they related at all? Help us understand clearly what a value proposition is.

Greg Bernarda: Correct. A value proposition is a part of the business model. It's basically your package of goods and services that are creating value for a particular customer, a particular customer segment. The valuable proposition and the customer segment are 2 essential blocks of the business model.

Alzay Calhoun: How would I know, if I'm a company, regardless of what size I am, how would I know which problem I have? Do I have a business model problem? Do I have a value proposition problem? How do I know where to go?

Greg Bernarda: You often have both problems, I think. That's what we see in organizations in the sense of ... What we say is that the value proposition is really the story that tells how you're creating value for your customers and the business model is the story of how you're creating value in general and value for your organization in particular. When you're looking at innovation, you obviously have to do both. You have to create value for your customers to hit a chord in the market and you have to create value for yourself. Otherwise, you wouldn't have a sustainable or profitable company.

Alzay Calhoun: Got you. Okay. Good. All right. Then, let's stick with value proposition. I heard you say that the value proposition is the story around how you create value for customers, right?

Greg Bernarda: Yeah.

Alzay Calhoun: Okay. All right. What is the big idea behind your work under value proposition? What's the thing that you have to get right, that you have to understand in that space?

Greg Bernarda: Often people are used to talk about value propositions, but often what we do with that is that we start describing the features of a product or service, or even an experience. Often we think of that as something disconnected from the life of customers. What we're saying is that a true valuable proposition is your response to what customers really need in a particular context. With this total value proposition, what we call the value proposition canvas, it basically helps you to create a fix between your understanding of the customers on one side and the value that you are proposing to create for them, to do both at the same time. Otherwise, you wouldn't have a successful, in the startup world, the people call the product market fit or the problem solution fit. That's really what we are trying to solve here.

Alzay Calhoun: Excellent. Okay. This is one of those conversations about ... I think you just made this point about value propositions. When someone says that we understand it, we get it, "no kidding" kind of a fix, but the application of it is more difficult. If you don't get this right, this is the question I want to ask you, if you don't get this value proposition thing right, then what happens?

Greg Bernarda: What happens is that you can spend a lot of time, if you're embarking on a new project, a new idea, an innovation initiative, you can spend a lot of time focusing on a product, making your product better, making your service better, making your strategy better, without understanding if you're really getting market traction. That is a lot of what we see, and typically, not all, but a lot of companies are wired to make their products better or their services better, without actually checking very quickly if what they are working on is having traction in the market. Obviously, that means you lose a lot of time. You lose a lot of resources and a lot of potentially jeopardizing your future success.

Alzay Calhoun: I think that that's a really insightful point. You just said that companies are already wired to improve what they do, to improve their product/service as it stands. You could be innovating on that without actually getting confirmation from the marketplace. You made something that feels really good to you as a company, but does it feel very good to the customer? By the time you roll that out, that new data of, "We don't like this," is disappointing as well as being costly. I like that. Okay. All right.

How do we avoid that problem? What kind of system or series of steps, check-offs should we think about to make sure that we're always creating something that matches what the marketplace wants?

Greg Bernarda: What we really want to try and do is to not spend a whole lot of time closed down in your offices and trying to make that product or that service better. What you want to try and do is obviously, you have to take your best shot at what you think the future product or service or valuable proposition is. Then you want to, as soon as possible, as early as possible, hit the market to basically test the assumptions that you've put into your new product, your new service, your new value proposition. There's a whole process, we could go into that, that we talk about in the book, about how one goes from designing, taking your best shot at designing what might work in the future, and testing and validating that with the market.

Alzay Calhoun: Once you have ... Let's try one more step. Once you've taken that best shot, you've put it in the marketplace, you're going to get some data. You're going to get some confirmation that certain things are matching and certain things are not. What's the very next step after that? What do you do after that?

Greg Bernarda: As you said, you're going to validate what we call in our language, you're going to validate your assumptions or you're going to invalidate your assumptions, meaning you're right with your first design, or you're wrong with your first design. What you want to do with that data is go back to the drawing board and understand how that data, that learning is modifying your understanding of how you're going to create value for customers. Inevitably, you're going to see that some things are not the way you expected. If you look at the way start-up founders started, the ideas they started with and what they ended up with, it's always different. You want to try and embrace that process as early as possible. You always end up with this idea of interactive loops of designing something, going out in the market to test it, understanding what's right, what works, and what doesn't; then going back to the drawing board and so on and so forth.

Alzay Calhoun: I imagine someone who's listening to our conversation right now and they like this, they like it and they also know that it's appropriate. They know that they should be not only innovating, but they should be testing those innovations as they go in an iterative way. No one in the company owns this process, so this doesn't fit a classic business silo. Is it operations? Is it marketing? Is it finance? Is it? Who should own it? Let me just ask that open question? Who should own this process and how do we keep it healthy in the organization?

Greg Bernarda: It's a very good question. I think there might be different answers to this, but one that we really like and one that we see work more and more in organizations is that the CEO should own this, because this is ultimately about innovation and about reinventing your future. It needs to be taken at least as seriously as the cash cows of the company, wherever the value's created at the moment, and wherever the company is capturing that value. What we see develop more and more in organizations is what is called ambidextrous approaches or ambidextrous organizations, where on one side, you keep operating and executing the plan as you see it work in the market, and on the other side, you start innovating and experimenting with basically building the future. As you said, if that process is buried inside the company, we definitely see that that doesn't have enough authority, enough leadership, enough support to make it work. I think it needs to be owned at the very top.

Alzay Calhoun: Okay. All right. Let's talk to that CEO for a second. The CEO is listening and he's like, or she's like, "I know we should be doing this, but you just used the word ambidextrous operations. I run 1 company, not 2. You're asking me to split my operations; I can't handle it." Let's help that CEO think about some of those first baby steps in getting this started. Do they need to hire a new person to begin this thinking? Should they find a project leader within their current team? How should that CEO think about innovating in the approach you just described?

Greg Bernarda: Ultimately, I think there's a case for saying you should hire a chief entrepreneur for your organization. That person you should put in charge of building the future, a very different role from your chief business officer or your COO, who is supposed to keep the present going. I think that's that. If you are not ready for such a step, I think you can experiment within the structure, but you have to change the rules for that to happen, for that innovation.

It's amazing to give a chance to innovation to prove itself, and the roles have to be very different from business as usual because typically in a business unit, a business unit head has to work with a certain number of KPIs, metrics, and a certain number of return on investments, et cetera. When you deal with an innovation, you're never going to get that kind of return right away, so you need to isolate those small initiatives in some kind of an incubator space, with a different set of rules, with more time, with other processes and methods, in order to give it a chance to emerge and to ultimately become as big or bigger as your business as usual type of processes and business activities.

Alzay Calhoun: Let's stay with that CEO for a second. That CEO is probably thinking about, "What size company do I need to be, to execute on what you just said? If I'm a 5-person team, I think about it in one way. If I'm a 5,000-person team, I think about it another way."

Greg Bernarda: Right.

Alzay Calhoun: Is what you just described workable, palatable, for both organizations? If not, please help us understand the difference.

Greg Bernarda: Right. I think the approach in general, the philosophy behind what I described, applies across the board. I am a one-man show. I work with a lot of people, but I am a one-man show. What I do on a consistent basis is that I take some time aside to think about what I'm doing and think about what I want to do next. That's the equivalent of basically saving space, isolating the process of innovation for a big company. I do it with time and a little bit of money. Maybe I go on a retreat or I do something like this.

If you're a bigger company, I think you can afford to actually create a physical space and a mental space for people to be able to do that on a consistent basis, on a constant basis. Where you have these activities working parallel, I can't do it in parallel. I have to do it sequentially, but in a big organization, if you start becoming a big organization, I would argue that you need to do both in parallel in order to really maximize your chances of staying where you are in the market and continuing to create that value.

Alzay Calhoun: Excellent, thank you. Thank you. We do our best on this podcast to make these things tangible for our audience. That's really helpful. Let me switch into a big project that you have working on now. Is there a new book that you're working on? Is there a new client space, if you can talk about it, that is going on in your world? Is there a big project or thing going on on your side?

Greg Bernarda: Yeah. I'll mention 2 things. I relocated to Asia, in Singapore now. We see a lot of interest for innovation in general in Asia. We're basically adapting the course, the book to the online space. We already have something like that for the English-speaking market, but we want to do one for the Chinese market because we really think that these people, there's an appetite, there is a readiness, there is an enthusiasm for tools that physically don't, are very simple and they love to empower whatever you're doing already and bring it to the market and be more successful, more quickly, with that. That's a project that we're working on at the moment, online course in the Chinese market.

Alzay Calhoun: Excellent. Was there a second thing?

Greg Bernarda: Yes. Lots of experiments going on, as well. What I do, aside from standard consulting or helping organizations with innovation, we're experimenting with bringing lots of different people into the same space for say, the duration of 3 days. There's one that we're launching next week in Geneva where we bring, it's going to be 80 people coming from various sectors of business and society. They all come with a challenge. They come in teams. They come with a challenge, and we mix people up. We take people through the journey of going from challenge all the way to solution or to profit-ize the solution in 3 days. You can just imagine a big lab, lots of activity, lots of ideation, lots of experimentation, tests to undergo. You end up at the end 3 days, with a prototype of something that could actually really look like your next big step.

Alzay Calhoun: Excellent. Excellent. What size company is the best fit for what you described?

Greg Bernarda: It's really any size, because what we've seen ... We started first, earlier versions of this model with big corporations and that was great, but I really think that this one's going to be even better because we bring in people that have completely different [inaudible 00:18:25], so there's going to be NGOs to this. There's going to be startups. There's going to be one, I'm sure, entrepreneurs. That mix is actually really good, I think, for everyone around the table to be exposed to new ways of working, because if you look at the economy right now, it's not only the big corporations creating value. It's sometimes just one guy in a corner. Sometimes it's a startup that disrupts an entire industry. You want to be exposed to these different ways of thinking in order to be able to adapt what works for you and find your own road in this new economy.

Alzay Calhoun: Wonderful. If someone wants to get in touch with you, what should they do?

Greg Bernarda: They can find me on my website. It's GregBernarda.com, and there's all my contacts. I can be reached by email there, as well. That's the best way.

Alzay Calhoun: Excellent. Excellent. Well, Greg, it was a pleasure talking to you today. I really appreciate your time. We've done well, so thank you so much.

Greg Bernarda: Thank you very much, Alzay, and it was great to be part of your program.