How Startups Can Benefit From Value Engineering

A Thought Leader Guest Post from Has Patel of Infologic:

How can Startups create “Value” with Value Engineering models?

Why Value Engineering?

Startups can benefit by adopting a Value Engineering focused approach to developing their venture. Value Engineering can be defined as a systematic approach to enhancing the value of a Product or Service. To a customer, the product value is a function of Benefits divided by Cost. The Benefits articulate features and differentiation to meet customer needs. The Cost includes monitory and other parameters, such as time spent acquiring and using a product.

Many startups do not adopt the Value Engineering practices and encounter pitfalls in (a) developing and maintaining product profitability and (b) long-term customer relationships, including the competition. To prevent this and ensure a startup creates lifelong customers, the Startup should adopt a Value Engineering-based model.

The above figure depicts a recommended four-stage model. In this model, the top part shows the business strategies, and the bottom part offers the technical approach that Startups should adopt. It also defines the concept of "Value."

These four stages and the strategies adopted by a Fictitious startup are summarized in the following paragraphs.

Stage 1: Product-as-a-Product

In the first stage, a startup develops a product or service that addresses the customer's need. Typically, products are sold at a one-time charge. Such a strategy is called CAPEX (Capital Expenses)-based selling.

As the product is sold as a one-time charge, the Startup may not provide enough importance to a customer as the customer may not buy another time, creating a lower level of the product value. In addition, it is easier for competitors to replicate their product features.

A fictitious startup, HomeSmart, decided to develop a set of Washing and Drying machines that communicate the product performance with their customers using inbuilt sensors and Wi-Fi capabilities. After some time, they noticed that several competitors copied their product's abilities and incorporated new features, reducing demand for their products.

Stage 2: Product-as-a-Service

After selling the product or service on a one-time basis, startups should consider providing their offering as a subscription. This strategy is called OPEX (Operations Expenses)-based or subscription-based selling. Such strategies can be implemented using cloud and edge computing and analytics technologies. By offering the product or service on a subscription basis, startups can significantly increase customer loyalty and build new revenue streams.

HomeSmart decided to provide its offerings as a product-as-a-subscription, using cloud-based edge computing features and incorporating in-home maintenance services. Such strategies helped HomeSmart to attract new clients.

Stage 3: Product-as-a-Process

After offering their product or service on a subscription basis, startups can provide the product or service as a business process for the customer, such as reducing energy usage. By utilizing emerging technologies, like artificial intelligence, and the Startup's knowledge and experience gained from the previous stages, the customer retention rate can significantly increase and foster more profound and profitable customer relationships.

HomeSmart decided to provide its offerings as a product-as-a-process, using analytics and additional features that replicate their customer's total washing and drying needs, including the prompt delivery of washing powders and providing best practices to clean & dry clothes.

Stage 4: Product-as-a-Platform

Startups should finally provide their customers with a fully managed platform that addresses a customer's needs related to the product or service. Customers invest heavily in learning more about integrating it into their internal business practices. Such strategies ensure the Startup obtains a leadership position in its market.

HomeSmart decided to provide its offerings as a product-as-a platform that incorporates additional home products, such as vacuum cleaners, refrigerators, home electronics, etc., by developing a platform that integrates offerings by third parties. Such strategies helped them establish a leading position in providing and maintaining equipment to live, play, and work in the home.

Conclusions

Most startups will fail or not achieve the desired outcomes if they do not adopt strategies to develop lifelong and profitable customers. This article discussed a value-based approach to help startups cultivate long-term relationships with their customers. In addition, such strategies can help startups increase their customer loyalty, enhance profit, and reduce competition.

This article is a modified version. 

Read the article originally published at linkedin.com...

Thanks for this Guest Post and its graphics to Has Patel, Founder at Infologic.

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