Hello I'm Shlomo Maital, welcome back to Cracking the Creativity Code, part two Delivering Ideas. Let me put this segment into context and kind of step back a bit. So in Cracking the Creativity Code, part one Discovering Ideas we talked about imagination, about the brain as a muscle. How you come up with great ideas that change the world. Now we're moving on to how do you make those ideas happen? And the truth is that's a lot harder than just imagining them. Let me give you an example. One that you're all familiar with. In 1928, a scientist named Alexander Flemming looked at a petri dish and he discovered it had gone moldy. There was mold on the petri dish, thousands of scientist that had their petri dishes go moldy before and throw them out, and Alexander Flemming, unlike them, looked at it and was curious because all around this mold there were no bacteria. The bacteria had been killed and he wondered why. That led of course to the discovery of penicillin. And it was a great discovery, and rightly so, Alexander Flemming won the Nobel prize for it. But Penicillin actually happened, penicillin was produced, mass-produced only around 1940, 1941. Just in time to help treat soldiers who had been wounded on the battlefield and might have died because of infection. And it was a very difficult job to manufacture this mold, penicillin, the first antibiotic in very large numbers, large amounts create powders and then have it distributed all over the world ready for injection to prevent infection. So, the delivery part was crucial to penicillin saving those millions of lives. So in this part two course, Delivering Ideas, we're talking about the ten tools that help you build your start up and take your idea, and make it happen and bring it to millions of people and make them happy, create value, and change the world. In the first tool, we talked about value, price, and cost. Those three numbers help you know if your idea really has legs, whether your idea is really worth investing your blood, sweat, and tears for two years. The second tool we talked about was the tool of building a strategy, finding the key differentiator in your value proposition. This is tool three and is called value profiles and it's related to the first tool. In this tool we try to show you how to discover the key value creating feature in your product, and above all how to visualize it, how to create a picture. Remember all the ten tools, all of them, in some way are visual and the reason for that is you can rarely do an idea yourself. You need a team. To build a team, and get them on the same page, going in the same direction, you have to convey your vision. And everybody has to understand it perfectly. And the best way to do that is by pictures. A picture is worth a lot more than a thousand words. So all the ten tools are visual, including this tool, which is called value profiles. Now, value profiles is not my invention. It's the wonderful invention of two scholars at a French business school INSEAD called W Chan Kim and Renee Mauborgne. And they've written wonderful articles and books, shown us how to do value profiles. Their book, Blue Ocean Strategy 2005, has been a best seller and makes a wonderful point that the best way to build a competitive strategy, to compete with your competitors is not to compete with them, but to make them irrelevant. To make something so new, so innovative, so wonderful, a new category, rather than a new product, that your competitors are simply irrelevant. Someone said that a good manager creates good products, and a great manager creates whole new industries or categories. So, let's see how you can actually do that and talk about value profiles. We begin by something called a unique value proposition. So, I hope you all have some idea for a new product or service or process. Something that will create value in the world. Maybe something you, yourself would like to have and you don't have it. This is a great formula, and a great, many wonderful products and services were invented by people who simply wanted to have something that they themselves needed, that didn't exist. So for a template, or a model, or a framework, I'm suggesting the following formula. And of course all formulas and all rules and innovation are meant to be broken, but this has been found to be useful by many start up entrepreneurs, that I've worked with over the years. So the questions we begin with is not the what question. We often think that innovation begins with what can I invent, what can I come up with? But I prefer that we begin with a question of why, and for whom? So, start with the people for whom you wanna create value. Start with maybe yourself or the people you love or people you know. Or older people or people who are disabled. People you care about. And you want to change their lives for the better. So start with for whom, and then why? Why do they need your idea? Why does it create value for them? After you do the for whom and the why, and then clearly you have a clear picture of the people you are trying to serve. People you're trying to make happy. Then the how. How will you do it? How will you meet their need? And only after you answer the for whom, why, and how questions, only at the end, do you talk about the what, the product or service or process that you will create. So you leave the what for the end, and you start with the most important why question and demonstrating a need. That way, you make sure that you're not doing magic for people who don't really need or want that magic. So later at the end of this session, I'm going to ask you to please do an action learning exercise, and take your idea, and then apply your unique value proposition template to it. For whom, because, such and such, I will answer the how and then at the end, what is the result of this process. So, let's take a concrete example and I've use this before so we'll go back to it James Dyson the British inventor, who invented the dual cyclone vacuum cleaner and here is the unique value proposition if we where to create one for his Unique innovative vacuum cleaner. For whom, for those who vacuum their rugs with conventional vacuum cleaners, because emptying and replacing dust bags are messy, expensive, inconvenient, unhealthy. A new technology for creating powerful, bagless suction. That's the how. And then, finally the what. The bagless, powerful, unique, innovative vacuum cleaner. Ten times better than anything else that's currently available. Now, notice what we're looking for and our unique value proposition here. It is, we're looking for a wow. We're drilling down from the product, the idea, down to its features and trying to isolate that main feature that creates the wow and people see that and say I got to have that. If you don't have that wow, I am not sure that you have a really good, sustainable, powerful idea. But how do you know that you have a wow and how do you really find that wow, and above all how do you picture it? And then convey the wow to the rest of your team so you can build your marketing and your sales effort, and your operation around making that wow feature happen. Keep in mind, at this point, that I will emphasize throughout our course together, throughout the ten tools. You never sell a product or a service. You always sell the value that the product or service creates by the features of the product. The individual features. And our goal is to drill down with a microscope and discover which of those features are really, really powerfully value creating, and then draw a value profile. That's the point of a value profile. So let's begin with an example. The French super budget super low price hotel chain called Formule, Formule One. Which was started by a french entrepreneur, without market research, the market research he did was on himself. He started this 30 years ago in 1985, started with one hotel, and he had a idea that there was a hole or a gap in the market for very low priced, inexpensive hotel rooms. Perhaps for traveling students, and what they mainly wanted was a good quiet bed to have a good sleep. The hotel industry in France, the one star, two star hotel industry was more abundant. Best locations taken, low profitability. It was an industry that people were leaving. So one good way to be a startup entrepreneur, can you find an industry people are leaving? And think contrarian, I'm going to go into that industry. And I'm going to reinvent it. And, create a huge value and make it highly profitable. The examples I'm gonna bring you for value profiles relate to people, courageous entrepreneurs who did that, who created value by going toward industries that other people were leaving. Here's the value curve, or the value profile, for Formule 1 in the French super budget, or super low price, hotel industry. So the entrepreneur built a value profile in his mind. I'm not sure if he did this diagram, but this is probably his thinking. And he looked at two star and one star hotel chains. And he saw that they have eating facilities and beautiful architectural design. And they have lounges. They have fairly large rooms. They have a receptionist, 24 hour receptionist. They have room furniture, amenity. Two star hotels are a little better than one star ones. The value profile, of course, lists the main features on the x-axis and then rates their performance, their value creation, either one to ten, one to five, Low, medium, high, doesn't really matter. And he looked at the existing hotel rooms and asked himself, what would I really want in a super low budget hotel? What do I really need? And the answer is I need a really good bed, really clean room, I need a quiet room, a lot of insulation and most of all, I need a low price. You can see the one star value profile on your screen and you can see that. The Formule 1 eliminated eating facilities. No restaurant. No architectural aesthetics. No lounge. Very small rooms. No receptionist. You pay for your room with your credit card and that's your key. Minimal room furniture. And you take all the money you save on those non-important features, and you invest them in really, really good beds, really clean rooms, and very quiet rooms with a lot, a lot of insulation in the walls. And then you charge lower price than one star hotels, because you saved all the money on the features that weren't important. This is the value profile for Formule 1, it proved to be a big hit, fast forward 30 years later [COUGH], hotel Formule 1 or F1 in France is a chain. It's been acquired by a huge global chain of hotels called Accor. And there are 238 locations in the UK, in Belgium, and India. Many through France and this is I guess a success story. So can you create a value profile for your product? List the features, rate their performance and then see what you can eliminate, see what you can reduce for features that don't create value that aren't core essential. And then take the saving and invest them in the key features or feature, probably no more than one to three that really create the wow or the value, and you have a successful formula for Formule 1. Another example. This is the example of the Kinepolis. Another dying industry, the Belgian cinema industry, also 30 years ago. Television has greatly reduced demand for people going to movies. People used to go to movies eight times a year in Belgium, and was down to less than two in the 1980s. Industry demand was down 40%, videos, cable, satellite TV, people were staying home in droves. Movies didn't create any real value for people. Profit margins were down. It looked like a dying industry. Bailout. Get out of the industry. It's not profitable. You're wasting your time, go and do something else. And along came two families, called the Bert and the Claeys family. This is documented by the way, by Chan and Mullborn and some of their research, case studies and articles. Along came the Bert and the Claeys families and they reinvented the movie industry. And they did this by using the value profile too, although again I doubt that they actually drew one. But this is what they had in mind. Here is what the two families did. They built the Kinepolis on the outskirts of Brussels, the first Megaplex. 25 screens, in other words, 25 movie theaters with 7600 seats. So when you go to the Megaplex you can pick from 25 movies. That means there's gotta be something there that you're going to want to see. They installed the biggest seats in the industry. Leg room, a reclined space, all most airlines seat with much more space. Best digital sound and projection equipment, 70 millimeter rather than the usual 35 millimeter standard. The largest viewing rooms in the industry. Very steep slope of the viewing theater. So that the lady wearing a hat in front of you didn't block your view. Screens are built on separate foundations so you weren't troubled by the sound from the movie in the theater next door. Huge parking lots. You're always gonna find parking. No problem to find parking. And value priced cost again. [COUGH] They kept the price per ticket constant, didn't try to gouge the maximum, didn't try to charge premium prices, kept the price reasonable in order to create mass demand. And here's the results. The Bert and Claeys' family Kinepolis got half the market from movie goers in the first year. They had almost double [COUGH] the projected sales. They thought they'd get 37,000 viewers a week. They got 62,000. The average cost per seat, 70,000 Belgian francs, this is before the Euro of course, versus the industry average of 200,000 Belgian francs per seat. Why? Because spreading the overhead. [COUGH] You have 25 theaters and the same structure essentially. Operating costs. Operating and personnel costs half the industry average because with 25 theaters you can spread your personnel across a larger number of theaters. Because it's so huge, they get the best movies and the best release dates. They can show the blockbuster movies the first. So here's some uninteresting points by reinventing the movie industry. It's not that the Bert Claey's family the Kinepolis took away all the business from conventional movie theaters. They simply enlarged the market by about 40%. Because more people who before then hadn't gone to movies, started going to movies. So sometimes a person who comes and reinvents a traditional industry, sometimes they help the incumbents in the industry as well. Even though the incumbents do not have the innovation. So the Kinepolis controlled more than half of the industry's revenue. Kinepolis fast forward to this information I have on the Internet, [COUGH] conceived in 1997. There are 23 Kinepolis cinema complexes in Europe. They represent 317 theaters. They had [COUGH] 22 million visitors in 2008. So about 10 years after they started, they have millions and millions of people who are receiving the value that they've created. And it all started from the Kinepolis Brussels which opened in 1988, with 25 screens. So how do you create a value innovation curve? How do you create a value profile? Here's the method. Take your product or service or process idea. Break it down into its key features. Take each feature and give it a score or a rating according to its performance. How much value does it create? Of course, it's all relative. You can do this low, medium, high that's probably enough or one to ten or one to five. And always ten is the best practice. So on the x axis the feature on the y axis, each features performance. You do this for your product and you do it for the best alternative, your competition. And there's always competition. Even with blue oceans. Even with a Kinepolis which was a blue ocean kind of movie theater, there are still conventional movie theaters. Look at your value profile. Look at the value profile of your competing alternative and ask yourself is this a wow? Does this give me a sustained business, sustained value creation. Is this what my clients truly want? Do they really love this unique feature or these unique features that I've created? For the Kinepolis it was pretty clear people did. And by the way I don't think the Claeys Bert families did a lot of market research. I think they took quite a big gamble, quite a big risk. Innovation is always risky. They invested money. They were absolutely certain a product that's so superior absolutely is going to succeed. Now, [COUGH] when you have a value curve, what you can do is look at it and analyze it like a surgeon. Look at each characteristic. Each product feature or characteristic, and ask yourself four questions. Is this feature so important that we need to raise it, make it better, improve it? The comfort of the theater seat, parking, the number of movies available. From 1 to 25, notice it's not just a 10% improvement, this is a 10 times improvement, this is a 25 times improvement, from 1 movie to 25 different movies. Are there features that we can eliminate? Like in a hotel formula 1 chain. Can we get rid of that crummy restaurant that people don't really need or use anyway, they've come to get a night sleep. What features can we eliminate? What features can we reduce [COUGH] because [COUGH] they don't really create value? And then what features can we create that are brand new that the industry is never offered, that the product is never offered. Can we really create a new value profile and are those new features really wow features that create value for people, and how do you know? You can introspect, you can think about your intuition, both from you. Examples and the Kinapple examples were largely, I think based on intuition. People with experience in the industry, who knew it well, and they knew the customers, but also trying your ideas, talking to people, and validating and always verifying. Startup entrepreneurship is evidence based. But much of the evidence, can come from your intuition which is just the word we give for our subconscious, summarizing our long experience. Now one more example, this is from India, and it's an example of laundry soap, so Hindustan Unilever, 30 years ago, came up with a strategy for a new kind of laundry detergent. They looked at the existing market and they came up with a new value profile. The existing laundry detergents were sold in cities, they had beautiful packaging. They were advertised in the mass media on television, sold in supermarkets. Mainly sold to the urban population, but Unilever realized, Hindustan Unilever realized, wait a second. There are over a million Indian villages. People, there do laundry. They don't have much money. They are what C.K. Prahalad has called the fortune at the bottom of the pyramid. A very large number of people, and individually they have low incomes. But because there's so many of them, they comprise a large market. Can we serve that market? Can we create value? So, the answer is yes. Let's focus on the villages. Let's make a new detergent formula because much of their laundry is done in local rivers. Perhaps the water is kind of hard, needs a special detergent, let's sell the product door to door. Let's sell it in smaller packages. Because, they don't have much money, so we can sell it in individual packages, each package cost relatively little, and let's promote this in the villages rather than in the cities. Perhaps door to door and other ways in the village. And, Wheel, as it was called, Wheel Detergent, using this new value profile. Came to be one of the leading detergents in India, and until recently was number one in the market, with something like a 17% market share and a very large revenue base for this product. So, summing up what we've discussed, perhaps a short postscript, after you create a powerful value profile like Formule [SOUND] or like Kinepolis or like Wheel, you have to continue to innovate. And I notice from the internet recently that, Wheel is no longer number one in the India laundry market. It's been displaced by a different brand called Gary. It held number one for many years. And perhaps this is a natural evolution of the market, but innovation is a daily thing and you need to keep re-evaluating your value profile, and keep reinventing it. Build on a successful one and always, always think about how you can strengthen it. This concludes tool number three, value profiles. I hope you find this useful, and now I'd like you to do an Action Learning Exercise. First, create a Unique Value Proposition for your idea. Using the template we provided, do you have a wow? Can you strengthen the wow? Next, do a value profile. Define the key features of your product and service. Do a value profile comparing it with the leading alternatives. What is your wow feature? Is it truly something that your customers will love? And finally, if you can create three unique, powerful wow features. Can you do a blue ocean product? Can you create a new category of products like Formule or Kinepolis or Wheel? Where the competition is irrelevant because there is none, because nothing like it exists.
