Greyscale: Unit of Value with Jerry Chen

TL;DR

Unit value is Jerry Chen’s framework for thinking about how a startup should build products and scale its go-to-market strategy. It connects technology and market fit with pricing, packaging, fundraising needs, margins, profits, channels, partnerships, customer acquisition costs, awareness, and distribution. Read on to understand why distribution can determine whether a startup converts its technical advantage into a successful company.

Transcript

great so um thank you guys hopefully the morning was productive I think we structured the morning was focused on kind of overview of a blitzscaling or gray scaling well we'll figure out the right terminology eventually and we'll apply the right trademarks and t-shirts and then Dan and Jeff obviously it's I I feel blessed and lucky work for this guy... Read More

Key Insights

• 🐕‍🦺 The success of a startup's go-to-market strategy relies on understanding and defining the unit value of their product or service.
• 🇦🇪 Unit value determines pricing, packaging, channel development, customer acquisition costs, and overall profitability.
• 💀 Startups need to be aware of the challenges associated with different unit value sizes, such as the dead zone, and find cost-effective ways to acquire and serve customers.
• 🐕‍🦺 Nonlinear value creation, through additional products or services, can increase customer stickiness and drive long-term growth.
• 🪈 Platform strategies, system of record ownership, and glue layer technology can help startups become dominant players in their respective industries.
• 🍉 App stores can be effective for distribution and discovery, but startups should not rely solely on them as long-term channels.

Questions & Answers

Q: What is the unit value framework in Greyscale with Jerry Chen?

Jerry Chen presents unit value as a framework for discussing markets, go-to-market strategy, and how products should be built. He describes it as a conversation starter that may be partly right and partly wrong, rather than a definitive formula.

Q: Why does Jerry Chen compare startups with incumbents?

He frames the startup versus incumbent contest as technology versus distribution. A startup may have an advantage in areas such as AI, security, storage, scale, or an application process, while incumbents already have customers, sales forces, channels, brands, and leverage.

Q: Why is distribution critical for a startup?

A startup must build cost-effective distribution and reach customers before incumbents can buy or build competing technology. Once the startup gains scale and appears on an incumbent’s radar, the incumbent may acquire a competitor or create its own alternative.

Q: How does blitzscaling affect go-to-market operations?

Jerry Chen says blitzscaling or hyper scaling often requires extending go-to-market capacity ahead of the company’s current position. This can involve hiring sales representatives and inside sales representatives while spending heavily to build distribution.

Q: How does unit value affect startup fundraising?

The go-to-market model influences how much money a startup needs to raise. Jerry Chen contrasts funding needs of 1 million dollars with 100 million dollars, showing how dramatically the required capital can vary.

Q: How does unit value affect pricing and packaging?

Jerry Chen says understanding go-to-market helps a startup set its pricing and packaging. These choices are connected to how the product reaches the market and whether distribution can be built cost effectively.

Q: How does go-to-market strategy affect margins and profits?

Go-to-market choices help determine margins and profits at scale. Jerry Chen contrasts a 10% business with a 90% business, while acknowledging that the eventual result may fall somewhere between them.

Q: Why can strong technology alone be insufficient for a startup?

Jerry Chen argues that investors and startups can become overly focused on the product or technology while underestimating the difficulty of bringing it to market. He says a company needs both a technology solution and a large market, and successfully connecting them is essential.

Summary

In this video, the speaker discusses the concept of unit value and its importance in go-to-market strategy. He explains that unit value is the smallest measurable unit that delivers value to the user or customer of a product or service. He explores different examples of small, medium, and large units of value and how they can impact pricing, distribution, and scaling. The speaker also emphasizes the need for startups to be thoughtful about their unit value and to iterate and adapt as needed. He provides insights on how to change unit value, the challenges of being stuck in the "dead zone," and the potential of creating nonlinear value and leveraging network effects, standards, and platforms. Finally, he addresses the considerations of unit value in the SMB and enterprise markets and gives suggestions on how to navigate the shift in unit value.

Questions & Answers

Q: What is unit value and why is it important in go-to-market strategy?

Unit value is the smallest measurable unit that delivers value to the user or customer and determines the price, distribution, and scaling of a product or service. It is important in go-to-market strategy because it informs decisions on customer acquisition, pricing, packaging, margins, and profits.

Q: How does company size, specifically startups versus incumbents, affect unit value?

Startups typically have smaller units of value, such as innovative technologies, while incumbents have the advantage of distribution and larger customer bases. Startups need to focus on building cost-effective distribution to reach their customers before incumbents can buy or build competing technologies.

Q: Can unit value be changed and if so, what is the process for making that decision?

Unit value can be changed, but it becomes harder the longer a company waits to change it. Companies should experiment early and be open to iterative changes. They can test different unit values with specific customer groups or release new versions of their products to adapt and find the right fit.

Q: How do app stores, such as the Amazon App Store or Google Play Store, impact unit value and pricing?

App stores can be a tactical distribution channel for acquiring users, but they should not be relied upon as a long-term channel for a business model. Early adoption and promotion through app stores can be beneficial, but once competitors crowd in, the value of an app store diminishes. It is essential for companies to have a direct relationship with their users and customers rather than being dependent solely on app stores.

Q: How does unit value apply to SMB versus enterprise markets?

Unit value is not determined by whether a company targets SMB or enterprise markets, but rather by the scalability of the units. In SMB markets, the number of units that can be scaled is smaller, whereas in enterprise markets, there is potential for larger-scale implementations. The challenge in SMB markets is to acquire and service customers cost-effectively, while in enterprise markets, the challenge lies in creating longer sales cycles and building effective distribution channels.

Q: How can companies navigate the shift in unit value, especially when dealing with consumer users?

Shifting unit value can have side effects, and companies need to be transparent and honest with their customers. The relationship with customers and the value created for them are critical. Companies can leverage their position as a powerful platform, own important data, or adjust pricing tiers and add new products. Providing different pricing options, creating different products for different customer segments, or building multiple brands can be effective strategies.

Q: How can companies create nonlinear value as they grow?

Nonlinear value can be created by increasing the value customers get from consuming more of the product or service. This can be achieved through features like management, monitoring, and security, or by capitalizing on network effects, standards, and platforms. By becoming a de facto standard, owning system records, or providing a glue layer between different technologies, companies can increase the value they offer to customers.

Q: How can startups avoid getting stuck in the "dead zone"?

Startups should avoid relying on their customers to determine pricing and packaging too early. They need to be proactive and thoughtful about their go-to-market strategy and unit value. If they find themselves in the dead zone, where the cost of serving customers becomes too high, they can consider raising money to grow average deal size or simplifying their products to decrease costs.

Q: What are the challenges and opportunities when it comes to changing unit value?

The challenges of changing unit value include the risk of customer resistance or negative repercussions. However, it is important to adapt and iterate as needed, especially during the early stages of a company. Opportunities lie in being able to pivot early, experiment with different unit values, or introduce new products to better align with customer needs and market dynamics.

Q: Are unit value and pricing the same thing?

Unit value and pricing are closely related but not the same thing. Unit value refers to the smallest unit that delivers value to the customer, while pricing determines how much customers are charged for that value. Pricing can be influenced by various factors, including the size of the unit value, the market, the customer's willingness to pay, and the company's profit margins.

Takeaways

When it comes to go-to-market strategy, understanding unit value is crucial. Startups need to be thoughtful about their unit value and not rely solely on their technology or product. They should focus on building cost-effective distribution and scaling their go-to-market strategy. Iteration and adaptation are key, as unit value can be changed but becomes harder the longer a company waits. Startups should aim to find a balance between customer acquisition, pricing, packaging, and scaling. Platforms, network effects, standards, and nonlinear value creation are important considerations for long-term growth. The SMB and enterprise markets present different challenges, but unit value is not determined by the market segment. Startups should avoid being trapped in the "dead zone" and be proactive in their approach. Lastly, being transparent and honest with customers is essential when making changes to unit value and pricing.

Summary & Key Takeaways

• Definition: Unit value is a framework for discussing markets, go-to-market strategy, and product development.

• Compare: Startups compete through technology, while incumbents benefit from established distribution.

• Tool: Startup advantages may come from AI, security, storage, scale, or an application process.

• Who: Incumbents possess customers, sales forces, channels, brands, leverage, and other distribution resources.

• Step 1: Build cost-effective distribution to reach customers before incumbents buy or build competing technology.

• Step 2: Match the technology or solution with a large market to create a viable company.

• Step 3: Use the go-to-market model to guide fundraising, pricing, packaging, margins, and profits.

• Number: Fundraising requirements may range from 1 million dollars to 100 million dollars.

• Number: Margins at scale may resemble a 10% business, a 90% business, or something between them.

• Tool: Channels, customer acquisition costs, partnerships, awareness, and distribution are go-to-market considerations.