The Business to Business of Customer Development

Posted on by Bart Doorneweert

Selling your work in progress product or service as a startup to an incumbent company is very hard. You can find yourself offering a value proposition that competes head-on with existing products, for instance on price or efficiency benefits. In that position you have to elbow your way into an existing value network that is already servicing your designated customer at a satisfactory level. In contrast, you can also find yourself in a position that you actually have no competition, because there is no reference to the solution you have developed. That is equally difficult as muscling your way into an existing market, but a different challenge: how are you going to convince your customer to change their existing value network relations based on a solution for which they have no clear conception of a problem? In this post I’ll share some of my first-hand experiences on this issue.

Creating a new value proposition
My experience in business to business work stems from the cotton processing and marketing company I co-founded in early 2006 in India, Zameen Organic. Our idea was to set up a farmer-owned company that could supply top branding customers with a sustainability ambition like Marks & Spencer’s and H&M.

We saw that these customers were interested in Fair-Trade and Organic certified produce. At that time the market for Fair-Trade and organic was growing explosively. Cotton production was nowhere near the growth rate of demand. Our proposition in this market was thus to provide a professionally run company of farmers that would be able to grow at the rate of the market, and supply the demanded quality. This was in a time when organizing trade relations between big brands and small producers was mostly the domain of NGO’s.

In developing our proposition we also saw that enabling our customers to put a label like Fair-Trade and Organic on their products was not a unique enough proposition to capture the value we intended to create. Lots of suppliers were doing that. That wouldn’t make us unique. We thus set the bar for our marketing ambitions a bit higher than just creating access to brands. We wanted to also develop systems of co-branding, where brands could affiliate themselves with social and environmental progress of their supplying smallholder producers. In return for supplying quality produce and growing supply, we wanted to let our company and our farmers in on the value that was captured downstream in the consumer market.

Selling ‘new’ in an existing market
Filled with ambition, I set up several meetings with potential big brand customers to discuss our idea. I started off with just the guy from procurement at the table. Unfortunately he didn’t want to take the discussion further than product price, quality, and quantity specs. My conclusion was that this guy apparently was not authorized to set any kind of innovation into motion. So I conjured my way into follow-up meetings with procurement, CSR, and marketing around the table, hoping to make each part of our proposition understandable to each relevant silo within the company. Hopefully they would come to an ‘aha!’ moment together, and that would get the ball rolling…

…But no such luck! There was no emotive response from any of the parties at the table. No recognition that our story could latch on to the problem they were facing. Why? Well, purchasing was only told to procure certified produce at the lowest possible price and secure the supply that the company required, regardless of working against odds of tight supply in the market. CSR’s job was focussed on making up the reports that showed the company was seriously picking up its responsibility. This department wasn’t involved in actual company decision making. And marketing, well marketing was not much into the business of understanding how the supply chain operated. Rather they preferred to put creative thinking into how to put the brand into a positive limelight with the end consumer. So, none of the people at the table could properly assess the value of the proposition we were trying to sell.

Selling ‘new’ in a new market
Our proposition didn’t connect with our larger customers. But on the other hand, we also serviced a segment of smaller apparel branding companies who were dedicated solely to ethically produced garments. One of our more successful branding customers was Pants to Poverty, a non-profit awareness raising company on equitable trade, under leadership of Ben Ramsden. Pants to Poverty had released a line of undergarments, conveniently lifting on Nelson Mandela’s campaigning to Make Poverty History which made the Pants brand go viral.

Ben understood the proposition of co-branding, and securing the supply for their operations. With him, we were able to set up a branding initiative advertising the link between Zameen farmers, and the underwear made from their fibers. Pants’ website till date still uses images of the Zameen Organic farmers holding up their product, demanding riddance of poverty.

Zameen farmer Pants to Poverty

Zameen Farmer Pants to Poverty Man

Zameen farmer showing ‘their’ pants

Pants to Poverty was able to create a unique value proposition to the consumer market by showing their direct contact and collaboration with farmers. Our collaboration gave PtP a more secure position in the supplying market, amidst bigger competing buyers. Farmers in return were able to negotiate better terms of trade, also including farmer training on cultivation practices in pricing, as well pre payments, on top of the regular investment of the Fair-Trade premium in meaningful projects for community development.

Existing vs. New
So what made the difference? For one it’s the fact that PtP was looking for our proposition. There was no other supplier out there that could provide the same kind of consumer marketing opportunity. Zameen enabled them to do it. But the more interesting distinction is that we succeeded to form the collaboration because Ben embodied the function of purchasing, CSR, and marketing all in one. Ben was a fully integrated customer, better able to critically assess the performance contribution that our proposition might bring. This made life much easier in pitching the idea for making Zameen part of the PtP value network.

What we saw in our other discussion with the larger companies was the symptom of dealing with a new proposition and a dispersed customer. Even though the reality of the market of short supply begged for a change in assessment of relations in their supply chain, there was no way that our large customers could recognize the value we intended to provide. They did not have the joint understanding and feedback mechanisms in their own internal cooperation that would allow them to properly assess the proposition. Nor did they feel in any way inclined to discuss the opportunity with their superiors. The proposition was too new. Hence they preferred the possibility of leaving value lying on the table and sending us home over taking a chance with us and assessing the actual potential of Zameen as a supplier on its merit.

Conclusion
The story above describes a challenge that entrepreneurs often face (social entrepreneurs almost by definition). It happens when you’re so very early to market with a solution, that people generally would dismiss it as a market opportunity. This is what Bright B Simons refers to as the struggle of creating “a new value class”.

In our Zameen case, things got rolling when we shifted focus to working with smaller companies. With these companies it was easier to come to an integrated assessment of our proposition with the people who fulfill the critical roles of user, purchaser, and beneficiary. They were organized informally enough to have a validly critical discussion about our proposition in relation to their performance priorities. At the least it ensured us that our product wouldn’t be dismissed based on false-negative arguments.

My key learning from this experience is that the more a product or service relates to the norms within an existing value network, the better you can deal with the dispersed customer. The further a product or service is removed from that network, the more you’ll need to look for your integrated customer to get a substantial discussion going. As a rule of thumb, I would say that your chances of finding integrated customers is highest with companies with up to a billion euro in revenue. Over a billion in revenue, things get layered and segmented, and you’re likely not to get a proper early assessment of your product’s market potential. Start your proof of principle with smaller companies. They might provide you with the insights and reputation that allow you to enter the big league after.

“What if” continued: reflections on business model innovation in agriculture

Posted on by Bart Doorneweert

Since my post last month on a “what if” about farmers being able to participate in brand value creation with the consumer brands, I’ve received some interesting and inspiring responses. They come from people in executive positions at a leading global food brand, and at a commodities trader, as well as from a relatively well-known marketing innovation expert and blogger.

In this post I would love to share some of the insights of this exchange. Because it’s not appropriate to present the reactions with direct attribution to the respondents due to the informal nature of exchange, I have chosen to reform the responses into a fictive conversation. The conversation is between me, as an interviewee, and an “industry journalist” enquiring into next step innovations on sustainability, marketing and supply chain operations in food and agriculture. A little schizophrenic and unintendedly vain maybe, but bear with me…

Q: This idea you have connecting farmers to brand value and marketing is a nice idea, but isn’t this just a classic Michael Porter problem statement: some companies will prefer a strategy of backward integration into their supply chains, some won’t? If consumer brands use their resources for their producer partnerships, they will not be able to utilize them in their relations with customers.

A: The dynamics in agriculture is turning very much to the disadvantage for firms that have been divesting out of production for the last decades. Natural resources are dissipating; farmers are not investing in their holdings, or as less as possible, due to low returns. Both economic returns and the environment suffer. People have been moving out of the farming practice all over the world. That is economic erosion, and it is a compounding risk of food insecurity. We need new propositions to keep farming attractive. People need to actually be moving into the business, rather than moving out, and food companies need to innovate in our food systems to secure their existence as a commercially viable company. That is what motivated my previous post, pointing to the need for new types of entrepreneurial propositions to farmers that are beneficial to food industry at the same time. It was not so much that I wanted to “push” a specific solution.

Q: Ok, for argument’s sake, let’s say you have a point: aren’t you focusing too much on added (brand) value systems? What about the commodities business, would your argument still hold?

A: Right now there is so much decline of environmental and social capital going on as well as a mounting risk of food insecurity all impacted by developments at the level of the primary farming activity. It is aggravating to such an extent that preventing that decline or taking action to invert that trend is actually the fastest growing value creating opportunity in agriculture at the moment. This type of value is not concerned with company-to-consumer value per se, it concerns the whole agri-food system, thus commodities and branded products alike. I think there is great innovation potential for the whole sector in linking back the value capturing capacity of down stream to the up stream area in the value chain where all the problems are stemming from.

Q: Sharing value across the chain, isn’t that another form of wealth distribution, and shouldn’t we have learned over the years not to use that type of socio-financial engineering?

A: What we have learnt about that, I think, is that you can’t centralize the redistribution function, like through government and taxation. And personally I would say that banks and derivatives alchemy actually belong on that same list (hahaha). What I propose with my idea, rather, is to unlock the potential of market based valuation of solutions to environmental and social problems. We’re already spending money through redistribution mechanisms in developing countries for instance; it’s called aid, and it’s really not working that well because it is spent regardless of any result.

Contrary to aid, market based valuation is contingent on performance, on achieving a superior allocation of resources. Rewarding that type of performance is the ultimate entrepreneurial proposition you can make, and it spurs innovation. Just look at what’s going on in Silicon Valley. The opportunity of creating and capturing value in the tech market generates unparalleled entrepreneurial pull that makes people from all over drop everything and move to Palo Alto. I know things are a bit crazy there, but if we could only unleash, or distribute, that type of spirit to agriculture in some way.

Q: Just stepping aside from theory for the moment: It just seems so impossible to make this work from an operational point of view. How will you reach these farmers, and what if the stock price goes down?

A: I agree that the idea would be a laborious undertaking. You would need to get thousands of farmers organized under a vehicle that could hold the derivatives and distribute returns. But then again, we have been investing in the setting up of large numbers of, oftentimes sizable, farmers’ organizations, in both developed and developing countries for years. We’re already building such infrastructure to facilitate product flow through the supply chain. New value systems could be used to strengthen the economic foundations of such collective organizations.

Secondly there is indeed and important issue of valuation an attribution of value changes. I know that brand valuation is not an exact science, but is valuation ever?  But I think the need for valuation techniques could become so important in future that we should encourage more study, rather than put it on the back burner in solving the world’s food problems. Numerous companies have been developing metrics to track performance of their marketing departments using esoteric valuation methods. Also top-line ad-agencies use contingent contracting forms to determine their reward for advising their clients on advertising and creating brand value. Why not take it from there, and look at your producer partnerships?

Regarding the point of fluctuations in stock prices, I would say that if attribution can be correctly constructed, it then wouldn’t really matter if value drops. It would mean that performance has gone down accordingly. Remember, that the idea is intended to be an entrepreneurial proposition; no performance, no reward, and each partner carries the risks of the joint value creation endeavor accordingly.

Q: If the example you provide is not actually a real solution as you say yourself, or at best too complicated, what would you then propose to do? What can companies practically work with to start on the agenda of new value systems in food and agriculture?

A: Propositions to farmers in developing countries like access to finance, fertilizer, and roads is part of the needed support and often already provided. But it is not sufficient a proposition to create new entrepreneurial zest. Such propositions merely reinforce the current contracting positions of farmers, and we all agree that this is not a very attractive position.

There are also calls for structural reforms in agriculture, like disowning small and uneconomic holdings, thereby providing room for large scale investment.  But we then get back into the old redistribution dilemma, and consequent problems.

I think that relations in agriculture will become more dependent and thus more specific, given the business environment we’re in now. It is high time we re-imagineer producers as suppliers, to producers as customers. My suggestion would be to start designing partnerships as you would a design a business model for your actual customers. This would create the much needed relations for joint value creation, and the sharing of returns. It would catalyze the innovation we need to create a sustainable foundation for food and agriculture.

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I would like to thank Joost Guijt in directing some interesting contacts to my post, and inviting their response. Joost is a member of the Value Chain Generation, and developing the Cotton Coversations startup.

Although this post has been a sort of conversation with myself, I hope to invite more discussion in the commentary string below. I look forward to receiving your thoughts and responding!