The Business to Business of Customer Development

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.

The clash of certification: mainstreaming sustainability through product labeling is ripe for disruption

I’ve been critical on this blog on certification as a means to mainstream sustainability in production systems. And I can’t help myself: there are just so many naive and downright idealistic assumptions driving the uptake of certification at the moment, that it has lost much of its’ business sense. In this post I will show how the system of certification as we know it is ripe for disruption, and I will end with some alternatives from which I can see that they are working on upending the system of certificaiton as we know it.

Let me start off by running through the checklist of what product certification is at the moment and what the main assumptions on market mainstreaming are:

  1. Certification is a means for producers and product brands alike to verify claims they make of their product being responsibly produced. Third party auditing is used to independently verify the claims
  2. Certification is the mark you stick on the producer, the corresponding label is stuck on the product that comes from that producer. The consumer perceives the label, not the certificate
  3. The metrics behind certification are credible. They are mostly backed by scientific research. Scientific backing is more rigorous regarding environmental impact, because environmental metrics are more readily amenable to measurement than complex and fuzzy social processes
  4. There is a jungle of product labels out there, claiming to represent sustainably produced products. Each has its own focal interest, expressed through the issues which are incorporated in the label (like biodiversity, water use, carbon emissions, etc). Also, each has its own approach to raising the quality level of production in the market (some labeling schemes promote gradual progress on indicators like The Better Cotton Initiative, some set the bar high in an all or nothing approach like Organic certification)
  5. There are two methods currently applied to convincing producers to stick to sustainability standards. One is by sheer market power, by making standards a prerequisite for supplying. Competing firms downstream collude and impose a standard on the supplying market. The other is through what is called market development: you align big companies on a voluntary basis to voice demand for a certain voluntary sustainability scheme, and then on the other side of the market sponsor as many producers as you can to adopt the certificate, praying that this will be sufficient to reach a systems tipping point where everything is responsibly produced.

Now all these points above are variables to an equation, and that equation must solve the puzzle of mainstreaming sustainability. But the number of combinations and permutations an entrepreneur can make amongst these variables for organizing a sustainability mainstreaming trajectory are mind boggling, and downright confusing. As if running a business wasn’t hard enough in itself, now the entrepreneur needs to find some kind of meaningful balance between these variables to show to customers that a product is responsibly produced.

What sustainability message does this product communicate? Why do you need three labels? And why these three labels and not some other label?

Certification’s disruption ripeness
In view of this over complex problem, I propose that the main problem or barrier even to obtain any meaningful perspecitve on mainstreaming sustainability, is that certification has currently lost its focus on the job it needs to be doing. In its innovation trajectory so far, certification has been on the pathway of what Harvard professor Clay Christensen calls sustained innovation. Certification has been continuously extending its’ offer to the market by adding on new features like measurement methods, issues coverage, ways of obtaining and combining certificates, and levels of metrics applied.  We are even moving into a sphere of standardization in comparisson between certification schemes, where product life cycle methodologies are defined and actual products are metered on sustainability impact. This is most notably done at large scale through the work of the WalMart driven initiative called The Sustainabily Consortium. But, despite all the valiant intents and purposes, this road on sustained innovation has led the certification framework astray form the 2  main jobs it needs to be doing, namely to:

  1. help brands clearly communicate to customers that their products are responsibly produced
  2. help producers to compile new value propositions to their buyers, which can potentially command a premium in the market.

Certification as it currently is, does neither. In their competition amongst each other for consumer recognition and attention, product labeling organizations are at the same time competing with brand identity. I even heard Unilever’s CEO Paul Polman slip out during a seminar organized by the Guardian, that there is at some level a conflict between brands and certification, because there is a limit to what certification can communicate on sustainability and what the brand can communicate itself. This is particularly so for smaller and medium sized enterprises, who because of their size, operate on the basis of more close relations with their suppliers and buyers. They therefore know more about what needs to be done to achieve sustainability in their business system, than any certification scheme could possibly par.

As for producers, the value proposition of certification is very blurry and highly circumstantial. There are many opaque projections on the value of certification as for instance the one compiled by KPMG on certification in cocoa production in Ghana.

What will arise from the disruption rubble?
Of course the question is then what the alternatives would be that could disrupt the industry of certification. I see two trends that will achieve this, the first is simplicity of the mechanisms of certification. The second is refined market-based mechanisms that create a basis of consumer market adoption of sustainably produced products.

Regarding simplicity, the trend is best conveyed through pole and line fishing certification. This is a very concise way to communicate that fisherman are not depleting the ocean’s fauna with industrial fishing trawlers that scoop every living thing out of the ocean. The pole and line fishing certificate parsiminously communicates about the the probem and the purpose of the certificate, namely to counter over fishing by huge trawlers with individual fisherman holding poles with lines on them, lifting out their catch, one by one. This is easy for the consumer to understand, easy for the fishermen to adopt and (importantly) easy to inspect for the auditing agency. It is contrary to the more complex certificates, like organic, where a recent New York Times article explains that organic certification does not tell anything about conduct of the producer regarding sustainability.

Any questions on this product?

The point of consumer market adoption of a sustainability brings me to the Tip4Change venture, which I’m advising at the moment in seed phase. Tip4Change is a venture that does not impose a single standard on producers. Rather “Tip” attempts to create a market for the most responsible product, between consumers of sustainabe products and the producers behind the product. The idea is that consumers can reward what is in their opinion the best and most clear sustainability proposition by tipping the producers’ initiative (eg. community development programs, wildlife conservation, etc) at the till. This market intends to provide a clear selection mechanism for determining the stronger from the weaker sustainability propositions. At the same time producers can learn from the best initiatives, and take their shot a trumping the leaders. Brands can also leverage this, by actively profiling themselves with those producers whom they consider to be sailing the sustainability flagship.

In all, Tip4Change could provide a more simple, transparent, and less costly alternative to certification as we know it, with market uptake as a clear indicator of what works and what doesn’t. The “Tip” system intends to reveal those standards that are right at the level of what consumers can grasp regarding sustainable consumption. And “Tip” is not the only venture out there which is working on possible business models that can bind producers and consumers in this way; it has a couple of competitors! All an indication that certification’s disruption process is currently taking place.

So, what are the take-away points of this lengthy post on disruption of certification:
– certification as it is, is ready for disruption, because it is not doing the job that needs to be doing in mainstreaming sustainability, namely 1) communicating product responsibility and 2) providing producers with an option to substantiate their value proposition
– There are two driving factors that will create this disruption; 1) The market demands simplicity in the logic behind a sustainable product 2) Producers will be more supportive of and creative with a sustainability mainstreaming initiative which allows them to create and capture more value, opening up the window for mainstreaming