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It’s likely you’ve heard the term “Value Stream” tossed around quite a bit without much context or definition. This is a shame, as creating greater efficiency without understanding an organization’s value streams is likely to result in decreased efficiency.
A value stream consists of all the steps or processes an organization goes through to deliver a product or service to the customer. But, it should go further than that. It should describe all the activities an organization does to create value for customers and other stakeholders. This includes all the activities done to develop, market, sell, deliver, and support the product outside of product creation, like manufacturing. After all, if a customer never hears of a product or can’t take delivery of it, it never creates value for them.
A product’s value stream provides an opportunity for organizations to identify inefficiencies, redundancy, bottlenecks, and other types of waste in their processes. Unlike most company cost-cutting efforts, mapping, analyzing, and improving the value stream leads to increased customer satisfaction, loyalty, reduced costs, and increased profitability, without sacrificing value creation.
Origins of Value Streams
The concept of value streams originated within the manufacturing industry, specifically at Toyota in the 1950s. The term originated in the United States lean manufacturing movement of the 1980s and 1990s. The idea behind lean manufacturing was to maximize customer value while minimizing waste, resulting in increased efficiency and profitability. One of the key principles of lean manufacturing is to identify the value stream and, if possible, eliminate any steps that do not add value to the final product or service. While identifying waste tends to be easier in a manufacturing setting because it is visible, non-manufacturing organizations often have enormous amounts of costly waste hiding in plain sight.
Value Stream Discovery
The use of Value Stream Discovery helps you uncover hidden costs and generate value for customers more quickly, when there is uncertainty..
“Value Stream Discovery is a method to hypothesize and test all the activities a business might do in order to create new value for customers.”
What if you don’t know what your value stream is? Maybe you’re creating a new product or implementing a new service, and you can only imagine your value stream. The Value Stream Discovery Loop combines traditional value stream mapping with customer journeys as a way to hypothesize all the things that a business might do in order to create value for customers.
It’s different from traditional value streams in the sense that mapping presupposes you know you have all the right processes and flows. Continuous improvement, new products, changes in the economy or environment, or simply customer whims represent uncertainty, where discovery or re-discovery can help.
The 7 Customer States
The Value Stream Discovery Loop is a customer-centric approach to value creation. It helps businesses understand what their customers need and how they can provide value to them in an efficient, value-enhancing way. At its core, this is accomplished by looking at a customer’s lifecycle journey from their perspective.
The journey can be broken down into seven states that a customer goes through: Awareness, Intrigue, Trusting, Convinced, Hopeful, Satisfied, and Passionate. Each state has a customer behavior that indicates what state they’re in and at least one high level business activity required to get the customer to act out that behavior. Think: “Call to Action (CTA).” Generally, you measure the # (or %) of customers who act on which CTA.
1. Aware
The awareness state is when a customer first becomes aware of a product or service. For example, you may have a new app that helps with insomnia. You decide to run a Facebook ad targeting insomniacs. The advertisement is the business activity, the CTA is visiting a landing page that describes the science behind the product. You measure clicks on the ad.
2. Intrigued
The intrigue state is when a customer becomes interested in a product. An insomniac that reads the app description on the landing page becomes interested in it, since it promises to accurately track sleep patterns and make recommendations. The business activity is building the landing page. The CTA is visiting the app store. You measure clicks to app stores from the landing page.
3. Trusting
The trusting state is when a customer trusts that a business and its products would address their needs. The insomniac reads the glowing app reviews, for example, and downloads the app (CTA). You might measure downloads referred from the landing page.
4. Convinced
The convinced state is when a customer is willing to give up something — time, money, (even privacy), in exchange for the value promised. Continuing our example, the insomniac realizes that the app really did help them sleep better and that they can get full access to all the app’s features for just ninety-nine cents per month. CTA: Purchase subscription. Measure: Purchases by landing page.
5. Hopeful
The hopeful state is when a customer is hopeful that a product will actually meet their needs. In this scenario, they’ve downloaded and purchased the app and hope that it will help them improve the quality of their sleep. It often takes time to pass through the hopeful state and is often tough to measure. So you might look at this way, what’s a behavior that indicates they still have hope. CTA: respond to email offering assistance if usage drops below threshold.
6. Satisfied
The satisfied state is when a customer is satisfied with a product or service. Here the insomniac might think, “Wow, not only have my sleep scores improved, but I actually feel rested.” Business activity: Build and make available the product (or MVP). CTA: Use the product regularly. Measure: What does an active, engaged user do in the app over some time period. (Daily or monthly active users.)
7. Passionate
This ideal state is when the customer becomes passionate about a product or service. At this stage, they may have such a positive experience the insomniac is no longer an insomniac and becomes a raving fan and tell their friends about it or write a great review online. Business activity: Something above and beyond that has emotional resonance. CTA: Share, refer, case study. Measure: Viral coefficient, percentage of cohort of satisfied customers that become, passionate by business activity.
Of course, there are layers of activities that must be done in order to get these states functional. But, in a lean fashion, you don’t want to do an excessive amount of work until you’ve validated that you actually know what work needs to be done. You know what will get a customer to a particular state.
That’s where Lean Innovation comes in; understanding the customers, running experiments, using evidence, and working in a cross-functional, agile, and iterative way. This work validates your value stream.
Product-Market fit is not a hurdle that once you cross it you’re done. You must continuously evaluate and improve value streams.
Moving through the value stream
It’s important to keep in mind that these seven states — Awareness, Intrigue, Trusting, Convinced, Hopeful, Satisfied, and Passionate — are not the order that you build out or optimize. You may want a million raving fans, but you’re not starting there. If a million people sign up, but you haven’t validated how to satisfy them, you’ve wasted acquiring that million!
To get to Product-Market Fit, you need to begin at the core, which is defining the ideal customer persona and their specific need, the right way to market to them, how you’re going to address that need, and what will lead to organic growth. To accomplish this, you test and tweak the states Intrigued, Satisfied, and Passionate.
The other states become an exercise in optimizing getting customers through the funnel and getting as many potential customers into the top of the funnel as possible. Each persona representing a different market segment has their own value stream. In a fast-moving world, value streams change. Imagine what a restaurant’s value stream looked like before COVID compared to during the pandemic?
Product-Market fit is not a hurdle that once you cross it you’re done. You must continuously evaluate and improve value streams.
How to begin
Whether discovering a new value stream for a still-to-be-launched product or seeking to improve existing value creation in the face of new uncertainty, the task may seem daunting. The Value Stream Discovery Loop and Moves the Needle is available to help. The tool provides an intuitive progression to enable both value stream discovery and optimization. By following this process, you can more easily comprehend the value streams for a product or service and make decisions that will support the success of your business. Companies such as Amazon, Google and Nordstrom have used this tool. If you’d like the tool, get it here.
BRANT COOPER, The New York Times bestselling author of The Lean Entrepreneur and Disruption Proof and CEO and founder of Moves the Needle, is a trusted adviser to startups and large enterprises around the world. With more than 25 years of expertise in changing industrial age mindset into digital age opportunity, he blends agile, human-centered design, and lean methodologies to ignite entrepreneurial action from the front lines to the C-suite.