Understanding a company’s value proposition is understanding its purpose. Why does it do what it does? What makes its solution unique? Who does it serve? In one of the most popular TED talks of all time, Simon Sinek put it rather cogently, “People don’t buy what you do, they buy why you do it. And what you do simply proves what you believe.

We’ve discussed the importance of having a solid founding team and what the market looks like, but the ability to explain who a startup is and what they exist to do is critical in its own right. There are many reasons to have a clear, succinct, and concise value proposition, but a few stand above the others.

A Startup’s Value Proposition

• Clarity. Who they are, what they do, how they’re different (more efficient, easier, simpler, better, more cost-effective, etc.), and why they are the best option—and not just for clarity’s sake, either. Straightforward, interesting, and direct descriptions don’t just happen, they are arrived at after prolonged periods of discovery. It takes a while to establish an identity, to understand your customer, and clearly articulate a vision. Startups that do this sound more credible and authentic—to their customers, themselves, and to investors.

• “Simplicity is the ultimate sophistication.” Leonardo da Vinci’s sage advice offers brilliant startup wisdom and is particularly relevant to developing or analyzing a value proposition. People often confuse flare and complexity with profound depth and great impact. But the opposite is commonly true: if a startup can’t simplify its reason for existence—its purpose and its uniqueness—it probably doesn’t really know itself. It takes a great deal of sophistication to distill something simple out of an immense load of information.

• Foundation. When a company thoroughly knows itself, its “why,” and what separates it from its competition, not only can it can better connect with its target audience, it can also lay the groundwork for whatever sales and marketing efforts may need to follow. Neither of those activities happen when a value proposition is muddled or ill-defined.

Wise advice but that doesn’t explain precisely what a value proposition should communicate. Consider:

1. What is your why? So you’ve built a better product for a bigger market and it’s both cheaper and easier to use—fantastic. But why? What is your purpose for existence?
2. Who are the target customers? Are they identifiable, enthusiastic, and accessible? Who are they now? Who will they be in six months? One year?
3. Why will they buy what you’re selling? What makes them unhappy with what they have now?
4. What solutions does your product provide? Why are they better? What benefits do they add? What are the main reasons a customer would say yes? Or, perhaps best of all, what problem are you solving?
5. How are you different? Your competition exists, but what separates you from them? Do you marginally improve an existing product in a crowded market? Are you 10X better than anything else? How does the software compare? The point here: know your competition.
6. What is your why? So you’ve built a better product for a bigger market and it’s both cheaper and easier to use—fantastic. But why? What is your purpose for existence?

A value proposition is more than a statement, its development is a comprehensive exercise that should take time to develop. The questions answered in understanding a value properly are exceptionally difficult to answer and thus invaluable in evaluating a startup and an investment in its potential. A well-defined value proposition leads a much longer story—think of it as the thesis statement to an involved, exciting, and well developed story. It’s a confident, concise assertion about everything a startup does, from its what to its why, and is a vital part of a successful company.