Testing a business idea
Decide on a market
Look for an incremental benefit
Test the concept with your target audience
Build a minimum viable product
Measure for benefits
Assess the key metrics
Keep iterating
1) Decide on a market.
Much can change from an initial idea. Of which, the market is the least likely. So choose it carefully. It should reflect a large degree of insider knowledge or understanding. This expertise will ensure a strong, long-term position. Passion for the domain will help you be able to bounce from one failure to the next and keep giving it a shot. Think of your career as being an entrepreneur in that space. You are moving from one problem to the next to find the most impactful solution. The problem you think is important may not be, but it will have helped you find the next one. If you are true to yourself and the market, the rest is learnable.
2) Look for an incremental benefit.
Don’t expect a leap. Even if there is one, break it down into stages. Most innovations are step changes. So start simple by making a small adjustment or finding a new niche for an existing idea. To be able to do this it's essential to have researched deeply. Know everything about the market, competitors, and benchmarks. Being a user yourself is the best way to understand the problem. If you aren't, try and quantify the existing pain in time or money. This makes it easier to spot and enhance your differentiation. This doesn't need to be in the product. It could be in something as simple as price, positioning, or packaging.
3) Test the concept with your target audience.
First drill down your initial target customer. A good way to do this is to create user personas. You don't need to build a single thing to get a basic understanding of whether this is a sensible idea. Speak to industry experts and potential customers. They will know a great deal about the problem. If it's real, get them involved in the development of the product. A good clue you're on the right track is if people are already hacking together a bad solution. Think of your job as 'paving the road' rather than creating it. Questionnaires and early sign-ups are other ways to test. Don't be scared of telling people your big idea. Ask for help, you'll need it.
4) Build a minimum viable product.
The first stage is to sketch the solution to your problem. Then, test a ‘pretotype’ - a total fake, a manual replica of your product. You can do this in numerous ways. With wireframes, PowerPoints, a concierge service. Once the demand is proven you can build the minimum viable product. It can help to categorise features in terms of what's essential, useful and delightful. Have a reasonable mix and then strip out as much as possible. Just be sure how it fits into your wider objectives. To manage customers, build as little infrastructure as possible, use off the shelf software where possible. This is no time for premature perfectionism.
5) Measure for benefits.
Focus on the emotional result of the pain or benefit. The reasons people buy from you are often not your product. People buy to appeal to a limited number of specific emotions, usually safety or status. So find out where you appeal to these emotions and are able to do more. Make sure to analyse this impartially. Ask open-ended questions and use A/B testing. Keep these tests as real as possible by doing them in their own environments and staying open-minded. Even if you're lucky enough to have a glimmer of hope, keep talking to customers and asking why why why. Look for strong praise or criticism and make regular go/no go decisions from the results.
6) Assess the key metrics.
Don’t lose sight of the ROI/revenue. It’s very easy to look at the big picture and imagine the time when all this money comes pouring in. Instead, start small. Try and generate revenue as quickly as possible. Avoid spending money unless it will clearly bankroll future income. Focus on generating word of mouth. Set small targets you will hit, this keeps you accountable and validate hypotheses. The value you provide is the ‘what’ plus the ‘how’, the how has more scope for value. Usually, this is better, faster, simpler. The clearest way to demonstrate this value is by repeat use. Cohort analysis can also be a good way to monitor progress.
7) Keep iterating.
This process is ongoing so embrace consistent improvement in the product. Invest in the people building it and maintain consistent build, measure, learn loops. Time shortages, artificial or otherwise, tend to increase the efficiency of development. It's ok to change model and customer early on. Changing the market is dangerous. Be willing to keep pushing to get early feedback and customers. Your value proposition will be constantly evolving and improving. So be thoughtful with iterations and be sure that problems are systemic rather than individual.
