BEFORE WE TALK ABOUT HOW TO PROVE a business concept, I want to take a little time to explain why we need to do this.
My thinking is simple. You need to create a feed- back loop between your thinking and the impact that that thinking has in the real world. The world of ideas is always fragile – some ideas feel great when we’re thinking and talking about them, but flop when we execute them. Why? Because, as hard as we tried, there were some factors we didn’t consider. We won’t know what those are until we try and put the idea into practice.
The most famous example of this, in the world of business, was the New Coke disaster. In April 1985, Coca-Cola, the most famous soft drink in the world, decided to improve its recipe. It released a modified version of the black fizzy drink we all love, and the public reacted with shock and anger. The experiment didn’t last long, and Coke reverted to the original.
The exercise cost the company many millions of dollars. Ironically, when Coke brought the original recipe back, sales spiked. This is a great example of why we need to test our concepts thoroughly before trying to spread them to all corners of the world. All ideas need to be tested. Thoroughly.
MOVING THROUGH THE ACTION:
1. Conceptualize the improved value proposition, product or service.
2. Research which businesses are already providing the same.
3. Develop unique key components of your business model to differentiate yourself.
4. Develop a compelling Minimum Viable Offer, supported by a clear hypothesis!
5. Get out of the building and work with early adopters – prove your concept.
SILICON VALLEY ENTREPRENEUR AND ACADEMIC, Steve Blank,refers to the idea of Customer Discovery. This process involves developing an early-phase prototype product that has enough in it to give the customer an authentic taste of what it will do. This is the Minimum Viable Product (MVP).
Developing this prototype to a minimum level involves as little risk as possible on the business owner’s part. The key to the process is extensive interaction with early adopter consumers about what the product (or service) seeks to offer them, compared to their understanding of what it actually delivered.
Talking to early adopter customers extensively at this stage offers you vital clues to what will be needed to completely fulfil the customer’s need when you eventually arrive in the market. Minimum level development and interaction offers a very practical guide to what form your product or service could ultimately take.
Below are schematic representations of how this process should work:
– Stop selling; start listening
– Develop your key hypothesis
– Test the “problem” hypothesis with customers
– Confirm Discovery Completion
(repeat until proven)
Blank is saying that we need to be careful to ensure that we really understand what the customers’ true need is. We need to understand the detail of their pain and we need to offer a compelling way to resolve it. We also need to speak to these customers once we have delivered a solution to them, in order to verify that it has indeed healed the pain. If it hasn’t, we need to revise our understanding of their problem, and then revise our solution accordingly. Then, we need to speak to them again to ensure that the solution has done what we expected it to.
We need to repeat this process as often as it takes to get it right. How do we know we’ve finally succeeded? Our customers will tell us!
Creating a Hypothesis
IT IS IMPORTANT, AT THIS STAGE, not to make the mistake of keeping everything in your head. Before you go out to work with clients, you need to be explicit about what you think you’re doing. Yes, it might sound great when you tell yourself all about your business, but that’s not enough. You need to write up your hypothesis (your idea of the pain the customer is experiencing and how your business will solve it) so that, at the end of your first round of engagements with early adopter clients, you can ask them whether you have met your goal.
You can’t ask the question, of course, until you’ve defined exactly what your goal is.
Look at this example of a business hypothesis. It reads nicely, even though it’s a piece of fiction about toothpicks.
ACME TOOTHPICKS BUSINESS HYPOTHESIS
RESTAURANTS AND FOOD SERVICE BUSINESSES in the Johannesburg area can no longer access cost-effective, high quality toothpicks because the traditional major supplier has gone out of business. Toothpicks are not core to their businesses, but they now receive regular complaints from customers who experience poor quality toothpicks breaking in their mouths. These businesses now face one of two negative scenarios: a) an increase in operating costs due to buying expensive toothpicks or b) lower customer service standards thanks to poor quality toothpicks.
AMCE Toothpicks imports high quality, cost-effective toothpicks from China, and offers them to restaurants and food service businesses in the Gauteng area. Toothpicks are sold in bulk at unusually high volumes to ensure ultra-competitive prices. ACME Toothpicks clients can order via a personal sales consultant, or can utilize a web-based
ordering system delivered by active support staff.
ACME Toothpicks clients can address the possible negative effects of a change in the supply chain in Gauteng. In addition, they can take advantage of opportunities to reduce their cost of operating by ordering supplies in higher volumes than previously, which dramatically reduces the unit cost.
So, our question is, how do we get a similar thing going for our own business idea? The trick is to follow a quick process involving separate answers to four questions. I have listed the questions below, along with their answers.
Example: Restaurants and food service businesses in the Gauteng area can no longer access cost-effective, high quality toothpicks, because the traditional major supplier has gone out of business. Toothpicks are not core to their businesses, but they now receive regular complaints from customers, who experience poor quality toothpicks breaking in their mouths. These businesses now face one of two negative scenarios: a) an increase in operating costs through buying expensive toothpicks or b) lower customer service standards thanks to poor quality toothpicks.
Example: AMCE Toothpicks imports high quality, cost-effective toothpicks from China and offers them to restaurants and food service businesses in the Gauteng area. Toothpicks are sold in bulk at unusually high volumes to ensure ultra-competitive prices.
Example: ACME Toothpicks clients can order via a personal sales consultant, or can utilize a web-based ordering system, delivered by active support staff.
Example: ACME Toothpicks clients can address the possible negative effects of a change in the supply chain in Gauteng. In addition, they can take advantage of opportunities to reduce their cost of operating by ordering supplies in higher volumes than previously, which dramatically reduces the unit cost.
Now you can see that our example hypothesis is just the answers to four questions, put one after the other!
Next, get out of the building!
