Testing Your Business Model

by Mike Shipulski

Testing Your Business Model

Sometimes we get caught up in the details when we should be working on the foundation. Here’s a rule: If the underlying foundation is not secure, don’t bother working on anything else.

If you’re working on a couple new technologies, but the overall business model won’t be profitable, don’t work on the new technologies. Instead, figure out a business model that is profitable, then do what it takes (technology, simplification, process improvement) to make it happen. But, often, that’s not what we do.

Often, we put the cart before the horse. We create projects to make prototypes that demonstrate a new technology, but the whole business premise is built on quicksand. There’s a reason why foundations are made from concrete and not quicksand. It’s because you can build on top of a base made of concrete. It supports the load. It doesn’t crack, nor does it fall apart. Think Pyramid of Giza.

Because foundations are big and expensive they can be difficult and expensive to test. For example, if an innovation is based on a new foundation, say, a new business model, building a physical prototype of the new business model is too expensive and the testing will not happen. And what usually happens is the foundation goes untested, the higher level technology work is done, the commercialization work is completed and the business model fails because it wasn’t solid.

But you don’t have to build a full-scale prototype of the Pyramid of Giza to test if a pyramid will stand the test of time. You can build a small one and test it, or you can run an analysis of some sort to understand if the pyramid will support the weight. But what if you want to test a new business model, a business model that has never been done before, using new products and services that have never seen the light of day? What do you do? In this case, it doesn’t make sense to make even a scale model. But it does make sense to create a one page sales tool that describes the whole thing and it does make sense to show it to potential customers and ask them what they think about it.

The open question with all new things is – will customers like it enough to buy it. And, it’s no different with the business model. Instead of creating a new website, staffing up, creating new technologies and products, create a one-page sales tool that describes the new elements and show it to potential customers. Distill the value proposition into language people can understand, describe the novelty that fuels the value, capture it on one page, show it to customers, and listen.

And don’t build a single, one-page sales tool, build two or three versions. And then, ask customers what they think. Odds are, they’ll ask you questions you didn’t think they’d ask. Odds are, they’ll see it differently than you do. And, odds are, you’ll have to incorporate their feedback into an improved version of the business model. The bad new is you didn’t get it right. The good news is you didn’t have to staff up and build the whole business model, create the technologies and launch the products. And more good news – you can quickly modify the one-page sales tool and go back to the customers and ask them what they think. And you can do this quickly and inexpensively.

Don’t develop the technology until you know the underlying business model will be profitable. Don’t staff up until you know if the business model holds water. Don’t launch the new products until you verify customers will buy what you want to sell.

Creating a new business model from scratch is an expensive proposition. Don’t build it until you invest in validating it’s worth building.

The worst way to validate a business model is by building it.

 
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shipulskiMike Shipulski brings together people, culture, and tools to change engineering behavior. He writes daily on Twitter as @MikeShipulski and weekly on his blog Shipulski On Design.

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