Test your business idea when you don’t know your customers
I enjoy mingle with visionary people. I like their constant flow of great ideas and energy. But more often, when they see me with new ideas, they will ask, “Thomas, I think I have a great idea. Can you help me to develop it?” My standard response to them is usually, “Yes sir, I can.” I will pause momentarily and continue, “But do we really have to develop it?” Most of the time, they will respond to me, “Why not?” Though I know you may feel that this sounds a little vague when I said, “Have you thought of perhaps there are other shortcuts to do it?” My objective is at least trying to get their attention to listen and avoid the common misconception of “build and they will come” experienced by most entrepreneurs. Especially those with the technical skills (like me), we tend to take our capabilities for granted, where it is always seems counterintuitive why we shouldn’t just do it.
So what are the shortcuts?
“So what are the shortcuts?” Well, I am glad that they asked. And I am sure you are probably posing the same question to me as you are reading now. These are the questions that you might want to ask yourself when you are planning your new product and business model innovation.
- Is there a faster way to develop your product? When I say faster, I am not really referring to hiring more people here. The more valid question is, have you pruned the scope relentlessly to come out with the minimum viable scope? Meaning that, you need to define the minimum set of features for your first version. Not only that but you should also ask what is the least you can do to justify there is a need for your product before you develop anything. (Anyway, that’s the main purpose of this article.)
- Is there a cheaper way to develop your product? The answer to this is closely related to the time-to-develop above. (After all, development cost is often proportion to time.) In addition to that, have you thought of perhaps there are tools available off-the-shelve that you can put together based on the minimum viable scope you define earlier. With the explosion of cloud computing, SaaS, free and open source software, you can purchase these tools or download them for free, and then integrate or customize them to suit your needs. This is assuming that off-the-shelve tools are usually cheaper compare to cost of custom development. (Which is true most of the time to my experience.)
- Are there better ways to enhance your business model? You have a basic business model, but do you know there are probably technology out there that can make your business model more attractive. For example, if you are starting an online photo album where people can save and share their photos. Have you thought of perhaps building the website on social media platform will boost your customers’ interaction. You can also leverage on their social network to market and publicize your product faster.
- Have you thought of how current social behavior and technology trend may support (or impede) your business model? Using the online photo album example mentioned in previous point, given that the social behavior nowadays that most people are using their smartphones to take photo, and a lot of people enjoy browsing through friends photo when they are waiting or commuting, wouldn’t be better if you build your online photo album as a mobile app. This will probably increase the usage of your product due to more natural customer experience.
If you have strong business sense, you know that successful product is all about marketing. And product is only one element of the marketing mix. If you read the book Lean Startup by Eric Ries,
Startup idea is simply a hypothesis about a potential product and market fit that may exist. Your primary job at the early stages of development is to learn about your potential customers as quickly and as cheaply as possible.
Essentially, regardless of what methods you will be using to learn about your product and market fit, the key objectives here are to:
- Validate the demand and your business model.
- Reduce your business risk, and increase the reward.
- Aware of the competitors that you are unaware of.
- Fail sooner, and learn faster.
As Eric mentioned in his book, the efforts that you are putting here is to prove your leap-of-faith assumptions before spending significant time and money on product development.
What I will be sharing below is some of the techniques that I have used with my clients to test their business idea before we hire software developers to build it (for digital business), or hire more staffs to scale up the operations (for brick-and-mortar business). I won’t be talking about traditional market research techniques like interview and focus group meeting, which you can find abundant of information on the web. The techniques that I share below are how we can leverage on today’s technologies to get feedback on our business idea faster and learn more from our potential customers. They are also useful when you want to test your business idea but you don’t have access to the contacts whom are your potential customers.
For the purpose of illustration, I will use virtual office as an example so that you can relate the concept that we will be discussing.
Step 1: Where to find your potential customers?
Objective and key learning points: To learn if there are customers who like your product concept on the face value. You may feel that “like” is a bit of a weak word here. But it is just nice (with respect to our time and money investment) to qualify our potential customers at this stage of development. As we proceed with the subsequent steps, we will dig deeper into their needs and perspectives. (Including whether they are willing to pay for your product.)
A landing page is a mock website (usually with single page) that contains the a brief and concise message focusing on the value that your product offers, and provide a form for people to voluntarily enter their email address.
Remember earlier we said startup idea is simply a hypothesis about your product and market fit. In this context, this should be the core hypothesis of your customer needs. Using our virtual office example, the message could be, “Premium office space, without paying a premium! Sign up now to be the first one to know.” Once this is done, you will purchase online advertising to direct traffic to the site. To make your buck worthwhile, try using targeted advertising that goes to your target market.
Interesting twist to consider:
- Be honest. Make it obvious that the product doesn’t exist yet and that you’re just gauging interest. Keep the page simple and clean and have a place for people to sign up if they are interested.
- Try to get the users to do something before they provide their contact information. This could reflect the early steps of your services. For example, get them to enter their location and post-code. After that, show a page that says, “Sorry, we don’t have it in your area yet, but we are getting there. Please enter your email if you would like to be notified.” This not only tell us the location with demand, but the user interaction process is more likely to get them provide their email address, and also give us a better chance to talk to them later on.
- Don’t just put any sales or promotional messages alone without mentioning the key benefits of your product. For example, “Launching our new office concept. Sign up now to get free 6 months rental.” Yes, you might be plenty of sign-ups, but you don’t get to learn whether your potential customers see any real value in your product. You don’t them to sign up because it is free. You want them to sign up because it is something that they need.
- Create multiple landing pages with different messaging and value proposition. Advertise them and see which landing page gets most conversion. That way you will learn what aspects matter most to your customers from the message that strikes them.
- If you don’t have the creative and technical skills to create landing page, try to use services like Unbounce, LaunchRock, KickoffLabs, etc.
Step 2: What and where are their pain points?
Objective and key learning points: To find out in a more subtle and trusting manner what are the pain points of our customers and what do they do. Trust and long term focus is important here as you want them to keep listening to you. Genuine sharing is always a good way to build trust and relationship. The sharing of thoughtful contents is to create sufficient dialogue with our customers to understand their needs, priority, and environment in order to validate our value proposition and discover a compelling business case for our product.
If you had gone through Step 1 above and run it for several weeks, you should now have a handful of email addresses of your potential customers. Otherwise, if you don’t get much response, you can scrap the idea or consider tweaking the original idea and repeat Step 1 again. Yes, I know you might be disappointed or frustrated, but at least you learn it now than spending several months building a product just to find out nobody wants it. (Remember our objective here: Fail sooner, and learn faster.)
With a list of email addresses of your potential customers that are ready to listen to you (but that does not necessarily mean they want to talk to you), the next step is to test your business idea in a more granular level, and find out what or where are their pain points. You are probably thinking of sending them an electronic survey using SurveyMonkey or SurveyGizmo now. To my experience, these tools are great once you had built a deeper relationship with your prospects, where they had gained greater trust from you to ask for more information. Otherwise, you will find out that the response rate of your survey is very poor. Not many people are willing to spend their time and effort completing a lengthy survey without knowing you can actually help. To simplify the survey, you will need to know more about them so that your survey only ask what is relevant to them.
This is where effective email marketing strategy come into play. The idea here is share a series of insightful contents that touches on the pain of your customers. The content can be in a form of article, podcast video, etc. where you find it most comfortable in expressing your thoughts. The key success criteria here is that the content must be casual (like group discussion), written in the tone of giving advice and sharing perspectives. Just like well-known email marketing strategy, careful crafting of the article title (which will also be your email subject later) is important here. You can then share the contents with your potential customers using email marketing software with click through reports, such as MailChimp, VerticalResponse, CakeMail, etc. The response that you get from your potential customers who click on the link of your article will be a good indicator of their needs and pain. These insights will be useful for us in the next step to “interview” them in a more informed and thoughtful so that we can get the answers that we need.
Interesting contents to consider (using our Virtual Office example):
- We can share about “How to reduce commuting time to work?” The response that we get will indicate customers who value short commuting time, or are frustrated about long hours traveling to work. The article that we share could be simple tips using what is available, and need not to be relevant to our envisioned solution.
- Response that you get from sharing, “3 ways to get rid of your old computers” will give meaningful insights if you are planning to offer computer rentals as one of the features of your virtual office.
- Response from sharing report, “Top 10 premium locations for small businesses in Kuala Lumpur” will most likely give you 3 pieces of information: (1) Customers who are small business owners; (2) They are located somewhere in Kuala Lumpur; (3) They want (or already have) a premium office location.
- Response from video interview with property agent on, “Tips to negotiate for a flexible office rental” will tell you customers who are more cost conscious on their office rental and looking for a flexible payment structure.
- Try sharing contents that are focusing on a single point in order to get more meaningful insights. Consider sharing about “Useful tips to save your expenses on office stationery,” compare to “Useful tips to save cost on office printing.” Response that you will get from the first article will only tell you customers who feel they are spending too much on office stationery, but you don’t know which aspect. Whereas the latter article will give you customers who are looking for a more cost effective printing solution. Depends on your objective, you need to carefully frame the subject and title to avoid getting ambiguous results.
Step 3: What solution works for them?
Objective and key learning points: To learn whether your solution solves their problems, and explore alternative design with them. In the communication process, you should also learn about what features of your product are the must-have’s, and nice-to-have’s in order to prioritize your product development later. The goal here is to find the right mix of features for our products.
Once you had done several rounds of Step 2 – sharing variety of thoughtful advice and perspectives that address the the pain of your customers based on the core value proposition of your product. The response that you get from the click through reports should give you a good idea of your customer persona and characteristics. If you have a very low (or zero) click through rates, try to check your bounce rate, i.e. the proportion of email addresses that failed to receive the message that you sent because the message was returned by the mailer server or client. If the bounce rate is very high, meaning that the email address that you collected in Step 1 are not valid, and you might consider to redo the step again. Otherwise, if you have a very low click through rate, chances are the contents that you are sharing are not consistent with the message of your landing page. (Or your customers cannot find any correlation between them.) If that’s the case, you might want to work harder to reframe the contents subject that you are sharing.
Once you make it to this step, you had successfully built a good foundation of trust with your potential customers. They are more willing to talk to you, given that you communicate with them in a personal and relevant manner. To quote from Seth Godin’s book on Permission marketing, “personal” means the message is tailored for each individual, and “relevant” means you audience deeply cares about the topic. By now, you should understand why Step 2 is an important prerequisite for this. The customer persona that you built is an important knowledge to make your communication more personal and relevant for increasing your chances of getting meaningful feedbacks.
You can do this in several ways:
- Send them a personal email. Make sure that your email subject and introduction touch on points that matter to them based on their persona. Most email marketing software can help you to do this in a time efficient manner
- Your email can include link to a customized survey for them. This should be designed carefully based on their persona to focus on questions that are relevant to them. Estimate the time required to complete the survey, and be upfront about it in your communication. Based on my experience, 2 minutes is ideal, it is ok if slightly longer, but it should not take longer than 5 minutes.
- You can put together a video or slides that simulate your product experience. Show your potential customers how your product works, what are the processes or user experience that they will expect. This is particular useful if you are developing something unique and innovative. Video usually worth a million words, and most customers only know they need certain innovation after they see it
- You can also develop interactive wireframe or prototype, probably a few of them that represent different processes in your product. Send the prototype to your potential customers based on their persona, track their interactions using web analytics such as Google Analytics, KISSmetrics, Spring Metrics, etc. Analyzing their interactions will allow us to understand what features really matter, discover hidden flaw in our design and find ways to improve it.
- Provide open text field for comments or request for help on individual page of your prototype. You want to implement mechanisms that quickly capture their feedback when they are lost. Consider adding additional options or check boxes in the prototype that can understand more about the customer behaviors and needs.
No matter what approach you choose, the key to remember here is you should not ask any commitment from your customers at this stage. We should not be seen as trying to get business from them. Instead, we should position ourselves as asking for advice or help from them. Try to respect their time, keep it short and simple, and make it easy for them to response. I know you might have lots of things to get feedbacks from your potential customers, and you are tempted to get all the answers in one go. Instead of overwhelming them and lose your chance talking to them, try to spread out your communications, and focusing on one topic at a time.
To sum up, testing your business idea before diving into product development is critical for your business. You must find out if the market wants your product and is willing to pay for it. Internet had provided us a platform to reach out to more people and companies who are in our target market. By selecting the right tools and use them in the right way, we can engage in a conversation with our potential customers to learn about your product and market fit before developing it.
About The Author
Thomas Cheah is the Principal CTO-for-hire of Procto. He helps business owners and executives to innovate their business model thru strategic technology management so that they get 80% of the benefit for 20% of the cost. If you have innovative ideas but do not the technical expertise, he is your partner to validate and build your digital business models. Thomas believes that constant business innovation is increasingly important in today's business environment so that our business is prepare for rapid change of customer behavior, rising cost, and globalization in order to stay ahead (or away) of competition.
Learn more about Thomas Cheah.