Start-ups: When Assumptions Are Not Enough
At MGG Consulting we spend the better part of our days “thinking in advance” on behalf of our start-up and small business clients. Most of this business planning involves a significant number of assumptions that may or may not prove out. So what is the entrepreneur to do?
Selling A Product
For every assumption we strongly recommend creating a hypothesis and testing it as fast as you can. Use pilot testing on small samples to learn which assumptions you can and can’t rely on. For example, if you are selling “vanilla tea”, offer samples to a representative group of consumers for one month in a small local geography. Test as many of your assumptions as possible, like:
- Price Point
- Buying Motives
- Buyer Demographics
- Product Seasonality
While you have your test audience, go beyond testing your assumptions and ask about their expectations or suggestions for an improved product or improved marketing approach.
Don’t hesitate to use multiple pilots. Keep each pilot small and fast. The idea is to launch to ever-larger markets relying more and more on actual test results than on those beginning business assumptions.
Oh, and the hardest part, is about really listening to your test market when the feedback is not what you expected, or worse, when you disagree. You may need to face the fact that YOU are not the market. Hard one to swallow.
Selling A Service
The same rules apply if you are selling a service. Don’t assume that your target market understands your offer or value proposition. Simple “taste tests” don’t apply. Services are usually intangible and may involve complex processes to deliver the intended value.
Entrepreneurs often confuse their process with their value proposition. This is a problem and wastes a lot of time proving your assumptions.
I recently had my right hip replaced. Did I care about the how the surgeon worked his magic? No, I was sedated. Did I care about my hospital stay or physical therapy methods? No, not really. However, I did care that I could walk without pain and regain my mobility in a short period of time. In short, I cared about results and less about how we got there.
So take the assumptions you believe about the value of your service, create hypothesis to test those assumptions. Consider providing FREE services to a handful of typical prospects in exchange for their providing detailed and candid feedback. Examples to test for might be:
- Understanding of What The Results Will Be
- Where the Results Delivered Effectively
- The Value of the Results To The Client
- Price Points
- Terms of Service
- Amount of Time And Effort Required By Client To Receive Value
- Effectiveness of Marketing Collateral and Web Content
Be mindful that providing services is far more dynamic then selling products. There is usually a dimension involving client participation is the service you are rendering. It is likely that you will need many different tests broken down by the different “cases” in which the service is provided. These tests take time and effort but in the end significantly increase the odds of success and speed time to market.
Assumptions and Testing
Every start-up is fraught with lots of uncertainty and considerable chaos. These are what make start-ups high-risk ventures. Start-ups are big risk, big reward ventures that are threatened by utter failure by unfounded and unrealized assumptions. Reducing uncertainties reduces the risk of directional failure.
Of course simply removing uncertainty and knowing how to win market does not guarantee success. The biggest cause of business failure still looms, the ability of the start-up team to execute. We’ll focus on execution and decision making in future posts.
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