There are lots of ways to test a value proposition: elevator pitches, prototypes, A/B testing to name a few.
All of these techniques are useful and can help an entrepreneur shape their offer and positioning prior to launching a business. None of these, however, is quite as good as actually “delivering” the value proposition to your target segment out in the real world.
Here is what I am taking about:
Lets say you are working on a business that is aiming to update the dry cleaning industry for the on-demand generation. You intend to do this by offering a pick-up and delivery service for customers around their schedules using a mobile app as the interface.
What will often happen is that an entrepreneur will first start working on wireframes for the application and then put them in front of users for feedback. If they are ambitious they will compliment this effort with some adwords tests and other techniques to see if the idea resonates with their expected audience. Once they receive what they deem to be sufficient feedback they will quickly move to designing and coding the application.
What rarely happens is an entrepreneur starting the process of developing the solution by actually preforming the service they are intending automate.
In the case of our dry cleaning business, this could be something as simple as working with a few neighborhood dry cleaners and potential local customers – along with text messages and email – and actually picking-up and delivering peoples clothes for a month or so to learn about how the process works (or should work).
Running the business in a low-tech (or no-tech) way provides an entrepreneur with some very crucial insights on his/her business:
- It enables them to experience first-hand what the process is like for users on both sides of the business model (in this case: dry cleaners and customers), thereby building greater empathy into the design process
- It helps identify some of the “unknown unknowns” that exist in the proposed business model (maybe unexpected steps present themselves, unanticipated resistance based on having people come to their homes, or more attention needing to be paid to the service experience etc.)
- It helps you learn the language of the customer – the terms they use, how they refer to their unmet needs, what their workarounds are – all can be crucial when it comes to marketing and positioning in the future
- Ideally entrepreneurs running these tests will be PAID for their effort – providing much-needed clarity and certainty around revenue models (as well as perhaps some much-needed cash!) Really – what could be better than telling an investor that you have been running the business in a low-tech way for the past 6 months and are already cash flow positive!?
- On the flip side , entrepreneurs will also quickly learn if the revenue model (and costs) indicate a business model worth doing before they invest a single dollar into a line of code. Which leads to the last point…
- By performing the value proposition with real customers entrepreneurs will discover whether or not you have in fact found a real problem in need of solution. Many new businesses are in fact “solutions looking for problems” and its best to find out if you fall into this camp sooner rather than later.
The purpose of running these “concierge” tests (to borrow a term du jour) is not to test the business economics at scale, nor is it to be used to validate whether a business can grow quickly, compete with other emerging offers and is worth investing buckets of money in to. The purpose is simply this: to gain authentic insight and rich perspective on product-market fit, and learn what a business model must do in order to deliver its offer effectively to users.Thanks to Rick Desai for coming in to class last week and inspiring this post.