Key takeaways
- Lean start-up is the method of choice for entrepreneurs.
- Entrepreneurs use an experimental approach to venture creation.
- Prototyping offers valuable insight into consumer behaviour.
- Design your business experiment to collect feedback on market acceptance.
We read about it all the time. Entrepreneurs start their businesses in their garages (Hewlett-Packard), homes (Bertie's pepper sauce), dormitories (Michael Dell) and some in virtual space (Market Movers). They all share the same core concept: start small, be resourceful, avoid being a gambler, pivot, and gauge the world's reaction to your idea. This concept contrasts with what large corporations do and may explain why smaller outfits are better at innovation.
Lean startup
Since many entrepreneurs are of the necessity type (as opposed to the opportunity genre), they don't have many resources, but that doesn't stop them. In his book, "The Lean Startup ", Eric Ries proposes that early-stage entrepreneurs do not have a planned and linear way of testing the market. Instead, they iterate and get customer feedback. After they have received feedback, entrepreneurs proceed to customer creation and venture formation. In other words, their ideas are tested for validity because they are uncertain about market success. Lesson: don't fall in love with your idea; it might break your heart!
I like to describe it as: ideas are like frogs; you have to kiss many frogs before you find a prince! If there is much uncertainty, the best way forward is to get feedback and refine your prototype. The bottom line is that a startup is an experiment, and it's a business experiment as you have some assumptions (hypotheses) that need to be tested; if they are valid, you can now proceed.
However, the real world is far different from a laboratory—too many variables (some unknown) can foul up the experiment. You must think like an entrepreneur-scientist and collect data on your idea before proceeding to the business idea stage (an idea with commercial potential). Frequently, you have a hunch (1/2 idea), which can lead you astray. How do you collect data?
Data collection
One of the most frequently used instruments is the interview. While customers can tell you a lot, there are things they will not reveal or do not know. The old marketing adage that customers are always right or know what they want is a myth. Sometimes we misbehave in our decision-making, and sometimes when we are asked about innovative things, we are unsure. Henry Ford claimed he did not do market research, as if he had asked his subjects about travelling; they would not have suggested the automobile (it existed but was viewed as a toy for the rich). Ford thought they would have proposed a "faster horse".
Computer modelling can be effective when a large number of calculations are required. This method can work together with other simulations if there are many possible scenarios. If you want to test a new product on your website, a good way is to have a fake button. If you've researched whether customers are interested in selling their businesses, you could include that information on your real estate site. You can gauge customer interest based on the number of clicks and the information needed. Later, you can launch a business broker website and advertise that you are now selling companies, not just real estate properties.
Another way to collect information is to build a prototype. Consider creating a wooden model or a 3D printout using a computer to gauge the prospects' feedback. You can modify it as you get suggestions. If you develop a cassava batter for fried chicken, taste testing is one of the best ways to know if you have a bestseller.
I would develop training products in my early days and then try to sell them. Unfortunately, prospects were less enthusiastic than I had hoped. I invested a lot of time and energy, but I had many flops. Today, I would develop a concept, create a presentation, receive feedback, and then, if it is positive, proceed to develop the training course. Clients think I have the product, but I don't; however, I am confident I can deliver. This technique is similar to the distribution business, where you take the order and then deliver it. An entrepreneur's preselling approach differs in that you still need to finalise the intervention. When people ask me if I have the product, I would say yes. I seem to mix up the present and future tenses purposefully.
Experiment objectives
Before you start testing, remember your goals, or you will go astray. This thinking should box you in, but keep an open mind for unexpected results; there might be some gems in there. In your research, you should identify what pains the customer or what gap is in the market. Before the Post-It Note, readers would either use a highlighter (which may not be a good idea for marking your Bible) or put pieces of paper in their book. Both solutions were inadequate and unacceptable.
When experimenting, remember that you have something to test, and it must solve a problem. It has no advantage if your solution is not perceived as performing better than what exists. Gatorade was introduced after a request was made by the University of Florida football coach for a drink to improve the team's performance. In 1965, the team was given the prototype mixture, and the test was deemed successful. Quarterback Steve Spurrier, however, had a different spin on the results; he was quoted as saying, "I don't have any answer for whether the Gatorade helped us be a better second-half team or not. . . . We drank it, but whether it helped us in the second half, who knows?" But it doesn't matter as the perception is reality, and today Gatorade is the leading player in the sports beverage market.
In the Gatorade case, the benefit is the perception of winning, and that's all that counts. One of their taglines was—Gatorade gives it back when you give everything. Benefit (real or imagined) is what the customer gains from the product or service. There are core benefits (replacement of energy), or there could be supplementary ones (the feeling that you are drinking a product for winners). Drinking coconut water is probably better than consuming Gatorade, but unfortunately, coconut water has an anonymous brand name.
Finally, experiments can be a failure, and you may look upon them as wasted resources. What is more expensive, a cheap experiment that has gone wrong or a costly product that bombed? There might also be a hidden gem in experimentation—some unexpected customer feedback could unlock a previously untapped opportunity.
Editor's note: This article is an excerpt from my book Build Your Legacy Business: Solopreneur To Family Business Hero.
Sajjad Hamid is an Entrepreneurship Educator who supports entrepreneurs in scaling their ventures. In his spare time in Trinidad and Tobago, he attempts to cultivate organic tropical fruits and vegetables, practising sustainable farming in his home garden.
He is the author of Build Your Legacy Business: Solopreneur To Family Business Hero. Sajjad is a Fellow of the Family Firm Institute. You can contact him at [email protected] or visit www.entrepreneurtnt.com.
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