Supporting Learners on the Way to Self-realization
Loving your idea will not bring in the cash: how to know if your business idea is a market fit
Published November 8, 2016 by IHB
Even though you mayfall in love with your own idea, it does not necessarely mean it is a good idea. Gaia Montelatici, Co-founder & Lead Content Developer @Impact Hub Belgrade, helps you to understand how to make your idea a solution fit to your target market.
“In God we trust — everyone else bring data!” W. Edwards Deming
I saw this happening many times: when someone comes out with a business idea, often he/she falls in love with it, and therefore he/she tends to believe that it is brilliant and that it will guarantee success. And there is nothing wrong about believing in your own idea and being excited of seeing new opportunities. Actually, it is obviously crucial that you as a founder see the value of what you are doing.
However, there is a big difference between you personally finding your idea exciting and the market demonstrating that it is worth a business.
And, just to make sure that this concept is clear (sorry if I restate the obvious), risk is an integral part of entrepreneurship, so a good idea or concept validation is different from “success”. There really is no absolute formula to determine for sure whether the idea you are incubating will be successful. What you definitely can do is to calculate the risk, know who your target groups are and how big the potential market is.
You need to constantly readapt the idea according to feedbacks and customers’ experience and be ready to fail small and pivot (applying learning from failures).
In this process, do not underestimate the importance of building a diverse, purpose-driven and hands-on team, able to continuously grow its competences in order to reach sustainability and success. Your concept will be validated when your targeted market segments identify with what you are offering, want to be part of it and are buying it.
Having said so, we are going to go through the two fundamental steps you should focus at this stage. Then I will share with you some useful tools and examples.
To demonstrate proof of concept there are two fundamental stages:
A. Problem-solution fit showing that your idea addresses the needs of beneficiaries/clients;
B. Early traction demonstrating that there is demand for what you are supplying.
So, basically the most important things to verify at this initial stage are who are your ideal customers/clients and whether your solution is solving a problem they see as a priority.
This is a truly fun phase, when you get to dig deep into interactions with people (and what better season than the summer?), to engage in amazing conversations and exchanges, because you will find that people very much like to tell you what they think about what you are doing and building. They enjoy and feel very relevant to be asked, to know that their opinion counts. They are happy to be part of it witout the burden and responsibility to endorse you and your idea at this point.Let’s understand better these two stages and what you can do about them.
A. Testing how your solution is a fit to the problem
Output: minimum viable product
“What’s the first thing you are going to do to see if your idea of bringing Impact Hub to Belgrade is feasible?”. When in process of validating my idea, I talked to the people that I knew would have understood it and would have provided open and sincere feedback to test my assumptions, to elaborate on the concept and to start building momentum.
My experience taught me how crucial it is to get feedbacks and inputs from the very beginning, and that’s why, soon after its opening, Impact Hub Belgrade offered young seed entrepreneurs the opportunity to tell their story and business idea at an event called “Pitch&Nosh”, where we informally gathered with snacks and drinks ready to give our open thoughts about incubating concepts. This simple format, really helped people to better understand whether the problem they identified was only theirs or if it was shared by others.
1. Remember to focus first on those who understand you
These are for example the socially-engaged advocates, opinion leaders, early adopters or in other words individuals whose lifestyle precedes trends to become mainstream in the next period of time. These are the ones upon which you will define your business model.
2. To research, understand and characterize your market segments, is essential
Who are your ideal customers? Where do they live and what is their job? What do they do in their spare time? Where do they find out about new products? Get as specific as you can, as this will help you understand if you’re solving a real problem. Put yourself in their shoes and think about what frustrates or worries them. By focusing on one type of person, you are not automatically excluding anyone else — you’re sharpening up your proposition. Remember, a confused prospect never buys, so the clearer you are the easier it is to sell your idea.
3. Create your customer persona
Use the “persona” or “client profile” in association to the “customer journey” as a technical tool to help you trace the parameters, indicators, socio-economic, psychometric, lifestyle determininantsof your target groups.
B. Offering a solution to your ideal customer and early traction
Output: a handful of new customers (your early adopters)
This stage is about prototyping and testing your minimum viable product. And you do not need to reach quantities, but rather you are looking for qualitative indicators. Just a few customers will tell you a lot about the values and benefits they attach to your product or service. They will show you why and how they use it and the way in which it impacts their lives. They will be a great sample on which to understand their experience and journey to be extended and to be enhanced on the way.
1. Constantly iterate and update your prototype
Make sure it looks, tastes, feels, performs according to the needs and expectations it is supposed to fulfill. To do so, it is a must to respond to the testers’ feedback and incorporate the learning into the upgrade of the prototype.
2. At the same time, do not lose focus
As mentioned above, early adopters are your sample because they actually are innovator just like you, so they best understand not only the immediate, but also the longer term values of what you are offering. Through them you can actually anticipate tomorrow’s market needs and design your solution accordingly. But, not all your customers are early adopters — also because they are a niche that may not represent the number you need to reach economic sustainability — so be sure to know it and distinguish inputs based on their lifestyles, socio-economic characteristics and other psychometrics. Because more mainstream buyers may actually distract you from your focus: they tend to defend the status quo and are reluctant to change.
3. Anticipate innovation
Anticipate ways to manage and balance the strategic need to be ahead of your market (innovators and early adopters) with the incumbent necessity to reach sales and thus offer value to wider audiences. The threshold is never clear and so be aware of what you tradeoff. To keep innovation rolling you just need to decide what kind of customers you will listen to! This is not to say that you should ignore your customers if you wish to innovate. Quite the contrary. If you launch a breakthrough innovation as a new product or service, you can be sure that your competitors will soon be hot on your heals with cheaper, smaller, sexier products inspired by yours. The only way to keep ahead of them is through a process of continual innovation, probably focusing more on incremental improvements than breakthrough innovation. And here is where you need to look carefully at your customers’ requirements.
4. Ultimately, you need to follow multiple paths to innovation
Looking at what your customers need, how they use your products and how they use your competitors’ products is essential for insight. But you also need to provide your creative people with leeway to pursue projects that seem to have little to do with customer requirements.
Resources you can use at this stage
Here are some tools that can help you in this process:
The Business Model Canvas
Of course, the Business Model Canvas and its variations are always a good place to start and a lean framework to walk you through the business idea development.
The Core-Competence Skillset
Other effective methodologies that we employ at Impact Hub Belgrade are based on capacity and competence building, to enable you to grow the team, business and impact that are more sustainable and scalable. Paul Bell, international business training consultant and our master mentor, developed the Core-Competence Skillset to support aspiring entrepreneurs. The first of ten modules is titled “What does it mean to be in Business” and it is a must!
Design Thinking (mastered by our Nikola Rajić) allows you to collect vital information from and about beneficiaries/customers/target groups, build engagement of your targeted market and it enables iteration and testing in real-time. This way, Because of the continuous testing of the prototype (product/service), the risk of failure diminishes or better yet, every test is pivoted fast so that every little failure is turned into another innovation that works and changes again to adapt to the peculiarity of the market. The clients/beneficiaries themselves provide open feedback and are engaged in the problem-solving and prototyping.
The process is flexible and at the same time structured through phases with clear objectives and guidelines. It is based on practical work and all Design Thinking tools can be re-adapted to a wide range of situations.
But don’t mystify too much the tools , because the secret is not in them, but rather in the content itself, in the quality of your listening, critical-thinking and ability to adapt, reflect, react to the types of findings and anticipate the next phases.
Whatever (other) method, framework and resource you may employ or not, the basics are most important: focus on the kind, characteristics, size of the market and quality of your innovation (how you solve the recognized challenge). Know your assumptions; listen to a wide range of actors-continuously; compare what you think to what you have learned; ask again and confirm you have understood by coming up with tests and prototypes that can be as simple as usual hand-drawings!
It’s always a great pleasure and a true rush of adrenaline when purpose driven entrepreneurs come to the Impact Hub Belgrade to further develop their business ideas.
Besides talking individually to me, Pavle and other team members, we encourage and prepare them to share their idea through the informal setting we provide and an audience of friends, supporters and potential clients/beneficiaries.
That’s how Katarina talked about her homemade cookies for dogs during the Pitch&Nosh event, where some twenty of us exchanged with her thoughts, associations, connections and how we related to the idea. That’s when she best understood to whom was the idea most interesting and the channels to be used to reach that particular audience.
So, do not be jealous of your idea and look for feedbacks and inputs since the very beginning. Let your idea get positively contaminated to become better and better.
This may not ensure you success, but at least you will know that your are going in the right direction and you will not waste time adjusting your path later on!