Entrepreneurship, Innovation Series

Innovation Series #9: Business Model Testing

Recently, I was in a converstion with Kallol, a good friend and Director of HeadStart Network Foundation and we were discussing various aspects of Entrepreneurship. One interesting aspect of the discussion was about Business Model Testing. I was inquisitive to learn more about this when he mentioned the term. Over the course of the discussion I understood that this is what I was trying to do with various people I speak with too.

What is Business Model Testing?

Well, the first thing which comes to my mind when someone has an new business idea is How will it fit? Three years back, I too had a great, facinating and passionate idea. My friend and I came out with a business plan and a colourful presentation to show it to investors ๐Ÿ™‚ Well, we were successful to a certain extent. We presented at the first TiE-EAP Program and got an 8 ranking (1 being the least and 10 being the highest) for the idea we had. As expected, we got a 2 in Financial Model. We were techies and thought that our product will be accepted and definitely we will be able to hit the target customer base in the next five years. Well, that was a bit of over-confidence. How many of you are in the same boat?

The key aspect we forgot is the business viability and the research. We did not go to any potential customer and ask if he/she would be interested in a service like what we wanted to provide. We ASSUMED that they would accept. This is the first step to failure.

I wrote about Business Model Innovation in one of my previous posts. What I am emphasizing here is the importance of Testing your Business Model. Here are few aspects of the framework which you might want to consider:

  • Identify your Idea and WRITE it down.
  • Evaluate your idea yourself, as if you are the customer.
  • Take it to your family and friends and ask for their feedback. Remember, you need to accept the feedback as it comes. Do not JUSTIFY your idea at any point of time. JUSTIFICATION RUINS!
  • You would have surely got feedback and suggestions. Make the modification and take it back to the same set of people. REPEAT this step until you have the buy in of at least 95% of your first customers ๐Ÿ™‚
  • Now, work on the prototype. Prototyping is very important. You need not have money to prototype, use the various open source tools available on the net to build your prototype.
  • Take the prototype back to your potential customers ๐Ÿ™‚ Take feedback and build on it.
  • Ask your potential customers if they are willing to buy your Innovation and how much are they willing to buy it for. Take a buy-in (don’t hesitate to take it in writing too) from all your potential customers that they would be willing to buy your innovation once it is out in the market.
  • Work on the economics of costing. Build your financial model along the lines of the cost which your potential customers promised. This becomes your FINANCIAL MODEL.
  • Make decent and practical projections of potential sales.

You might not be a gauranteed success story, but am sure, you would have definitely averted loads of unpredictable risks if you followed the above process.

Also, you may seek guidance or suggestions from any one who is willing to listen to you too.

On these lines, if you are interested in getting a productive critic for your Innovation, feel free to write to me at harinath {at} dazasya {dot} org {dot} in. Well, I don’t charge anything though ๐Ÿ™‚

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