Part Three: Test And Verify Your Business Model
You have analyzed all the elements of your business model and designed a business model that appears to offer an excellent opportunity. But, you still only have a hypothesis, and your risk is real. The next step is to test, iterate, and verify your business model.
Following is an example of why you can’t take your business model for granted, even if the model had proved it works, When JC Penny was in trouble they hired Ron Johnaonk the man who designed the Apple stores which have been an enormous success, How could they go wrong? He laid out the store design into various boutiques rather than the traditional “boys department,” etc..
Plus, because the concept was so successful (at Apple), they modified all their stores within a year, which cost millions of dollars, But customers hated the new store and loss of “bargain items,” sales declined rather than increased. A little over a year later, they fired Ron Johnson and looked to go back to their old way and search for another business model.
A lot of the information here is from Seve Blank, entrepreneur, and professor at Sanford University, and comes from his book, “the Four Steps to the Epiphany.” The point of testing and verifying the business model is to move away from the standard product development model and move to a customer development model. Having a product isn’t sufficient, You need to verify you have paying customers and a financial model that works.
The cost of getting the business model wrong is devastating, and not all startups are the same. (See our article on market types). This test and verification process looks at two areas: customer discovery and customer validation,
In Customer Discovery you are trying to find out who the customers are for your product and if the product or service you solve is vital to the customer. nOt just the early adopters but to the mainstream customers, You are developing a sales model that can be replicated and can drive customer demand,
In Customer Validation you are developing a sales pathway for sales and marketing, You are trying to prove you have found customers and a market that is positive about your product or service.model and the process is repeatable
These two steps will:
Verify your market
Locate your customers and identify the economic buyer
Test the perceived value of the product or service
Establish your pricing and channel strategy
Establish your sales cycle and process
When you have completed both of these steps, you can move on to executing your business strategy and model,