You have a business idea. Will people PAY you for it?

Let’s say you have an idea for a new business. Your idea is soooooo GREAT, you’re going to make millions! You pour your heart, soul, time, and savings into your idea. You hire a manufacturer and have 10,000 copies of your widget made. Or you invest thousand of dollars developing a new software program because you KNOW customers will beat your door down and lay money at your feet. After all, your widget/software is WAY better than the competition’s!

Or so you think.

Turns out, you find yourself stuck with 10,000 widgets in your basement. Or customers flock to your competitor’s software instead of yours. So your basement is full of widgets, your savings account is empty, and you’re left scratching your head.

What happened? What went wrong?

Fortunately, there are ways you can test your idea(s) and end up with a much better ending than this one. In the entrepreneurial world, two common strategies can help you save time and money: “business model validation” and “customer discovery.”

Business Model Validation

There are lots of ways to sell things, for example, in a store, online, wholesale, through a subscription, or by providing a service. There are several types of strategic partnerships you could create: marketing, supply chain, technology, and others. While these may seem like obvious statements, what’s not always obvious when you’re an entrepreneur launching a business is: which business models makes the most sense for me?

One of the best ways to think about a business model is to create what’s called a “Business Model Canvas.” Think of a business model canvas as a mini business plan, but without the tedium of writing a detailed, lengthy report. This type of plan is much more flexible and nimble. You can use sticky notes to quickly add and delete ideas; you can consider different strategies just by moving things around. You can easily consider multiple plans and lay them side by side. Or you can crumple one up and toss it in the trash when you realize it won’t work.

"Business Model Canvas" by Business Model Alchemist - http://www.businessmodelalchemist.com/tools. Licensed under CC BY-SA 1.0 via Commons - https://commons.wikimedia.org/wiki/File:Business_Model_Canvas.png#/media/File:Business_Model_Canvas.png

“Business Model Canvas” by Business Model Alchemist – http://www.businessmodelalchemist.com/tools. Licensed under CC BY-SA 1.0 via Commons – https://commons.wikimedia.org/wiki/File:Business_Model_Canvas.png#/media/File:Business_Model_Canvas.png

The Business Model Canvas was originally invented by Alex Osterwalder.

Customer Discovery

According to Brad Feld, American entrepreneur, author, blogger, venture capitalist, Techstars founder, and overall entrepreneurial guru, there are four steps to validating a business idea:

Step 1: State your hypotheses.

In this step, you write down your theory: how you will sell your product/service, who will buy it, how you will sell it, what kind of strategic partnerships you might create, your “value proposition,” (a fancy way of saying why a customer should buy your product) and a few other things. Get your theories out of your head and onto paper. This is “Business Model Validation.”

Step 2: Test the problem.

Get customers involved. Feld calls this “Getting out of the building.” Leave your office/garage/house and go talk to people. Not just anybody, but potential customers. Find out what their actual problems are.

Step 3: Test the solution.

Now, find a way to test your theories without spending a tremendous amount of time or money: build a prototype, develop a survey, or create a low-fidelity website, for example. Ask potential customers what they think your proposed product/service. Does it solve their problem? In this step, figure out whether or not people will PAY for your idea.

Step 4: Verify or pivot. 

In this step, you’ll discover one of two things: customers will LOVE your thing, or (more likely) they’ll think “meh.” While “meh” may sound discouraging at first, keep in mind that that a collective response like that just saved you a TON of time and money. Incorporate customer feedback and make your idea BETTER!

Rinse and repeat as many times as necessary until customers are WOWED. These four steps are an iterative process; it’s unlikely you’ll get it right the first time.

At the Scratchpad Accelerator this month

We are currently in “Month One” of the Scratchpad Accelerator, and our startups are currently working on business models and customer discovery. We call this month “Explore” (which will be followed my “Month 2: Pivot” and “Month 3: Grow”). All of the entrepreneurs are working on Business Model Canvases, which is forcing them to think through all the key areas of their business, and talking to customers. One of the startups just collected 800 surveys from potential customers; another is exploring strategic partnerships. It’s a month for laying a solid foundation: setting up businesses to thrive and take off rather than crash and burn.

Nobody wants to end up with 10,000 widgets in their basement or customers to flock to a competitor’s website.

For more information, check out these resources:

About the Scratchpad Accelerator
With full time support and access to industry experts and mentors, the Scratchpad Accelerator is a pilot program dedicated to helping startup companies uncover answers to critical questions about their businesses. The Scratchpad Accelerator is a University of Maine initiative in collaboration with the Maine Technology Institute.

Founding Sponsor:
BSBFLogo

Master Craftsman Sponsor:

Bangor Area Target Development Corporation

Jennifer Hooper

About Jennifer Hooper

Jennifer Hooper is the Communications Director of the Scratchpad Accelerator. She's also been working in the Maine entrepreneurial ecosystem for the past several years at the Foster Center for Student Innovation at the University of Maine.