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Once we have a starting business model, we need to test all the assumptions we put forward and eliminate those that don't work. In this stage, we're going to talk about product market fit and how we can conduct experiments to learn what works and what customers want.
[SOUND] Earlier in this course, we took
our initial business idea and
0:00
expanded on it to explore all sections of
a working business model.
0:05
What do you think our next step should be?
0:11
The most common advice and
0:14
what we tend to do naturally, is to start
building our product or service.
0:15
So, that's what I should probably do,
right?
0:19
Immediately start building my project
management software, so that I
0:22
have a fully functional product that I can
show my customers and get excited.
0:26
Now this software should include all the
features I listed down, and
0:30
be all shiny and glossy so my customers
really want to use it.
0:34
Unfortunately no, that's
counter-productive.
0:38
At this point we have absolutely no idea
what our customers want.
0:41
We think we know our customers because we
sat here brainstorming, but remember,
0:45
those were only assumptions.
0:49
You may be thinking, well I am a customer,
I am in need of this product, so
0:51
I am sure there are others out there who
need this product too.
0:54
Now that may be true, but you will find
that there are lots of
0:56
people who say that they would find the
product useful, and they would use it.
0:59
But only a small portion will actually pay
real money for
1:04
the set of features that you offer.
1:06
The best thing that you can do is to build
a product that you
1:09
know with certainty that your customers
want.
1:11
And how do you know exactly what they
want?
1:14
By getting out in the real world and
talking to them.
1:17
After developing our initial business
model,
1:21
the next phase of starting a business can
be broken down into the following steps.
1:23
Conducting an experiment to test each
assumption we built in the business model,
1:28
engaging with customers and
1:33
testing their understanding of the model,
understanding our customers better.
1:35
Implementing the insights gained from
conducting each test.
1:40
Why do we test though?
1:45
All this seems like a waste of time and
1:47
effort when we could be launching our
business to the public.
1:48
Validation is an extremely important
process and
1:52
crucial to succeeding as a business.
1:55
Anytime spent building a product before
validating our assumptions can be
1:57
a waste of time.
2:01
There are many reasons why validating is a
good idea.
2:03
We've made a lot of assumption when
fleshing out our business model.
2:07
We need to get out and test these
assumptions, so
2:11
that we can validate whether our
hypotheses are correct.
2:13
Validating your ideas before you build can
save you a lot of time and
2:17
money, by avoiding a situation where you
build a product that no one wants.
2:20
Validating your assumptions gets you
connected with your customers.
2:26
This is invaluable, and
2:29
the first step towards a methodology
called validated learning.
2:31
Validating will give you a fresh set of
eyes on your product or
2:35
service, and help you refine your ideas.
2:38
And finally, and most importantly, by
validating your idea with customers, you
2:41
figure out real quick if there are people
out there willing to pay you real money.
2:47
When we put together our business model,
we made a lot of assumptions.
2:52
We assumed that there are groups out there
who didn't have a perfect product to
2:56
fit their needs.
3:00
We assumed that existing products didn't
cut it for them.
3:01
And finally, we assumed a lot of things
about our service.
3:04
Value proposition and all down to the
individual features.
3:07
When validating, it's good to break all
this up into different segments so
3:11
that we get meaningful insights.
3:15
Test your riskiest assumptions first,
3:17
since a lot of other things depend on
them.
3:20
In conducting our experiments, first we're
gonna validate our market, and
3:23
then the problem.
3:26
My hypothesis, or assumption, is that
there are lots of small groups out there
3:28
who find current project management
software complicated or too complex for
3:32
their uses.
3:36
Is this true?
3:37
When validating our assumptions, we need
to gauge the size of the market.
3:39
Just because a few people confirm your
assumptions,
3:43
that's not enough to run a business off
of.
3:45
Make sure you have a sizable market, and I
really mean sizable.
3:48
Withe each successive filter, the number
of people that drop off will be
3:52
quite large, so make sure your market
hypothesis stands up to a large number.
3:56
Then we need to validate the problem.
4:01
New customers have the problems you think
they have?
4:03
Do they suffer the same pain points you
do?
4:06
My claim is that existing software is
focused too much on
4:09
either the individual or enterprises.
4:13
There is a gap in between where smaller
organizations need certain tools, but
4:15
they're priced too high.
4:20
We need to get out there and make sure
that this is true.
4:22
When validating our problem, like when we
validated our market,
4:25
it can be tempting to talk to family and
friends, or people that you know for
4:29
certain experience the same problems that
you have.
4:33
Now this will wrongly influence your
learning and
4:36
decisions, take pains to identify the
right groups of people.
4:38
Understand how they currently solve your
perceived problem, and
4:42
how they would like to see it solved.
4:45
Don't force your assumptions on them,
because that pollutes your findings.
4:47
You are not there to convince them that
they need your product,
4:50
you just want to validate the problem and
4:54
figure out how you can craft a solution to
fit your customer's needs.
4:56
The experiments we design to test our
assumptions should not be complicated, and
5:00
they should not take much time.
5:04
They should be simple pass or fail tests
that let us quickly gather data.
5:06
Go out and talk to a bunch of customers.
5:11
Do they experience the same problem we're
trying to solve.
5:13
Yes or no?
5:16
Set a bar that you need to cross.
5:18
For every 50 people you talk to, at least
35 need to say,
5:20
yes, we're experiencing the same problem.
5:24
The larger the test, the greater the pass
rate needs to be.
5:27
If only ten people confirm that they
experienced the problem,
5:30
that means only a smaller subset of this
may validate the product, and
5:34
an even smaller subset will pay for it.
5:38
Once you have validated the market and
5:41
the existence of the problem, then it's
time to validate your product.
5:43
Traditionally, when people think there's a
problem to be solved,
5:47
they spend six months to a year building
something.
5:50
Only to launch and
5:53
find out that the product fails because it
doesn't adequately solve the problem,
5:54
the problem doesn't exist, or the market
isn't even sizable to begin with.
5:58
By validating first, we make sure the
product we build, and the time and
6:03
money we invest, is actually worth it.
6:07
If you think of these different stages of
validation as filters to our assumptions,
6:10
then each stage of validation eliminates a
bunch of assumptions.
6:14
The ideas that we are left with in the end
are what makes for
6:19
a potentially successful product.
6:22
Your thought process should go something
like this.
6:25
[SOUND] Do consumers recognize that they
have the problem you're trying to solve?
6:27
[SOUND] If there was a solution, would
they buy it?
6:31
Would they buy it from us?
6:34
And can we build a solution for that
problem?
6:36
And how do we test these things?
6:40
By talking to customers.
6:42
There's no other way.
6:44
Don't substitute Google keyword research
or
6:45
Facebook data for actual customer
insights.
6:47
Testing the market and your problem, the
first step, will be hard.
6:51
You have to identify potential customers.
6:55
Now this is important, don't just ask your
friends and family.
6:57
Contact them and then convince them to
give you some of their time.
7:01
You should aim to talk to around 30
customers per week during the initial test
7:05
phases, so keep looking for potential
customers you can get in touch with.
7:09
You don't need exactly the right customer,
you just need to find someone who
7:14
loosely fits the hypothetical customer
archetype that you developed.
7:18
Now that we know why we should conduct
experiments,
7:22
let's look at how we can do that.
7:25
But before we move on, let's recap.
7:27
After you develop the first iteration of
your business model,
7:29
you need to test all the assumptions.
7:33
Validating our assumptions is an important
activity,
7:36
because validating your ideas before you
build can save you a lot of time and
7:38
money by avoiding a situation where you
build a product that no one wants.
7:43
Validating your assumptions gets you
connected with your customers.
7:49
You start by validating your market.
7:53
If this test passes, validate the product.
7:55
Your experiments should be simple pass
fail tests that enable you
7:59
to quickly gain feedback and move on to
validated learning.
8:03
Finally, all experiments should happen
through customer interaction.
8:07
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