Testing Our Assumptions

[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