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Testing New Business Ideas: Learnings From Owlet: Part 2

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In our first post on key learnings from Owlet we saw how the first few weeks of their entrepreneurial journey illustrate two critical principles:

  1. Trusting the testing process, not your initial vision

  2. Testing desirability first

Let’s come back to Owlet to see how they exemplify three more of our convictions when it comes to de-risking new business ideas.

1. Evidence trumps opinion

owlet-5

* Co-founder Kurt Workman explaining how pricing opinions coming from customer surveys proved very unreliable and how A/B pricing tests provided more solid evidence.

Almost every innovation team we work with starts testing with customer interviews. While customer interviews are great for discovery, they are tricky for hypothesis-based testing. For a team with limited interviewing experience it is easy to go off track by mistaking opinions for facts.

Our constant coaching challenge in these situations is to push teams to go beyond interviews and select several experiments with a call-to-action that will give the teams solid evidence on which to base their action.

“Be careful, what people say and what people do are two different things” we tell our teams, “don’t only do customer interviews”. They nod politely but it is hard to swallow, and they don’t really believe our advice to mistrust the data coming from customer interviews… until we show them how Owlet tested the pricing of their product.

When asked for their opinion, people told the Owlet team they would expect to pay $92 for their product and would never spend more than $214.

But in later pricing A/B tests, isn’t it interesting that the optimal price to maximise conversion proved to be $299, much higher than any price the Owlet team had heard in customer surveys?

Their pricing tests demonstrate that “what people say and what people do are two different things”, and even shows us that it sometimes plays to our advantage.

2. You don’t need more time and money to test your business idea

owlet-6

* Co-founder Kurt Workman summarising the time and money they spent to de-risk their business idea.

After just 24 weeks and having spent $1150, the OWLET team had de-risked 2 business models enough for further investment. When I hear a team complain that they don’t have enough time or money for testing, I don’t argue but I invite them to watch the Owlet video again. I remind them that if a random team of students with no money can de-risk their business idea in 24 weeks as a class project, then there should be no reason why a team of professionals with access to so much more corporate resources couldn’t do it.

3. Tell your story with the Business Model Canvas

owlet-7

* Co-founder Jake Colvin using the business model canvas with images and color coding to share complex learnings in a simple way. Here the learning is that your user is not your customer.

If you watch the video, notice how easy it is to follow the story. The Owlet team uses the business model canvas to tell of how they de-risked the most critical hypotheses of their business idea and it just flows, even when they are sharing complex learnings.

Most teams we work with have the default temptation to build a fancy PowerPoint deck to impress their jury but we insist that evidence, not a fancy PowerPoint, is what matters most, and that the Business Model Canvas is the obvious tool to tell their story and showcase this evidence. If they need any convincing, we show them a typical “cognitive murder” pitch next to the Owlet video and they can decide for themselves which one they would invest in.

In my work with innovation teams, I also use Owlet to benchmark their progress midway through an innovation sprint. Funny enough, I have not yet met a team able to make more progress in those first few weeks than Owlet. When I meet a team that can progress as fast as Owlet, I will have no other choice than to enroll them in the next International Business Model competition.

On a final note, let’s acknowledge that it takes time to build and scale a business as the Owlet story between 2013 and today shows. And that’s the last learning from this case I wanted to share.

The first few weeks are important, but there are many more weeks afterwards that are equally important in the long journey from idea to business. I wish you all the best in the next phases of your entrepreneurial journey.

If you want to go further on our thinking on testing, join the prototype of our new testing course, and if you want to go through the same process with your team please check out our Spark and Innovation Sprint offerings.

* All images taken from the 2013 International Business Model Competition Owlet YouTube video

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