This post is based on an audience question during our How To Validate Business Ideas webinar session. The question: how can companies manage the expectation of failure when testing new business ideas?
You’ll be running many experiments, and you’ll have to organize plenty of activities and learnings to understand if you have validated or invalidated the underlying assumptions for those tests.
It doesn’t mean much to measure failure. It doesn’t mean much to measure learning either. You need to clearly define what success means to you; which validation steps you want to make to move from idea, to opportunity, and eventually to a real working solution.
To do this you have to correctly define Key Performance Indicators (KPI’s) for each experiment. There are two types of KPIs you will want to measure.
1. Define and capture your activities
Each experiment will require many different activities, and tracking those activities will help you to assess how much was accomplished. This might include:
- How many customers you spoke to
- How many call-to-action experiments were made
- How much you learned from each experiment
This information will tell you that you measured a few times, failed a few times, connected with a certain volume of customers, and that you learned something. It’s important to remember that those metrics are solely around the activities you performed, and still don’t fully capture what progress was made (whether you validated or invalidated your assumption).
Your second set of KPI’s will be more powerful to understanding whether you are succeeding or not with your assumptions and tests.
The Test Card describes how you intend to verify if the assumptions around your idea are valid in a test.
The Learning Card works hand-in-hand with the Testing Card and helps you capture learning from your tests.
2. Define and capture your progress
Your team could start out by shaping ideas in a workshop around the Business Model and Value Proposition Canvas. That can take a short amount of time, and a minimum amount of work. Then you will have to get out of the building and start experimenting to validate or invalidate your ideas.
For example, in your particular context you will want to:
- Validate or invalidate the customer: Have you proven that your customers have the jobs, pains, and gains you wanted to address? Have you proven that the market is large enough?
- Validate or invalidate the value proposition: Have you proven that your customers are interested in your value proposition?
- Validate or invalidate parts of the business model: Have you proven a good pricing model? Have you proven your access to market? What have you validated or invalidated about your backstage infrastructure that supports your business model?
These are performance steps that indicate progress. This all has to be mapped out to clearly define what progress means in terms of market testing. How you define progress and success will be very specific to each project.
Some business and strategy thinkers would call this “innovation accounting”--a very young discipline that’s still being fleshed out. It’s an approach that will be valuable for companies who want to minimize risk, uncertainty, and failure around new business ideas, while also properly tracking the progress being made.