Business Experimentation: How To Test Digital Business Ideas

Business experiments help entrepreneurs test their hypotheses. Rather than define the problem by making too many hypotheses, a digital entrepreneur can formulate a few assumptions, design experiments, and check them against the actions of potential customers. Once measured, the impact, the entrepreneur, will be closer to defining the problem.

Define the problem by suspending the “why”

Where scientists use labs to test their hypotheses through experimentation. Entrepreneurs build business model experiments to test their business ideas in the real world.

The most difficult, yet rewarding part for entrepreneurs is to understand the problem or a need existing in the marketplace. In short, the success of the product and the business model, in the long run, will be the side effect of how well a company solves a specific problem.

Problems usually have both functional, and psychological elements. Therefore, defining a problem adequately means solving for both functionality, and psychology.

But how do you get hold of a problem? One way to start is to ask why as many times as possible, thus drilling more and more into the problem. This is at the foundation of the five whys analysis.

While I like this approach for theoretical problem, if we have a business model which we want to test in the marketplace, let use experiments to gather quick feedbacks by the people we want to serve.

In short, we’ll formulate a few hypotheses around a problem then test that out, thus using a feedback loop to inform on whether we’re on the right path to solve the problem!

Thus, leaving the “why” suspended while we let the market tell us if we’re moving in the right direction.

Imagine the case you want to start a digital business model and test the monetization strategy for your publishing business. You have an existing audience but you’re not sure about what monetization strategy makes sense.

Do you survey them?

Not a good idea! What about formulating a few hypotheses and test whether they will pay for it?

Case study: subscription-based magazine

For the sake of helping our potential customers formulate the problem, we’ll start by formulating a few hypotheses:

  • Hypothesis 1: my audience needs a curated weekly newsletter
  • Hypothesis 2: my audience needs a set of premium resources
  • Hypothesis 3: my audience needs a weekly group coaching session

Rather than go back and theorize about what our audience needs, let’s test our hypotheses.

Experiments: what, how, when

Defined the key hypotheses, for each of them define a key experiment. We want the experiment to be well defined, in terms of:

  • How is the experiment structured? (process)
  • What outcome do I expect from the experiment? (expectation)
  • When will the experiment be deemed successful? (duration)

Connected to each of the hypotheses above craft your experiment:

  • Experiment 1: how: I’ll use a pop-up form triggered on the homepage that explains how the newsletter works with a simple CTA to subscribe. what: each subscription will be deemed as a successful action. On a test of a 1000 people, 20 subscribers (2%) will make the experiment successful. when: the experiment will last a week from now.
  • Experiment 2: how: I’ll use a dedicated landing page accessible from the main menu that shows the cover and intro of the book coming out with a simple CTA to purchase it. what: each purchase will be deemed as a successful action. On a test of a 1000 people, 20 purchases (2%) will make the experiment successful. when: the experiment will last a week from now.
  • Experiment 3: how: I’ll use a dedicated landing page accessible from the main menu that shows how the group coaching session will work with a simple CTA to purchase it. what: each purchase will be deemed as a successful action. On a test of a 1000 people, 10 purchases (1%) will make the experiment successful. when: the experiment will last a week from now.

Don’t track, measure for impact and traction

Once set up the process, expectation, and duration be patient and let the experiment run till the end to prevent stopping it too soon.

Once you have enough data to draw any conclusion also use your instinct. For instance, if experiment number one provided better results but you feel like it won’t be as successful in the long-run, compared to say experiment three.

You might want to give a few other runs.

Key takeaways

You can spend hours making assumptions about what your customers want, or you can formulate a few practical hypotheses and test them out.

While entrepreneurs get rewarded in the long-term for uncovering important business problems, often times this process of problem discovery requires a lot of experimentation, tinkering, and willingness to question our own assumptions.

One of the most effective ways is through a process of problem discovery made of looking at what your customers really do which connects to the concept of revealed preferences.

If you can uncover those unspoken truths from your customers or from the marketplace that is how you build an extremely valuable business in the long run!

Read Next: Business Model Innovation, Business Models.

Related Innovation Frameworks

Business Engineering


Business Model Innovation

Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.

Innovation Theory

The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.

Types of Innovation

According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).

Continuous Innovation

That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.

Disruptive Innovation

Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

Business Competition

In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.

Technological Modeling

Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Diffusion of Innovation

Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.

Frugal Innovation

In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.

Constructive Disruption

A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.

Growth Matrix

In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Innovation Funnel

An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.

Idea Generation


Design Thinking

Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.

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