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!

Connected Business Frameworks

Blitzscaling Canvas

The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Business Analysis Framework

Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

Digital Marketing Circle

digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

North Star Metric

A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.

ICE Scoring

The ICE Scoring Model is an agile methodology that prioritizes features using data according to three components: impact, confidence, and ease of implementation. The ICE Scoring Model was initially created by author and growth expert Sean Ellis to help companies expand. Today, the model is broadly used to prioritize projects, features, initiatives, and rollouts. It is ideally suited for early-stage product development where there is a continuous flow of ideas and momentum must be maintained.

Virtuous Cycle

The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.

Freemium Business Model

The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

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).

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