Using experimentation to innovate like a startup

If you’re launching a startup, building a scaleup, or looking to innovate in a corporate environment, you’ll want to move quickly.

Business experimentation allows you to test the surface of your new idea, revenue stream, or initiative, without wasting time and resources.

This article shows you how to use Design Thinking to create and implement new ideas quickly.

TLDR: Run experiments that validate or invalidate your business model. Once an innovative idea pays off, invest greater time and resources into the project.

Business Model Canvas

The business model canvas is a strategic management and lean startup template originally created by Alexander Osterwalder. It’s a quick and easy way to document and test the various components of your business model.

It’s a great way to get stakeholders on the same page and understand exactly how you create value in your business.

The first step in running an innovation experiment is to complete a business model canvas. If you’re new to the business model canvas Strategyser has an online course. This video provides a decent explanation of the BMC.

I find it’s easiest to use a whiteboard and Post-it Notes to document each area of your business. Draw up the canvas on the board, with titles, and start documenting your business. Each area should have 3 – 5 Post-it Notes.

You can have many business model canvases depending on the stage of your business. E.g. the one you design when you’re first launching your business will be very different to the one you’ll do in year 5.

Now you’ve documented your business model, it’s time to stress test each section of your business model and look for areas to innovate.

Testing your riskiest assumptions

If you’ve documented a new business idea, you’ll most likely have a made a lot of assumptions in your business model canvas.

To save you time and money, you will want to test your riskiest assumptions first to either validate or invalidate that part of your business model.

On the whiteboard, plot your assumptions on a simple 2×2 matrix. On the Y-axis, you have Importance from low to high, and on the X-axis, you have Uncertainty from low to high.

Take each of your assumptions and plot them on the matrix. It’s easier to focus on one axis at a time. Start with Uncertainty i.e. how certain are you of this assumption? Then move on to Importance i.e. how important is this component of your business model to your business being successful?

Once you have plotted all the parts of your business model, your riskiest assumptions should be in the top right quadrant. These are the ones you want to test first.

Find the riskiest assumptions in your Business Model

Write your hypothesis

It’s time to test the assumptions you’ve made in your business model canvas. You can do this by running an experiment – and like any experiment, you start with a hypothesis.

Firstly, what’s an assumption and what’s a hypothesis?

  • An assumption is a statement that something is true.
  • A hypothesis is an assumption stated in a way that can be tested as true or false.

Take the assumptions in the top right of your 2×2 (those with high importance and high uncertainty), and rewrite the assumption as a hypothesis. Your newly crafted hypothesis should be written in a way that can only be true or false.

Some examples of writing your hypothesis could include:

Design and run your experiment

With your hypothesis in hand, now it’s time to design an experiment to validate or invalidate it.

There are many different methods of testing your hypothesis. You’ll want to select an experiment type that works best for what you’re trying to test.

Here are a few common methods to test innovative ideas:

Customer Solution/problem interviews

Getting out of the building (GOOB) and talking to existing or potential customers is a great way to get quick feedback on your concept.

You can use interviews to uncover customer problems or test out new solutions.

Before your interview, you’ll want to create an interview guide to keep you on track when you’re talking with customers. This can be a simple ‘hunt’ statement of what you’re trying to find out, and open-ended questions that should lead to insights around that subject.

Listen carefully when you’re interviewing a customer. If a customer has something to offer about your new idea, design or innovation, treat it like gold. These comments from people who would actually use or buy your product can dramatically improve your idea.

The good news is you’ll know pretty quickly what’s parts of your idea are working and what isn’t. Elaborate usability tests are a waste of resources. The best results come from testing no more than 5 users and running as many small tests as you can afford. Watch the video here.

Social media ads

A quick and cheap way to get feedback on your concept is to test it on social media.

Start by creating an ad for Instagram, Facebook, LinkedIn, YouTube, or other platforms where your target customers are.

Your ad should be compelling for your target audience, and stand out in whichever feed it ends up in.

Some tips to think about when crafting your ad.

  • Make it insightful: What do you understand about your customer’s needs, that your competitors don’t?
  • Make it unique: What do you do (or have) that no one else does, and can’t easily acquire?
  • Make it targeted: Who will be super-passionate about your business?

Stretch your thinking when creating your ad. What are you selling? What’s the real benefit for the end customer? Why will a customer choose your business, product, or service? How can you write that value proposition in a way that will make your customer stop scrolling? What would make you stop scrolling?

Write some interesting value propositions and copy, find an appealing image that will get people clicking to find out more. Include a call to action (CTA) and next step for the audience. You can allow people to sign up on most platforms these days using a built in a form to capture customer details. With this test, you can track how many people are going to sign up or show interest in your product or service.

This template can help you create many variations (or prototypes) of your ad before you put real money behind it. Take a poll with your team and see which ads are working the best before sending it live. Be sure to test the extremes of your thinking as only real feedback from customers and prospects will show the clear winner.

You can also mock your ad up quickly with Instagram’s advertising tool, with the added benefit of taking it live in a few clicks.

Landing Page test

If you’re deciding on the best way to price your new product or service, you might want to ‘split test’ it.

Split testing allows you to ’split’ the traffic your website is getting and direct people to two or more pages. The idea is that you keep each page the same, and only change the thing you’re testing – in this case, two different pricing models.

Once you run your test, you’ll have quantitative results showing which pricing model customers preferred.

There are many products out there that can help you do this. Some of my favourites are Google Optimize (links with Analytics) and Visual Website Optimizer.

Google Optimize

Until next time…

That’s it for part 1 of this article on experimentation.

In part 2 I’ll show you what to do with your experiment results, ways to pivot, and what to do next.

With these skills you can quickly run experiments that validate or invalidate your business model.

Once an innovative idea pays off, invest greater time and resources into the project.

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