In the last article of this series we began to go through the five-step model to develop a business model that works based on the Lean Start-up ideas and discussing how they worked in the case of Zerocopy. The first of those is to define an explicit Plan A.
In this article, we will discuss the rest of those steps!
“Success can be engineered was his overall message”.
A cyclical 5-step model to develop your business model with success
Define Plan A
Define the riskiest parts
The second step is to define the crucial assumptions you based your plan on, especially those that can go wrong or have not been yet validated by the market. To do just that, the first thing you need is to prioritise the assumptions that are most risky, one by one, depending on the market and your customer segments. In Zerocopy’s case there were three key-assumptions to be validated, since the business model revolved around a three-sided platform: Students<<Zerocopy and printing points>>advertisers. The questions are then the following:
- Would students want to print for free, but with ads in the courses?
- Will advertisers pay to reach students in their courses?
- Would shops allow us to place printers in their premises?
Systematically test your plan
What follows naturally is to test those assumptions, before doing anything else. You do not want to waste time, effort and money while the most basic assumptions about your plan haven’t yet been validated. “Get out of the building!” was the first advice that Carpentier quoted. That means that this validation shouldn’t be attempted behind closed doors, but you should go out, interact with your future customers and possible target groups. That needs to happen to each segment that corresponds to the “riskiest parts”, i.e. the questions we have set at the previous step. That should take place before any resources are spent on any product.
“We talked to students to see if they would like to print for free, but with ads in the courses. We talked to advertisers to see if they are interested in targeted advertising on physical paper to students. And finally, we talked to different shops to see what it will require to set a printer at their shop.” We quickly received a lot of good feedback from the students, advertisers and we found one shop that showed interest! Now that our three key assumptions were confirmed, we worked on an MVP (Minimal Viable Product). You do not need a perfect product at this stage, not at all! So do not spend time working on a full service and options… etc. Your goal here is to gather validation data, so stick with whatever basic product that allows you to validate your solution to the problems you identified. “How many lines of code do you think you need for an MVP?” Carpentier asks enthusiastically. “None! All you need is a mock-up procedure to work with to validate the assumptions.”
Talking to Students…
“If we could do it all over again the first step I would have done is to do everything manually, with almost no cost. I would have gathered the core team and got out of the building to collect student emails after a quick explanation about printing free with ad banners and tell them to send the materials they want printed to us. If no one would eventually send his or her documents, that would be a significant sign that our most risky assumption was wrong!
For the advertisers,…
Our MVP was a PowerPoint presentation in which we sold the dream. Based on that, we tried to negotiate a deal and get a signature on a contract. This is what we really did, we got signed contracts with advertisers before we had any student or any line of code. When it worked out, we added the visuals from the advertisers manually to the course materials and then printed them and delivered them to students ourselves. If students and the advertisers liked it then then they would like a platform that streamlines the process much more. But if no advertisers or students were interested, then the concept needs to pivot for sure. But in any case, you will know! You have collected validated knowledge!”. Luckily, it all worked out for Zerocopy, with no engineering involved.
. Once the 3 assumptions where validated, and we received more and more documents, we started building an IT platform that would automate this process. It’s basically building a machine and then fine-tuning that machine towards product/market fit.
4. Product/Market Fit
- Gathering data is not confined to one stage or step, but is a continuous process that helps you pivot when you need to until your product fits the market. That means as a model your business would be optimised to the most urgent needs of the market and customers. Once that fit is there, it means that your start-up is finally scalable and it can finally shift focus to become a company. But how to know if you reached that product/market fit? There are three main pointers to scalability:
- A robust product: that means you have a product that covers the basic need of all your customer segments, without going into too much detail to satisfy all the wishes. That will guarantee technical scalability. Too many options will make everything exponentially more complicated to manage.
- Having at least 3 growth channels: how will you guarantee that your customer base will continue to grow if you have only one channel for growth? One channel is too risky and might be exhausted early on. Then you have spent a lot making a product that is supposed to serve a wide customer base but then you couldn’t reach that base. “You need 3 at least” Carpentier says matter-of-factly.
- A retention rate of 40% or higher: if less than 40% of your first-time customers return, then that means you do have a good value proposition. However, it may be that your machine doesn’t offer what it promises because it still has bugs, bad UX, unclear how it works, … so now it’s rather about fixing these issues and increasing that metric. That signifies that there are much better things you can do for your customers, since you were able to attract all those potential customers based on your UVP but could not hold on to them. A pivot at that stage might also do wonders.
In June 2016 Zerocopy reached the product/market fit for all three sides of the platform: students, advertisers and shops. But “We did not stop there! There is a business that is scalable, and a business that is very scalable.”
In the third and final part of this series, we will go into more detail about the product\market fit with focus on pivoting the business model to have more of scalable fit.
To give a glimpse of what the process of scaling up is all about, Maxime continued a bit further than he wanted. The next step is naturally to scale-up after reaching the product/market fit. That means you have to start raising funds and finding investors to help execute that model and start optimising it guided by the data. But that is a decision that always needs consideration, because once you take that step there’s no going back, or at least it becomes very difficult to pivot. “We, at Zerocopy, had plans to go international. But our validated model proved difficult to scale internationally because of the hardware and maintenance expenses.” Carpentier laments.
Check our next and final article of this series to see how Zerocopy managed to find a solution to this problem. See you soon!
Note: Are you curious on how to put an idea into practice? Join Start Academy and learn how to Run Lean!
What are you working on? Let us know in this weeks survey