We’ve always stated that many start-ups fail because of a lack of market understanding. Launching a business without proving that the solution is what people want or need puts all innovation efforts at risk. However, corporations and other businesses face the same threat when improving customer experiences, trying new business models, or developing new products. Even the most experienced managers or corporate innovators can’t trust their instincts or gut feel. So, corporate innovators, it is time to start with business experimentation.
The power of business experimentation
The power of business experimentation is its capacity to reduce the uncertainty in your business by generating the evidence needed to make informed investment decisions.
A well-known example is what happened to Ron Johnson In 2011.
Ron Johnson became the CEO of J.C. Penney. After joining the organisation, he decided to implement a bold plan to change the customer experience drastically. His team eliminated coupons, filled stores with branded boutiques, and implemented new technologies that eliminated cashiers, cash registers, and checkout counters. In less than 17 months after Johnson joined J.C, the sales had plunged, losses had soared, and Johnson had lost his job.
What went wrong?
It is naive to think they didn’t have insights. An organisation like J.C Penney collects daily data regarding customer choices and preferences. But behavioural data is not enough to make bold changes.
When it comes to innovation, nobody can rely on experience or intuition. Therefore, experimentation is the most secure and fastest path to achieving success. Although it is one of the most challenging processes to implement, creating the “test and learn” culture will give you a considerable competitive advantage.
The business experiment mindset
Kids have the perfect experiment mindset. The way children discover the world is by trying, failing/succeeding and learning. With time kids accumulate fears and get more afraid to fail. That misconception of failing is what makes adults so risk-averse. Corporations behave like adults. They aren’t playing anymore because now they have more to lose. So how do we get corporates into the experiment mindset?
The experiment mindset is all about thinking of failure as learning. Understanding that learning is a never-ending journey allows you to make mistakes.
You have two possible outcomes when running business experiments: Validated (true) or invalidated (false). Invalidation means NOT YET. The business experiment mindset will help you focus on the process instead of the outcomes, and all results are learnings.
Running business experiments
The process of business idea validation requires a particular structure. Like scientists developing new vaccines, business experimentation requires a clear and well-defined hypothesis. This hypothesis will help you to select the proper series of experiments that eventually will give you the insights you need to make decisions.
‘93% of all business experiments fail, so most of your experiments will inevitably fail too.’
Three variables help organisations and (corporate) innovators to prepare successful experiment(s):
- Formulate good hypotheses: Testable, precise, and discrete
- Clarify the stage on the innovation journey: problem, solution, market
- Select the right experiment.
In theory, you can’t test ideas or assumptions. Instead, you must translate the assumptions underlying your idea into clear, testable hypotheses. A business hypothesis is what you need to learn to understand if your business idea might work.
Hypotheses
There are three different types of hypotheses to test three different things you need to know before launching.
- Feasible: Can we build this? Feasibility hypotheses help validate if you have the capabilities and resources to create, manage and scale the idea.
- Viable: Should we do this? Viability hypotheses help to understand how profitable and sustainable your idea or business model is.
- Desirable: Do people want this? A hypothesis about desirability helps you understand if there is a market need or desire for your product.
When redacting your business hypothesis, bear in mind that it should be testable and precise.
Stage of your innovation journey
One more step before selecting the proper experiment(s): Stage of your innovation journey.
Innovation is a process that starts with an idea and ends with putting a business on the market (some processes never end). If you want to experiment, you must know at which stage of the innovation process you are. Are you in a discovery phase, looking for what direction to take? Or are you in a validation phase, looking for solid evidence that confirms that your business idea is likely to work?
There are three main stages in any business innovation journey that will help you to collect robust evidence regarding your idea:
- Problem/fit
- Solution/fit
- Product/market fit
Selecting an experiment
Thanks to digitalisation, technology, and the speed we live in today, running experiments is more accessible than before. You can set up a landing page in one hour, put it live and see how the world responds to it. Of course, you want to be able to follow up and map all the actions prospects and customers take on your landing page.
Even though landing pages are a great example, it doesn’t fit all purposes. To rely on good insights, you must select the proper experiment(s).
But how?
Start with asking yourself three questions to pick the proper experiment (Strategyzer).
- What type of hypothesis are you testing? –> type of hypothesis
- How much evidence do you already have (for a specific hypothesis) –> Level of uncertainty
- How much time do you have until the next central decision point or until you run out of money –> Urgency
Once you answer these questions, you are ready to select suitable experiments to test your hypotheses.
Because we know there are many different experiments you can run to validate your hypotheses, we’ve created a guide with 30+ experiments. In addition, we’ve divided the experiments into categories: Problem/fit, Solution/fit, and Product/market fit.
The guide will help you understand the experiment, identify its cost, run time, evidence strength and more. Also, it includes tips and tools from our experiment leads that will help you focus on what matters most or use the best means to get better and faster results
