Tuesday, April 30, 2013

What's Best Way to Test a New Business Idea?


You've come up with what you think is a great idea. What's the best way to test it? The Wall Street Journal put this question to The Experts, an exclusive group of industry and thought leaders who engage in in-depth online discussions of topics from the print Report. This question relates to a recent article that discussed how many well known entrepreneurs came up with great ideas and formed the basis of a discussion in The Experts stream on Monday, April 29.
[image]Carl Wiens
The Experts will discuss topics raised in this month's Small Business Report and other Wall Street Journal Reports. Find The Experts online at WSJ.com/SmallBusinessReport.
Also be sure to watch two small business thought leaders—NYC Food Truck Association President David Weber (@DavidWeberNYC) and Harvard graduate and Flour Bakery + Cafe chef and owner Joanne Chang (@jbchang)—as they speak about getting your business idea off the ground in a Wall Street Journal interactive video chat that aired on Monday, April 29 at 3 p.m. EDT.
James Schrager: Start Small and Study Up
A small-scale, real-world test is always the best way, and will be the No. 1 priority of many VCs (venture capitalists) when getting serious about an idea. Think of how Zuckerberg tested "The Facebook " in one evening at Harvard. It caught on like wildfire. A perfect, small-scale test. If you want to do a chain of restaurants, show me one restaurant where people stand in line to have dinner, such as Smoque, a fantastic place in the Chicago area (full disclosure: I love their roast beef). If you can't test, then show me analogues that have done very well. If you want to build the next high-performance sports car, show me everyone who has tried in the last 20 years. Know their case histories verbatim, why the deal worked or why they failed. Google is an example of something brand new, but it was tested accidentally when graduate students at Stanford commented that it was absolutely the best search engine available. Amazon couldn't be tested small—it needed scale to get started—but was similar to a mail-order apparel store without the catalog and with a much smaller opening gross margin. Those simple facts predicted that selling new books on the Web might not be wildly profitable and for many years, it wasn't. But that was another way to test—find what your new business is similar to, and use those yardsticks.
James Schrager is a clinical professor of entrepreneurship and strategic management at the University of Chicago Booth School of Business.
Joanne Chang: Figure Out What Sells
For me a field test works best. I basically made everything that I wanted to sell at my bakery beforehand for friends and family and used them as guinea pigs to see what flew and what didn't. Everyone loves sweets and they love them even more when you are giving them away free. The key was, would they pay for it. After a few tastings people reached out to me and wanted to pay me to bake for their parties so I knew I was onto something.
Joanne Chang (@jbchang) is the owner of and chef at Flour Bakery + Café and Myers + Chang in Boston.
Mary Liz Curtin: Do Research—and Don't Ask Friends and Family for Their Opinions
Whatever your idea is, start with research before you try to bring your idea to life. Go to trade shows, read trade magazines, scour the Web to learn all you can about the industry, potential customers and your competitors. Look at similar services, products or concepts and see how they are marketed, what prices they command and how they are distributed. After writing a business plan, if the idea still seems valid, a test market or beta test is fabulous if it is practical for your concept. You may find retailers who will carry the product to help you test it, target users to try your software…if it is possible to get it into the hands of people similar to those you target that is a great beginning.
Whatever you do, don't solicit your friends and family for their opinions. They love you (probably) and aren't likely to give you solid criticism, constructive help or valid opinions. Talk to successful entrepreneurs in your field or a similar one, ask potential customers and consider working with a development consultant, after carefully checking his or her references.
After you do the legwork, follow your instincts and decide how to proceed after the test.
Always remember that your first launch is only the beginning—you need a plan for the follow-up iterations, products or services that will keep your initial consumers engaged.
Mary Liz Curtin (@marylizcurtin) is the owner of Leon & Lulu, a 15,000-square-foot destination lifestyle store located in Metropolitan Detroit.
[image]Richard Duncan
Rich Duncan: Don't Reinvent the Wheel
Most of our ideas come from others in the same trade and industry. When we see what we like, we discuss as a team what may have worked for the other company and/or what didn't work. The idea is then adjusted and altered as needed to make it an even greater idea. When we are finally ready to implement the idea into our own company, it has, essentially, already been tested. By not wasting time to "recreate" the wheel, we grow our company by using the professional and networking relationships we've established with other companies. We want to think of ourselves as in the top five, if not top three in our industry and trade, and being able to spend more time on the ideas that we already see proving successful in other companies, we are able to grow our company to our goal.
Richard Duncan is the president of Rich Duncan Construction in Salem, Ore.
Rosanne Haggerty: Don't Be Afraid of Failure
Just do it! So many entrepreneurs spend all of their time trying to avoid failure that they don't advance their fields. The key to daring new things is an evaluation process that lets you learn quickly and either fail fast or keep improving, minimizing the resources at risk and maximizing opportunities for learning.
I think one of the reasons institutions in particular spend so much time planning is that they want to zero out their risk by getting it right on the first try. Unfortunately, innovation doesn't work that way. If you study successful innovators, you learn pretty quickly that there is no such thing as "getting it right." The problems we're responding to are constantly evolving, and our solutions have to evolve with them. Attempts that miss the mark can be powerful data sources to inform future design iterations.
This willingness to risk failure in pursuit of a breakthrough can feel especially scary in the social sector, where fundraising anxiety discourages honest conversations about how to move beyond existing models in search of better ones. Ironically, we've found that many funders long to have those conversations, and know all too well the limitations of playing it safe. At Community Solutions, risking failure within a controlled testing cycle is a critical part of our social problem-solving process. We've been inspired in this regard by a group called the Rapid Results Institute, with which we've collaborated on new models of rapid prototyping for the social sector. The Institute has taught us a lot about adjusting the ratios on the well-known "plan-do-study-act" cycle. The real breakthroughs almost always happen during the last three parts of the process, but most institutions spend all their time on the first part. Planning is important, but it is inherently limited to existing data. At some point, you've got to start experimenting if you want to create something new.
Rosanne Haggerty is the president and chief executive officer of Community Solutions, a not-for-profit organization whose mission is to strengthen communities to end homelessness.
John Jordan: Get a Little Help from Your Friends
When I come up with a great idea, I like to play with it by bouncing it off friends that may have expertise in that area. I find that gathering anecdotal information and "gaming" it out with friends helps me improve the idea before I subject it to more rigorous traditional analysis. Seldom is an idea completed in its author's head in its first iteration. Idea generation is a process and almost always the product of several minds. The "playing with it" with the right friends is an invaluable part of transforming an insight into a workable business proposition.
John Jordan is chief executive officer of Sonoma County's Jordan Winery, a digital wine list entrepreneur and founder of the John Jordan Foundation.
Sharon Hadary: Learn First, Then Start Talking
You've come up with what you think is a great idea. What's the best way to test it?
When you are enthusiastic about a new idea, it is almost irresistible to talk about it to anyone who will listen, solicit feedback and perhaps go as far as launching a few informal focus groups.
Successful entrepreneurs start by doing their research. Is anyone else doing something similar? If so, what would differentiate your idea and make it competitive? Has the idea been tried and failed? If so, why? What lessons can you learn from others' failures or successes? Learn as much as you can about the business model that other companies have had for similar products or services. How would can your idea transform the business model and make it more profitable?
Research the relevant industry or industries for your idea. Identify trends, quantify the potential market for the industry in general and then for the segment related to your idea. Identify gaps in the industry that your idea can address.
Now, you are ready to talk to industry experts, fellow entrepreneurs and potential customers about the product or service. From these sessions you will learn the characteristics of your market, who the decision maker for purchasing your product or service is, what changes would enhance the idea—from tweaking to total redesign, what you will have to do to create the market for the idea, and pricing considerations, including profit potential.
Having done all this, there is one last critical question to consider: Am I passionate enough about this idea to invest and sustain the energy, time and resources it will take to create a successful business?
Sharon Hadary (@hadaryco) is the founding and former executive director of the Center for Women's Business Research, an adjunct professor in the doctorate of management program at the University of Maryland University College and has co-written a new book, How Women Lead: The 8 Essential Strategies Successful Women Know.
Karl Ulrich: Determining 'Purchase Intent' Is Crucial
First, understand that a great idea isn't a ticket to success.
Three factors determine how much value you'll create in pursuing your idea.
1. The quality of the raw idea,
2. Your skills and capabilities in developing the idea, and
3. The "weather"—the random and unpredictable elements that dog all innovation.
Although the quality of the idea is only one of three important factors, your choice of idea is the factor entirely under your control, so worth treating carefully.
Based on my empirical research, I believe the best single indicator of the quality of an idea is the fraction of consumers in your target market who say they will "definitely purchase" a product or service based on that idea. You can easily measure this "purchase intent" by running a survey with 20-100 consumers using an anonymous web-based poll offering five options (definitely would not buy, probably would not buy, may or may not buy, probably would buy and definitely would buy). You don't need to have refined the anticipated solution—simply describe in a few words the pain point and roughly how you envision solving it. Look for a strong majority who select the "top box."
The most successful innovators consider and test many ideas before committing their time to developing any one of them. In fact, a Web-based survey can easily accommodate 20 or more ideas at once. Testing many candidate ideas is good discipline, and one of the practices that really distinguishes experts from novices.
Karl Ulrich is vice dean of Innovation and CIBC professor of entrepreneurship and e-Commerce at the University of Pennsylvania's Wharton School.

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