Testing the business potential

Traditionally, business potential testing has started with the product, i.e. business is tested through the product. The testers have first looked for certain signals; whether there is demand for the product, how much and whether the product works. At this stage, a lot of resources have usually been used. Product development is expensive, so testing the business potential with the product is expensive as well. However, there are ways to obtain data which is critical to the business potential already earlier, and less expensively as well.

You can test the markets already without a finalized product. An idea, a thought, a value proposition, a benefit or some other element that you think produces added value to customers and your cooperation partners is enough. We could learn from the game industry here. There, you can test market a story, an idea and the envisaged added value it creates, i.e. a concept. You can look for information on the market and test whether your idea has any demand, and if yes, where. A new company is often more flexible and adaptable in the beginning, and also the risks are low due to limited resources.

Next, I briefly present the testing objectives and the testing process and provide a tool for the implementation of the testing process.

 

Testing objectives

Seeking

For testing the business potential, it is important to find and know the key partners, the weak points in the business model and the critical factors for implementation.

Assessing

By testing, you want to assess the value that your business creates in the network and the differences between optional business models. Other factors to be assessed include risks and the impact of their possible materialization. The last key objective is to assess the revenue generation potential and performance of the optional business models.

Deciding

The main objective of testing is to obtain data to support decision-making and, on the basis of that, decide. After testing, the company should know the business model to be implemented and have a  decision to proceed, as well as a progress plan.

 

Testing

The first thing in testing is to recognize the critical business factors and test the functionality of the idea in relation to them. Critical factors mean those factors that may “kill” the functionality of the idea soon, or with the highest probability. In other words, try to “kill your idea” as early as possible. With this, you look for answers to the most critical questions of your business and if you receive positive signals here, you can continue.

Testing has to be started as early as possible. For testing purposes, it doesn’t matter whether you want to test a product or a service. You can build a prototype for both of them and start testing it.

In practice, almost all business is service business by now, or at least a combination of a product and a service. The Service Design Toolkit developed in the SDT Service Design Toolkit Project in Jyväskylä UAS, is a very good tool for building the prototype. The toolkit’s starting point is to assess your business on the basis of value creation which is an approach worth taking a closer look at. The end result is enough data for testing the business potential.

The last tool in the toolkit is Business model canvas. With that you can organise all collected data on a single sheet, understand the operational environment better and create different versions of the optional business models.

You can continue testing the different versions by calculations. With them, you can analyse profitability, need for funding and future cash flow. Different pricing strategies or contract models create value to the customer in different ways. This may change the company’s approach as well.

Alternative calculation methods and sensitivity analysis are suitable tools to analyse optional business models. Moreover, scalability can be assessed with long term simulation calculations.

After testing, you can start the implementation, i.e. building the business plan as required by funders and grant givers. This should be easy by now, now that the company has gone through all the elements, analysed and tested them. In negotiation tables, a test result is a more reliable argument than a plan based on assumptions.

 

Writers

Arttu-Pekka Tavia, M. Sc. In Business Administration, Lecturer, Entrepreneurship and Start-Up Business, Oulu UAS