When new ideas fall outside your comfort zone
So you have had a team look at trends and consumer needs, generated lots of ideas, and developed a few draft business models. Since the ideas are slightly outside your comfort zone and beyond what the company is currently providing to its customers, you are making many assumptions about who the customer is, whether they would value your offering, and how you can make a profit. A systematic approach to business model experimentation is needed to make progress quickly without committing significant investments when outcomes remain uncertain.
The business case trap: why ideas get stuck
Many businesses struggle to take the next step. Usually, if they take any action, it involves asking the team to conduct more market research and develop a strong business case. This helps management assess whether the investment needed to launch the idea is justified. Without a solid business case, management often dismisses the idea as too risky. Recognize this scenario?
Innovation experiments to reduce risk and uncertainty
This is why experimentation is important. In its true form, it can help a business take the necessary next steps without feelingaking a very risky bet. Big uncertainties mean more perceived risk and decrease the chances of progressing the idea to a point where company leaders can make an informed and sensible decision to launch it into the market. like they are t
Learn a lot, invest a little
Learn a lot, invest a little is the principle that teams should follow here. The question is whether you can design a systematic approach to do this. The answer is yes, and there have been many examples where running simple experiments shows teams whether their assumptions hold true (or not).
Example: Innocent’s early test-and-learn approach
Take Innocent, the company known for its smoothies with the haloed apple on the label. When the founders had their idea for a pure and fresh fruit-based drink, they made all sorts of assumptions and were anxious to leave their current jobs to start a new business. Wanting to test their assumption that their proposition “make it easy for people to be healthy” would appeal to consumers, they first tested different recipes on family and friends. Confident they had found the right recipes, they set up a stall at a local music festival in London, a venue they believed would attract the people likely to buy their drinks. After spending £500 on fresh fruit, they turned it into smoothies and sold them to festival-goers. A big sign asked, “should we give up our day jobs to make these smoothies,” and they placed two waste bins labeled YES and NO. After the festival, the YES bin was completely full, which they agreed was the sign to resign their jobs the next day and focus on making Innocent a success. (For the full story from one of Innocent’s founders, watch this interview).
A practical business model experimentation process
This is a straightforward example of a single idea (and it worked) for investing small amounts and learning quickly without testing the entire business model. Whether you’re exploring one idea or managing a diverse portfolio, a more systematic approach is beneficial. The basic steps are simple:
Six steps to design and run innovation experiments
- Develop the concept based on your idea, a first cut of the business model
- List all the assumptions you are making (and be honest about them)
- Design the experiments to test those assumptions and think about the results you are looking for
- Start with the most critical assumption first (if you fail then better to fail fast)
- Synthesise the learnings and refine your business model
- Iterate until you reach an acceptable level of risk or decide to abandon the idea if you don’t
Keep business model experimentation small, fast, and decision-focused
But remember the principle of learning a lot quickly while spending little. This means the team will need to find creative ways to test their assumptions without requiring large budgets. Keep in mind, it’s not about piloting your entire business model, so be opportunistic about how you approach this.
How we apply experimentation with clients
We regularly incorporate experimentation into our methodology, and it helps companies think more clearly about what it takes to say yes to a new idea and what level of risk they are willing to accept.
