In our recent webinar, we discussed three critical elements that go into taking a unique business idea and creating new revenue from it with custom software.
When thinking about these elements, we found that three main questions come to the surface.
Where does value come from?
How do I know what my customer is willing to pay for?
How do I validate my assumptions without personal bias?
This list certainly doesn’t contain every question that might come to your mind when considering custom software for your new idea or how you’ll know if you’ll earn revenue, but this is certainly a good place to start.
Where does value come from?
Business is fundamentally about value exchange between customers and the providers of goods or services. The source of value is not always the same in every situation. Rather, what is actually valued in a given scenario depends on the people and circumstances.
The main thing to think about here is: What do my customers want? Am I fulfilling their needs? Does our product or service add to their life or make it better? Here you will begin to understand where the value lies.
Bottom line: Value happens when a businesses’ products or services meet the wants or needs of the customer.
How do I know what a customer is willing to pay for?
Most entrepreneurs start with an idea they think is great. And maybe yours is. But faith in your idea is not sufficient.
For over 100 years, the path followed in bringing an idea to market has been dominated by something called the Product Development Model. In this model, you start with a concept that can attract funding, then use that investment to develop a product into increasingly more complete versions – first with an internal alpha, then a limited private beta, and finally a big splashy public launch. Despite numerous success stories with this model, it has a number of inherent flaws. Chief among them is that it fails to ensure there will be customers for the product or service when it launches. “No market for product” was identified as the number one reason new business fail in a recent study.
Enter the Customer Development Model. As first articulated by Steve Blank, Customer Development is a practice that compliments Product Development. In an organization practicing Customer Development, job number 1 is to engage in Customer Discovery – finding who the customers are and ensuring that you understand how their problems could be solved with your product or service. Once you are confident in that understanding, you engage in Customer Validation where you put that confidence to the test by guaranteeing that customers will indeed buy what you’re selling. For more on Customer Development, see here.
It’s not until you have successfully navigated the Customer Discovery and Customer Validation phases can you say with any certainty that your idea is great. At that point, you’re not working from a position of faith. You’re progressing with data and evidence to back that faith up. Gathering that evidence is the stuff of validation, which we’ll turn to next.
Bottom line: Understand your customers first, stay in customer development as long as you need to have a proven business model, and don’t rely solely on product development.
How do I validate my assumptions without personal bias?
The business idea you’re considering for custom software or for increased revenue is probably something you’ve poured a lot into. You may even feel personally tied to it. But, when it comes to testing assumptions about it, you want to try and remove as much personal bias as possible. But how?
When it comes to testing assumptions, we follow the practice of Build-Measure-Learn .
Build: Form a falsifiable hypothesis (i.e. one you can prove wrong with evidence) based on one of your assumptions. For example, if you believe your product or service is difficult to appreciate without experience, you might hypothesize “if I offer a free trial, I will end up with more paying customers than I would if I require them to pay up front.” Once you have a hypothesis, build something to test it. In the earliest stages of exploration, these tests can be done with off the shelf software or even simple conversations. Later, you may require custom software to make forward progress.
Measure: A well-constructed hypothesis and experiment will produce unambiguous answers to your questions. After the experiment is run, you measure the results and compare them to your assumptions.
Learn: Reflect on what you’ve learned to date. Decide what you need to learn to move forward. What do you need to know about your customers? What are their problems? What do you need to explore further to see if your idea is going to meet their needs?
Repeat: The Build-Measure-Learn cycle is one you’ll run over and over again. The chances for success increase the faster you can make this cycle go.
Bottom line: Rank the current assumptions you have about your idea and customer, build experiments to test out your theories, start simple and keep building as your business grows, be thoughtful about what you choose to measure.
Getting Started
Want to learn more about how you can turn a unique business idea into new revenue with custom software? Check out our free webinar or schedule your free consultation anytime!
