4 tests for your startup - strategic thinking for new businesses!
April 8, 2014
So you want to start up a new business? Well, here are 4 tests you need to do in order, according to Prof Jeanne Liedtka of the University of Virginia, Darden Business School.
Customer Value Test
The first is customer value. The customer value test is a set of questions you would have to ask and verify in the marketplace. Questions like:
Is there demand for our product?
Have we demonstrated differentiated value?
Will customers continue buying from us?
And will they recommend us to others?
These are just some of the questions that need to be answered before you can proceed to the next test...
Once you have a differentiated value proposition, the next test is to see if you can produce the product or service. This is the execution test. Questions that need answered include:
How do we make it?
Do we have the expertise?
Can we do it cheaply?
Will our suppliers support us?
What is the best way to distribute it?
How to we collect payment?
Can we support our warranty policy?
Each of these questions helps us uncover the areas where we are strong, and also where we are lacking. If you want to launch a successful business, you must answer all these questions satisfactorily or don't go forward with your ideas.
There is not much use in simply being able to produce ONE item. In order to succeed, you must be able to produce many such items consistently and with a cost advantage. You will also need to ensure that all the members in your value chain can rise up to meet your requirements. Questions that need answered include:
What do I need to do to ensure economies of scale?
What standards do I need to meet?
Can my value chain partners also meet these standards?
Indeed, the sustainability test is usually the kicker in the whole process. Afterall, we may have a sense of what the customers need, and we also have a sense of how to make it; but if we cannot make them affordably, and to scale, then we will not have an enduring business. So if we cannot pass this test, we should not go ahead with plans to start the business.
If we passed these tests, then we have one more to go, the defensibility test.
This test may perhaps be the most forgiving, in a sense that if we didn't pass this test, we could still start our business. So why do we even have it? If we passed, we can be confident of insulating our brand and build great awareness and loyalty. But if we didn't pass this test, then we would need to approach the market in a different way, perhaps flooding the market in one fell swoop. Hence, the results to this test help us to define our marketing strategy. Some questions we need to ask for the defensibility test are:
Do we have a unique brand or trade mark that will distinguish us from other competitors?
Are there high enough barriers to entry that make us safe from market preditors?
What legal protection can we get for our ideas and products?
These are just some of the questions you can use to help ascertain if you have strong defensibility or not.
Taking the plunge
We shouldn't be overly cautious in starting out in our business, but neither should we be reckless and assume that we hold all the aces. By asking the right questions in these 4 tests, and going to market to test them, we are increasing the chances for our success, giving us the confidence to make the plunge.
Here's to your success!
The 4 tests are part of our organic growth program designed by Prof Jeanne Liedtka. For more information, see our organic growth program