Testing your idea is fundamental. So often, someone thinks of an idea and jumps straight into writing a business plan. But before you even get to the business plan, there are a multitude of considerations. The first and most vital is to make sure you have something that creates value for your potential customers – and you must rigorously test this to validate your idea. You also need to ensure your idea is embedded in a business model that works. So not only does it create value for your customers, but it will capture enough value for you, and that you can deliver that value over and over again. And continue to design and test as much as you can.
The first and most vital is to make sure you have something that creates value for your potential customers
Only move on to your business plan when you have enough evidence to prove your idea is going to work. 42% of startups fail because there wasn’t enough market need. By designing and testing at the start, you can check whether there’s a market fit with your product or service.
It’s really important to understand how much it’s going to cost to acquire customers and whether that cost has value to your business. By calculating the average sales and marketing spend for each new customer, and how much profit each customer earns you, you can check that you make more profit from your customers than it cost to acquire them. If your sales and marketing activities cost you more than the profits from customers brought in by these activities, it’s a disaster. This assessment is so often missed before the business is established. And if you’re looking for investment, this is a question funders will always ask.
Whatever stage you are at with your business and however small, it’s really important to ensure there is clarity and alignment within the business.
So firstly, go through a periodic process as a team of thinking about where is this business at, and what is its mission. It has to be done collaboratively and the team should contribute in the design of that mission and vision.
Secondly, try and set yourself some sensible and realistic financial milestones. At the very least, ask yourself, “what’s our turn turnover going to be in year one, year two and year three?”. Beyond year three is almost impossible. Have some idea of where you’re going with the financial statistics you want to measure your business by and get agreement from the team when you’re doing it.
A good exercise to go through is to imagine your business has failed in three years’ time. Then think about why it failed. The idea is to get you thinking carefully about what could go wrong and what risks there are to your business, and from here mitigation strategies can be designed. This ‘pre-mortem’ is something the whole team can do and will bring different perspectives.
Finally, make sure you’re all clear on exactly how you want to set up the business. What’s your value proposition? What channels are you going to use? Who are your customers? How are you going to look after your customers? How are you going to make money? What activities and resources are required? What key partners are involved? Make sure these are agreed as a team, written down and constantly revisited.
Once all the above has been answered, that’s when you can start to create a plan.
So often companies come together annually to agree the strategy for the coming year, someone writes a big document which gets distributed and that document gets looked at once - then lives in a drawer until the next strategy away day.
A key recommendation is to plan and plan often. A good tool for this is the OKR tool developed by Google. It’s a really simple way of setting objectives, defining key results for each objective and the initiatives you’re going to take to deliver them. A suggestion for a model to use is to start by having a session where you develop a strategy (mission, vision, financial targets etc.) and out of that will come a set of goals for the year. Sometimes there will be many goals but try to focus on the things that will have most impact. These will form your annual goals. Then break everything down into quarters – rather than an annual plan that gets forgotten. So set objectives on a quarterly basis and every month get the team together to see if they’re achieving the key results and ticking off initiatives. Then review all objectives quarterly, take stock of progress and tweak them appropriately. This process of evaluation and iteration applies to not only objectives, but also the business model. Have there been any environmental changes meaning the business model needs adjustment?
Quarterly evaluation sounds frequent, but a lot can happen in that period. If you use this cycle and everyone is involved in it, you can really progress your business.
Quarterly evaluation sounds frequent, but a lot can happen in that period. If you use this cycle and everyone is involved in it, you can really progress your business.
When you start a business it’s very tempting to seek advice from lots of people. This is a good idea but be careful about the advisors you choose and be very clear on the objective you want to set that advisor. Think about what skills you need at the particular stage of your business and what do you want to set them as objectives to help you – is it to help you network? Is it for financial advice? Think about the most critical things and seek advice appropriately. It’s also important to do this every time you revisit your annual strategy because things will have changed in that year and perhaps different advice is needed as the business progresses. What can so often happen is people forget to do that and they end up with so many advisors which can cause massive confusion.
If you want to contact Ludo, you can do so at info@theinnovationpractice.co.uk.
For more information about joining ideaSpace contact us on enquiries@ideaspace.cam.ac.uk.
